Designing reimbursement methods for TRICARE

Kennell has helped TRICARE develop its DRG and physician payment systems. By statute, TRICARE must use Medicare’s rates and approach if practicable. However, in many circumstances, the differences in the population characteristics between TRICARE and Medicare means that Medicare’s methods must be modified, or there are implementation and administrative concerns. We have helped DoD analyze the practicability of using Medicare’s methods, helped TRICARE develop methods that are tailored to the TRICARE population, and advised on or provided the data files necessary for TRICARE to implement the systems.

Advising on appropriate value-based payment system designs

Kennell has assisted DoD in identifying how value-based payment designs could be introduced into TRICARE’s reimbursement systems for both hospital and physician care. We have helped identify appropriate measures used by Medicare and private payers and which measures would be most appropriate for TRICARE beneficiaries and care.

Assessing reimbursement options for special categories of hospitals

Kennell has helped DoD consider how to modify its hospital reimbursement methods for a variety of special categories of hospitals. For example, Kennell staff analyzed TRICARE inpatient hospital payments to Sole Community Hospitals (SCHs) and found that SCHs were paid much more than hospitals paid under the TRICARE DRG system, even after controlling for case mix. We then helped TRICARE develop reimbursement options that would increase program efficiency and analyzed the cost impact of these options. After DoD selected an option, we helped TRICARE develop transition options to ease the impact on SCHs and address comments made in the Federal rulemaking process. We did similar analyses for Long Term Care Hospitals and for Inpatient Rehabilitation Facilities.

Supporting the implementation of value-based payment

In 2016, TRICARE established a value-based approach to pay for hip and knee replacement episodes similar to the method that Medicare is using to pay under its Comprehensive Care for Joint Replacement Model demonstration. We assisted DoD in identifying the most appropriate geographical area for this demonstration and in calculating the target costs for each hospital.

Analyzing the adequacy of payment rates

Kennell has supported DoD in analyzing how TRICARE’s payment rates for physicians compare with the rates paid by other government payers such as Medicare and Medicaid and private payers in geographic areas with high concentrations of TRICARE beneficiaries. These analyses have helped DoD identify areas where the TRICARE rates are substantially higher or lower than rates paid by other payers.