Standards & Accreditation: Methodology for Development, Excellence & Accountability
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An Open Letter from Aging Services of Michigan President and CEO,
David E. Herbel
Aging Services of Michigan, along with other stakeholders, has been asked to provide input
regarding a proposed change to the Medicaid Nursing Home Reimbursement System. As a
follow up to the last stakeholder meeting about these proposed changes, we were asked to
submit ideas regarding quality issues. After a close and detailed review of the issues, we remain
uncertain about the outcomes that this revision is really designed to achieve. In addition,
although we have requested provider level data about which some information has already
been presented, we have had no opportunity to review the model using actual data to analyze
the relationship between acuity and cost.
We strongly believe that it is part of our responsibility to the senior consumer and the Michigan
taxpayer to ensure that our reimbursement system supports a standard of care, rather than be a
simple payment mechanism for service regardless of outcome. We understand that the
proposed system changes may well only affect a very few providers in our state; however, we
believe that many Michigan providers are already disadvantaged by the unintended
consequences of our reimbursement system, and these changes could well affect some of them
and their residents more adversely.
Because of significant diversity in providers, practice patterns, resident outcomes, and overall
mission, we believe it imperative for all concerned that a full evaluation of current practice and
associated outcomes evoked by the reimbursement system be undertaken. Because we have
not had an opportunity to review the outcomes of the model based on individual facility data,
Aging Services of Michigan has spent considerable time and resources to date in evaluating
provider behaviors based on accessible public information. We also are concerned that this
proposed change has been characterized as a first step, when we do not have a vision of the
final product.
At the base of our concerns are several assumptions inherent in the proposed model:
That facilities who have below average acuity and whose costs are near the 80th
percentile have sufficient staff and resources going to the bedside.
That the RUGs system will adequately describe the resource needs of the Medicaid
beneficiary, particularly the person with cognitive concerns.
That there is waste in the current system that can be addressed by applying an acuity
adjustment.
In order to adequately evaluate the impact of any model change, we have undertaken a
review of the Not For Profit provider characteristics. Our review of data confirms our belief that
the wide variety in provider practice and outcome has been driven by the current
reimbursement system as used by differing service delivery models and the entire system must be
considered (including plant costs, tax issues, and the Quality Assurance Supplement) before any
thoughtful changes to the reimbursement model be made.
We have a responsibility to ensure that we are being accountable to the citizens of Michigan
and that adequate resources are going to the bedside to support a standard of care.
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Discussion of Findings
This report is written in response to a Michigan Department of Community Health
(MDCH) proposal to refine the Medicaid Nursing Home Reimbursement System based
on acuity and address any questions that have arisen regarding quality. After long
consideration of the many issues that the 2008-2009 proposed change has raised, we
believe we need to reframe the question about a quality component. The issue is not
really about incentivizing quality per se, but identifying a standard of care as a starting
point to discuss what adequate reimbursement looks like. In order to really understand
the issues confronting us as we look at the reimbursement system, we need to talk
about the Michigan providers and the immense variation in practice among them.
In order to help inform this discussion, Aging Services of Michigan has undertaken a
review of provider behaviors and outcomes. It is important to ensure that the Michigan
Medicaid Nursing Home reimbursement system supplies adequate resources for service
delivery and reinforces certain provider behaviors. Access, clinical performance,
equitable care, positive resident outcomes, and person centered environments are
among the critical effects that must be supported by a reimbursement system.
Understanding the entire system, its incentives and disincentives, as well as its overall
effects including unintended outcomes, is important in achieving these positive goals
and is essential for re-engineering.
After review of the documents issued by the Department, specifically the Guiding
Principles and the proposed model for an acuity-based Medicaid reimbursement
system for nursing homes in Michigan, we continue to have several concerns about the
current policy direction. We have summarized our concerns below and follow with a
discussion of issues raised by our review of provider information.
Continuing Issues
The proposed plan will not increase access to nursing homes for high need residents.
Changes to the current reimbursement system will not alter the fact that when
accepting residents with higher resource needs, providers still must cover costs for one
to two years before their payment rates will be affected. All providers under the 80th
percentile have the ability to move their rates up now when needed for high cost
residents. Increasing the variable rate cap based on slightly higher acuity levels will not
improve immediate access to care. In addition, review and refinement of the MDCH
MOU process would be more likely to more positively impact access to care.
The current variable cost component has very little relationship to acuity as measured
by the RUGs system.
We would like to see data concerning the actual case mix information by provider as
compared to a subset of Allowable Variable Costs that are truly driven by higher need
resident care. In reality there is a significant component of non-direct care related
costs within the Michigan Medicaid definition for Allowable Variable Cost that may
inappropriately be limited by adjusting the variable cost cap in the manner proposed.
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In addition, the average Case Mix Index for Michigan Medicaid providers, while useful
to some degree in understanding resident characteristics in a very large sense, has no
real meaning when compared to costs, since there is no defined standard for care and
provider variation is substantial. In other words, arbitrarily limiting a provider’s rate lower
than already incurred cost is problematic without ensuring that those costs actually
exceed resident’s need for quality and efficient care.
Aging Services of Michigan strongly believes a certain level of staffing is essential to
service delivery and performance; without understanding how an individual facility
level of reimbursement relates to a standard for staffing and care, further limiting of
funds to communities with lower acuity rates could well prove harmful to residents.
There are considerable concerns about the ability of the RUGs System to reflect actual
current practices.
CMS believes that the RUGs system is outdated and not reflective of current practice
patterns. Expectations for care and practice have changed since the RUGs system
was first introduced more than a decade ago. We would prefer to complete transition
to the MDS 3.0 and review the findings of the STRIVE study before considering any
reimbursement redesign. In particular we believe that resource needs for residents with
significant cognitive issues may be undervalued by RUGs.
There is far too much variation in cost and practice to use a simple average Case Mix
Index to adjust the variable cost cap.
Until there is some mechanism that ties a an evidence-based measure for resource
need with expectations for staffing and service delivery, altering the variable cost cap
based on an average case mix index alone is a simple arithmetic exercise that may
harm some providers and residents, and only improve payments for a small number of
persons who have high acuity and are over the cost cap.
There should be no movement to any new system until there are decisions about the
future of long term care in Michigan.
The possibility and timing of moving to a managed care model needs to be addressed
before contemplating changes to the reimbursement system. Because development
of incentives within a system is important for achieving outcomes, any plans to move to
new models of care should be outlined before looking at reimbursement. It is also
important to more clearly identify the ultimate model, goals, and type of
reimbursement system before taking first steps.
Not For Profit providers of care are already disadvantaged by several reimbursement
design issues and an arbitrary change to an acuity adjusted cost cap may further place
our mission-based, high-performing entities at risk.
Aging Services of Michigan has undertaken evaluation of provider behaviors and
outcomes to better understand the issues at the heart of performance and
reimbursement for the nursing home community.
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Because we believe that the ideal system must support a standard of care and
adequacy of resources going to direct bedside care, we strongly suggest that the
current system be reviewed in its entirety before a simple redistribution of resources is
undertaken. Proposed changes may well affect the Not For Profit provider, most of
whom are delivering services at costs higher than the current cap. These higher
performing providers are also currently disadvantaged by the capital component,
putting these communities at higher exposure to risk financially. Refinement of the
capital component issues could well assist alignment in resource needs for high-
performing but lower acuity providers.
The relatively low current asset value limit remains insufficient to maintain a suitable
environment for seniors. Many Not For Proft providers are significantly over this limit and
often self-fund improvements to their facilities. In addition, these providers are far less
leveraged, using their considerable equity to fund products. The Department needs to
look at all these issues prior to changing the reimbursement system. High performing
Not For Profit and some For Profit providers will be placed at higher risk.
There are also significant issues with the reversion of the tenure factor to 2.5% when a
facility is replaced. This has a large impact on the mission-based Not For Profit provider
who typically is allowed a tenure factor of 5.25% related to more stable ownership. This
tenure factor is meant to be a proxy for depreciation.
Finally, many Not For Profit providers often access financing at lower rates than other
entities. Currently such providers are often capped on the variable cost side, and still
underfunded on the plant side. It is imperative that all these issues be reviewed before
developing another potential variable cost limitation.
Performance and Cost
Our review confirmed that provider behaviors and outcomes are significantly varied
among nursing homes in Michigan. For much of our review, we divided the Michigan
Nursing Home Providers into five categories based only on variable cost. We used this
as a proxy to estimate the amount of monies actually going to the bedside, although
there are other fixed costs involved as well.
Staffing ratios and performance outcomes were directly related to the amount of
monies going to each resident bedside. Charts 1 and 2 identified below clearly identify
these relationships.
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Chart 1
Chart 2
2.5
2.75
3
3.25
3.5
3.75
4
First Second Third Fourth Fifth
Median Staffing Levels by Cost Quintile - First Quarter 2009
5
6
7
8
9
10
11
12
1st 2nd 3rd 4th 5th
Average Number of Survey Citations by Quintile
August 2009
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CMS has clearly identified the benchmarks for performance by publishing the criteria
needed to obtain a Five Star Ranking for performance. We need to ensure that these
benchmarks are achievable and not adversely affected by an arbitrary cap that may
lower the Variable Cost Limit for some providers who happen to have a lower than
average case mix number.
Of some concern is that as Michigan has become more and more dependent on the
Quality Assurance Supplement for reimbursement, that the annual average increase in
variable costs (most reflective of monies going to the bedside) has been decreasing
significantly in the lower cost categories for the past several years, to the point where
increases are not really keeping up with inflation. (See each quintile graph in
Attachment A.)
The most significant finding was that even at the highest levels of cost reimbursement,
the Not For Profit Class I provider has almost no financial margin to support their
community. It is this provider that we are most concerned about, and the potential
effects on them if their acuity should happen to fall below average, further limiting their
ability to deliver high performance. This is dramatically noted in Chart 3 below.
Chart 3
$100.00
$150.00
$200.00
$250.00
20032004
20052006
20072008
2009
Fifth Quintile Class I Not For Profit Average Payments and Cost
Fifth Quintile Not for Profit Average Cost Total Medicaid Payments including QAS
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Final Notes
Those with experience in Michigan Long Term Care understand the pressures and
politics that underlie many discussions concerning Medicaid policy. Unfortunately, we
have had many projects that have been tried and failed. We believe it our
responsibility to consider improvements and changes to the system very thoughtfully,
and have specific goals and identified expected outcomes transparently developed.
When looking at performance and cost, it is clear that the current reimbursement
system does not incentivize providers to maximize resources at the resident bedside.
Thus any change to the system that may hinder the provider, especially those with very
close financial margins, must be thoroughly considered. While the intentions behind
these proposed changes may be well meaning, we believe that the system is so
complex that care must be taken before implementing any reimbursement changes.
In addition, it is definitely not the right time for such changes in this current unstable
environment, with significant changes planned for measuring acuity and resident
characteristics and possible redesign of the Michigan long term care model of service
delivery,
It is our responsibility to consumers and citizens that we ensure that public monies are
supporting resident care at the bedside!
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Attachment A: Review of the Data
In order to prepare for a discussion for possible changes to the Michigan Medicaid
Nursing Home Reimbursement System, a review of provider individual and aggregate
information was undertaken. Data was primarily drawn from the 2002 – 2009 Michigan
Medicaid Nursing Home Variable Cost Reports, the September 2009 Nursing Home
Provider Rate Letters, the 2008-2009 HCFA 2567 Survey and Certification Findings, and
the CMS Nursing Home Compare Website.
All Class I and Class III Nursing Homes were evaluated in aggregate by separating
providers into five categories (quintiles) by allowable variable cost identified from
September 2008 Medicaid VCL Report (for FY 2009). Class I and Class III Nursing Homes
were evaluated together in order to compare cost and performance issues across the
entire industry. Only facilities with stable ownership (no changes in ownership across the
eight year period) were included in the review.
General Findings
Providers were rank ordered by Medicaid allowable variable cost and divided into
quintiles. The first quintile included those providers with the very lowest variable costs,
while the fifth quintile included those providers at the very highest cost levels. Four
hundred ten facilities identified from September 2008 Medicaid cost reports were
divided into five groups of 82 for analysis. Only those providers who had not changed
ownership since 2002 were then used for the review. Chart 1 below identifies the
percentage of facilities still existing in 2009 who had maintained a single owner since
2002 (by quintile).
Chart 1
87%
82%
90%
95%98%
70%
75%
80%
85%
90%
95%
100%
Ist 2nd 3rd 4th 5th
Percent of Facilities with Stable Ownership by Quintile
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Chart 2 clearly identifies the large proportion of Not For Profit providers whose costs are
within the highest two quintiles. These providers serve seniors at relatively high variable
cost, much of which is unreimbursed. Any decreases in their variable cost cap could
have negative implications for their ability to support care. In Chart 3, Class III providers
are exclusively identified in the top two quintiles, although they have a much higher
variable cost cap than the Class I facilities.
Chart 2
*Not For Profit Providers include Class I Not for Profits, Class III County Medical Care Facilities and
Class III Hospital Based Long Term Care Units
Chart 3
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ist 2nd 3rd 4th 5th
Percentage of Providers in Each Cost Quintile by Profit Status FY 2009*
For Profit
Not for Profit
0%
50%
100%
1 2 3 4 5
Percentage of Providers in Each Cost Quintile by Class FY
2009
Class I
Class III
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Chart 4
Chart 4 above further demonstrates the significant number of Class I and Class III Not
For Profit providers who deliver more direct care resources to the bedside. The stacked
area graphic indicates the number of providers by resident cost per day categories
separated into $20 increments. The vertical line toward the middle of the chart
indicates the approximate placement of the current 80th percentile cap for Class I
facilities.
Chart 5
0
20
40
60
80
100
120
140
$80-$100 $100-$120 $120-$140 $140-$160 $160-$180 $180-$200 $200+
FY 2009 Medicaid Cost per Resident Day by Profit Status
Not for Profit
For Profit
2
2.2
2.4
2.6
2.8
3
3.2
3.4
Ist 2nd 3rd 4th 5th
Average CMS 5 Star Composite Score By Cost Quintile FY 2009
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Chart 5 indicates the positive relationship between the average number of CMS
Composite Star rankings and variable cost rates. The CMS Five Star System was
implemented in December 2008 and summarizes information in three major domains,
Health Inspections (Survey), Staffing, and Quality Measures. A composite score
representing all three of those domains was also generated. Note that as the variable
cost increases, indicated by quintiles arranged so that the first quintile describes
providers with lowest costs, there are improved performance outcomes in aggregate.
The average number of “stars” per cost category are noted for only the Composite
measure and is based on a five star scale.
Chart 6
The relationship between variable cost and survey citations is demonstrated in Chart 6.
Again, while we find it difficult to use health inspection data to compare providers
individually, we believe that there is value in looking at group or aggregate trends.
Since Aging Services of Michigan had begun tracking this information in 2006, there has
been a consistent relationship between both provider type and variable cost with total
number of citations.
Finally, we cannot leave the subject of performance without looking at staffing. There
are clear and obvious relationships among variable cost and daily staffing levels for
residents. We strongly believe that the number and type of staff are one of the most
important features of a strong performing provider. Chart 7 demonstrates the positive
relationship between staffing and variable cost.
5
6
7
8
9
10
11
12
1st 2nd 3rd 4th 5th
Average Number of Survey Citations by Quintile
13
Chart 7
2.5
2.75
3
3.25
3.5
3.75
4
First Second Third Fourth Fifth
Median Staffing Levels by Cost Quintile - First Quarter 2009
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Analysis of Each Cost Category (Quintile)
First Quintile (Lowest allowable provider costs)
The first quintile consisted solely of Class I facilities; 71 facilities were reviewed and of
those 4 were Not For Profit communities. Based on the 2009 Medicaid Variable Cost
Report, the average cost (weighted by Medicaid days) was $119.62 per resident day.
Chart 8 below identifies the rate of increase in average provider costs since 2003 for this
quintile.
Chart 8
*Quality Assurance Supplement Dollars are not represented here
Note that the range of cost increases for several years averages between 3-4% for this
lowest cost category, and has a distinctive downward trend. Considering the need to
adjust for inflation and cost of living increases, in general this group of providers has
limited the amount of dollars going to the bedside over time. It is important to
remember that QAS dollars are not included in the above graph but have been
provided to these facilities separately. Chart 9 below identifies the daily average rates
for first quintile providers when adjusted for average QAS payments. All these providers
are well below the variable cost cap.
0%
1%
2%
3%
4%
5%
6%
2004 2005 2006 2007 2008 2009
Percent of Average Cost Increase for First Quintile (2003-2009)*
15
Chart 9
2009 Average CMS 5 Star Rankings for the first quintile (lowest fifth of providers in terms
of daily rates) are noted below in Chart 10.
Chart 10
$60.00
$110.00
$160.00
$210.00
2003 2004 2005 2006 2007 2008
Average First Quintile Variable Costs compared to costs adjusted for QAS
Average Cost
Rate Adjusted with QAS payments
0
1
2
3
4
5
2009 Average First Quintile 5 Star Rankings
Average First Quintile CMS Rankings
Maximum CMS Ranking Possible
16
Second Quintile (Providers at the 20th -40th Percentile of Variable Cost)
The second quintile included 67 providers of which 10 were Not For Profit communities.
Based on the 2009 Medicaid Variable Cost Report, the average cost for the second
quintile (weighted by Medicaid days) was $139.62 per resident day. Chart 11 below
identifies the rate of increase in average provider costs since 2003 for this quintile. All
providers in the group were Class I facilities.
Chart 11
*Quality Assurance Supplement Dollars are not represented here
Note that the range of cost increases for several years was slightly higher than for
providers within the first quintile but continues to demonstrate a distinctive downward
trend. Again, since 2006 it appears that increases in monies going to resident care has
been limited to basic cost of living increases. QAS dollars are not included in the above
graph but have been provided to these facilities separately. Chart 12 below identifies
the daily average rates for second quintile providers when adjusted for average QAS
payments. All these providers are still well below the variable cost cap.
0%
1%
2%
3%
4%
5%
6%
7%
8%
2004 2005 2006 2007 2008 2009
Percent of Average Cost Increase for Second Quintile (2003-2009)*
17
Chart 12
2009 Average CMS 5 Star Rankings for the second quintile (20th to 40th percentile of
providers in terms of daily rates) are noted below in Chart 13. Average performance
rankings are not that dissimilar from the first quintile. It is important to note that while
CMS uses the Five Star System to compare providers, there are other variables included
in those measures that reflect resident characteristics and not necessarily performance.
Generally, however, in aggregate the findings may have some comparative meaning.
The Quality Measures are considered to be highly reflective of acuity issues rather than
pure performance.
Chart 13
$60.00
$110.00
$160.00
$210.00
2003 2004 2005 20062007
2008
Average Second Quintile Variable Costs Compared to Rates Adjusted for QAS
Average Cost
0
2
4
6
2009 Average Second Quintile 5 Star Rankings
Average Second Quintile CMS Rankings
Maximum CMS Ranking Possible
18
Third Quintile (Providers at the 40th -60th Percentile of Variable Cost)
The third quintile included 74 providers of which 8 were Not For Profit communities.
Based on the 2009 Medicaid Variable Cost Report, the average cost for the third
quintile (weighted by Medicaid days) was $151.73 per resident day. Chart 14 below
identifies the rate of increase in average provider costs since 2003 for this quintile. All
providers in the group were Class I facilities, except for one county medical facility.
Chart 14
*Quality Assurance Supplement Dollars are not represented here
Again, note the distinctive downward trend in cost increases. Since 2005 cost increases
have hovered around the 4% mark. QAS dollars are not included in the above graph
but have been provided to these facilities separately. Chart 15 below identifies the
daily average rates for third quintile providers when adjusted for average QAS
payments. All these providers are still below the variable cost cap.
0%
2%
4%
6%
8%
10%
12%
14%
2003 2004 2005 2006 2007 2008
Percent of Average Cost Increase for Third Quintile (2003-2009)*
19
Chart 15
2009 Average CMS 5 Star Rankings for the third quintile (middle group of providers in
terms of daily rates) are noted below in Chart 16. Average performance rankings were
not that dissimilar from the first quintile. Improvements in all performance rankings were
noted within the quintile except for the CMS Quality Measures, which may be more
indicative of resident characteristics rather than performance.
Chart 16
$60.00
$110.00
$160.00
$210.00
2003 2004 2005 2006 2007 2008
Average Third Quintile Variable Costs Compared to Rates Adjusted for QAS
Average Cost
Rate Adjusted with QAS Payments
0
1
2
3
4
5
CompositeSurvey
StaffingQuality
Measures
2009 Average Third Quintile 5 Star Rankings
Average Third Quintile CMS Rankings
Maximum CMS Ranking Possible
20
Fourth Quintile (Providers at the 60th -80th Percentile of Variable Cost)
The fourth quintile included 76 providers of which 40 were Not For Profit communities.
Based on the 2009 Medicaid Variable Cost Report, the average cost for the fourth
quintile (weighted by Medicaid days) was $163.84 per resident day. Chart 17 below
identifies the rate of increase in average provider costs since 2003 for this quintile. This is
the first quintile where Class III facilities are significantly represented, including four
hospital based long term care units and seven county medical care facilities. In
addition, the downward trend in cost increases has been reduced when trending over
time. Note also that costs within this quintile approach the variable cost cap for Class I
facilities ($160.94) but continue to be far less than the cap for Class III facilities which is
$226.79 for FY 2009.
Chart 17
*Quality Assurance Supplement Dollars are not represented here
Chart 18 below identifies the daily average rates for fourth quintile providers when
adjusted for average QAS payments. Average costs for this set of providers approach
the Class I variable cost limit because of the inclusion of higher cost Class III providers
within this review. Although the gap between cost and total payments (including QAS)
seems consistent with earlier quintile groups, there is large variation among provider
type.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2004 2005 2006 2007 2008 2009
Percent of Average Cost Increase for Fourth Quintile (2003-2009)*
21
Chart 18
Chart 19
$60.00
$110.00
$160.00
$210.00
2003 2004 2005 20062007
2008
Average Fourth Quintile Variable CostsCompared to Rates Adjusted for QAS
Average Cost Rate Adjusted with QAS Payments
0
1
2
3
4
5
CompositeSurvey
StaffingQuality
Measures
Average Fourth Quintile 5 Star Rankings
Average Fourth Quintile CMS Rankings Maximum CMS Ranking Possible
22
For the fourth quintile group, overall performance measures continue to increase in all
domains except for the CMS Quality Measures as identified in Chart 19. Aging Services
of Michigan strongly believes that staffing and performance is directed related to
resources directed to the bedside.
Fifth Quintile (Providers at the 80th -100th Percentile of Variable Cost)
The fifth quintile included 81 providers of which 74 were Not For Profit communities.
Based on the 2009 Medicaid Variable Cost Report, the average cost for the fifth quintile
(weighted by Medicaid days) was $202.39 per resident day. Chart 20 below identifies
the rate of increase in average provider costs since 2003 for this quintile. While the
overall trend in increases for the fifth quintile is rather flat over time, there is some
marked variation here. Included within this highest cost group are 25 Class I providers
and 49 Class III (20 hospital based long term care units and 29 county medical care
facilities). All Class I facilities in this group exceed the variable cost cap of $160.94 and
17 Class III facilities exceed their cost cap of $226.79.
Chart 20
*Quality Assurance Supplement Dollars are not represented here
Chart 21 below identifies the average costs and total Medicaid payments including
QAS for the entire fifth quintile group. Note again that in aggregate, there appears to
be a significant margin. However, Chart 22 demonstrates the negative margin for the
Class I not for profit provider.
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2004 2005 2006 2007 2008 2009
Percent of Average Cost Increase for Fifth Quintile (2003-2009)*
23
Chart 21
Chart 22
$-
$50.00
$100.00
$150.00
$200.00
$250.00
2003 2004 2005 2006 20072008
Average Fifth Quintile Variable Costs Compared to Rates Adjusted for QAS
Average Cost Rate Adjusted with QAS Payments
$100.00
$150.00
$200.00
$250.00
20032004
20052006
20072008
2009
Fifth Quintile Class I Not For Profit Average Payments and Cost
Fifth Quintile Not for Profit Average Cost Total Medicaid Payments including QAS