Case Study: Public Facility Rate Setting

The Client:
Massachusetts Behavioral Health Partnership (MBHP) MBHP is a managed care organization contracted by the Massachusetts Office of Medicaid to manage behavioral health services for MassHealth (Medicaid) members in the Commonwealth.

The Project:
PCG reviewed cost data at contracted inpatient psychiatric service providers and compared the average cost per day to the MBHP rate structure. PCG has assisted MBHP with this project to update the analysis each year since 2003.

The Opportunity:
A 2001 study showed that Massachusetts Medicaid paid most hospitals substantially less than the costs associated with providing care to Medicaid enrollees. PCG’s work of comparing costs to the actual rates of payment informs the rate negotiation process for MBHP for the contracted health services each year.

The PCG Approach:
PCG used Medicaid cost report data to obtain provider costs, utilization statistics, and paid units by payor type for psychiatric inpatient services. The costs related to psychiatric inpatient services including allocated overhead, ancillary, and observation bed expenses were totaled and divided by the actual number of inpatient days to determine a per diem cost for each provider. This cost per day is compared to actual MBHP per diem payment rates in order to illustrate when the payment rates may be above or below costs. PCG segregated the data to make valuable comparisons based on geographic region, type of provider, and population served.

PCG’s experience with Medicaid cost report data has been essential for the success of this project. In order to determine a cost per day for each of the contracted providers, PCG must identify the appropriate costs that can be included in the total costs calculation. Misidentifying costs could lead to MBHP rates of reimbursement that are too high or too low.

The Result:
The FY 2003 General Appropriation Act included a requirement that MBHP conduct this type of analysis. As a result of PCG’s work, there has not been a legislative requirement to complete this analysis in subsequent budget cycles. MBHP continues to use the services of PCG in order to gain a clearer understanding of the factors that drive provider costs. PCG’s final report continues to be used by MBHP as a basis to establish payment rates throughout future contract negotiations with the provider community. The final report also allows MBHP to administer inpatient mental health services in a more cost-efficient manner.