How Hospitals Can Create Cost Advantage Where Product Differentiation is Not Present

A challenge exists in finding accurate comparative data for bundled-payment arrangements, such as total hip replacement.

Cost advantage is necessary when a business is perceived as providing the same products or services as its competitors. In the eyes of many major healthcare payers, hospital services are not perceived as differentiated and are viewed as equally substitutable. While some payers are beginning to introduce value propositions into their payment methodology, many of these plans are merely new ways to reduce payment levels to providers.

To read the full article, from HFM Magazine, click here.

New Executive Order on Improving Price and Quality Transparency

On June 24th, President Donald Trump signed an executive order intended to lower healthcare costs through improved price transparency. The focus of the order is to provide patients access to pricing information for scheduled services and the out-of-pocket costs they may incur. It aims to eliminate barriers to price and quality transparency, to increase the availability of meaningful price and quality information for patients and to enhance patients’ control over their own healthcare resources.

When does this happen?

  • Within 60 days the Secretary of Health and Human Services is to propose a regulation to require hospitals to publicly post standard charge information and negotiated rates for common or shoppable services in a consumer-friendly and machine-readable format
  • Within 90 days an advanced notice of proposed rulemaking shall be made available for comment on the proposal
  • Within 180 days a report is to be issued describing the manners in which the Federal Government or the private sector are impeding healthcare price and quality transparency for patients, and providing recommendations for eliminating these impediments in a way that promotes competition

How can Cleverley + Associates Help?

We’ve worked with providers to strategically develop their pricing strategy and make it accessible and understandable to the public for many years. 

We have extensive pricing databases and reports that summarize data by inpatient and outpatient cases and are able to identify the high-spending categories for both. We recently improved our Transparency Fifty report, that identifies comparative pricing for the top shoppable outpatient services by HCPCS code where hospitals and free-standing entities compete.

In addition, our MS-DRG profile report identifies the top inpatient services and our APC Charge profile report identifies the top outpatient visits grouped by a primary APC. 

We’ll keep you posted as additional information becomes available. You can also review our Transparency Continuum here. We’re beginning to see some of the patient expectations and requests we predicted.

While the exact nature of what will be required is yet to be determined, we are confident that Cleverley + Associates has the resources and experience that can help hospitals prepare for this next wave of price transparency. Give us a call at 888.779.5663 or email us here!

FY 2020 IPPS Proposed Rule: MSDRG Changes

Version 37 incorporates changes to our MSDRG list as well as associated relative weights.  From FY 2019 to FY 2020 two (2) MSDRGs are removed and two (2) MSDRGs have been created.

To what extent is Relative Weight changing from FY 2019 to FY 2020?

*Data Source: CMS, FY 2019 & 2020 Table 5
*Data Source: CMS, FY 2019 & 2020 Table 5

Based on the data presented, the clear majority of MSDRG relative weights are experiencing an increase or decrease less than 5% (56.1%.)  

What are the top 10 MSDRGs experiencing Relative Weight change?

 *Data Source: CMS, FY 2019 & 2020 Table 5

Why should hospitals be aware?

MSDRG relative weight (RW) is assigned to each MSDRG indicating a relative costliness or average resources required to care for cases assigned to that diagnosis related group compared to the average Medicare case costliness. MSDRG relative weights are recalibrated annually, intended to not affect overall payments.  However, MSDRG relative weight changes could mean significant payment differences based on a hospital’s unique mix of services and volumes.   

Case Hospital Example: Urban Ohio Hospital

In the case example below, we reviewed the top 5 MSDRGs for increase in payment and the top 5 MSDRGs for decreases in payment.  In this example, the volumes by MSDRG remain static, with the assumption volumes will remain the same or similar in subsequent years.  

OHIO Hospital: Top 5 MSDRG Increases in Payment FY 2019 to FY 20201

*Data Source: CMS, FY 2019 & 2020 Table 5, FY 2020 IPPS Proposed Rule, 2018 MedPAR
1Payment Differences due to RW Changes: FY 2020 Operating base rate and FY 2020 Wage Index to isolate Relative Weight impact with static volumes

OHIO Hospital: Top 5 MSDRG Decreases in Payment FY 2019 to FY 20201

*Data Source: CMS, FY 2019 & 2020 Table 5, FY 2020 IPPS Proposed Rule, 2018 MedPAR
1Payment Differences due to RW Changes: FY 2020 Operating base rate and FY 2020 Wage Index to isolate Relative Weight impact with static volumes
*Data Source: CMS, FY 2019 & 2020 Table 5, FY 2020 IPPS Proposed Rule, 2018 MedPAR
1Payment Differences due to RW Changes: FY 2020 Operating base rate and FY 2020 Wage Index to isolate Relative Weight impact with static volumes

What is the Impact to my Hospital?

Assessing the impact to Prospective Payment Rule polices is essential is understanding future Medicare payments.  Identifying driving factors could assist the hospital in offering feedback to CMS and/or budgetary purposes at the facility and departmental levels.

Interested to comment to CMS on the IPPS Proposed Rule?

Comments must be received no later than 5 p.m. EDT on June 24th, 2019.  CMS encourages electronic submission of comments to http://www.regulations.gov.  Follow the instructions under the “submit a comment” tab.

CMS’s Acute Care Hospital Inpatient Prospective Payment System FACT SHEET:  https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/AcutePaymtSysfctsht.pdf

FY 2020 IPPS Proposed Rule: Wage Index Changes

The FY 2020 IPPS Proposed rule introduces a new approach to the hospital wage index to address payment differences between low and high wage index hospitals.  CMS proposes to increase the wage index for hospitals with a wage index value below the 25thpercentile (.8482 for FY 2020) and decrease the wage index for hospitals with a wage index value above the 75thpercentile (1.0351 for FY 2020) as well as changing the calculation of the rural floor.  CMS also proposes these policy changes be effective for at least 4 years.

To what extent is Wage Index changing from FY 2019 to FY 2020?

Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table 2.
Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table.

Regardless of whether the proposed quartile policies are implemented or not, the clear majority of hospitals will expereince an increase or decrease less than 5% or no change at all (86%and 92%).  CMS states in the proposed rule that addressing the wage index disparities at the high and low ends ensures those hospitals in the middle do not have their wage index values affected by this proposed policy.    

Why should hospitals be aware?

Although the proposal to address wage index disparities between high and low wage index hospitals is intended to be budget neutral, the effect to the overall change in payment to an individual hospital could be significant. 

Case Hospital Example:  Urban California Teaching Hospital with Wage Index > 75thPercentile

Reviewing an example hospital illustrates a change in payment from 2019 to 2020 using the proposed FY 2020 wage index and the FY 2020 wage index prior to the policy change. In this example, the volume and case mix index remain static to isolate wage index changes.  The other key ingredients to payment include the labor-related operating base rate and the wage index.

  • FY 2020 Proposed Wage Index = 1.8263
  • FY 2020 Wage Index (Prior to Proposed Policy Change) = 1.8619
  • FY 2019 Wage Index = 1.7827

The increase in the labor-related operating base rate as well as the increase in wage index from FY 2019 to FY 2020 drives an overall increase in payment for this facility.  However, payment is $4.3M less than it would have been prior to adjustments to the FY 2020 wage index.

Interested to comment to CMS on the IPPS Proposed Rule?

Be sure to review Table 2 of the proposed rule to see where your facility stands regarding wage index changes.  Comments must be received no later than 5 p.m. EDT on June 24th, 2019.  CMS encourages electronic submission of comments to http://www.regulations.gov.  Follow the instructions under the “submit a comment” tab.

Transparency Fifty™ Update and Observations

What is the Transparency Fifty™?

This report identifies the 50 most common outpatient procedures where hospitals compete with free-standing entities. This helps hospitals who are searching for strategies to reduce prices, by focusing on procedures where they are likely to have the most competition from free-standing providers. 

Cleverley + Associates first released this report about a year ago, using 2016 Medicare charge data, but we updated it for 2017. For this current version, we compared volumes and charges for free-standing entities to hospitals for imaging, laboratory tests, outpatient surgery, therapy and sleep lab to determine the top codes where they compete.

  • We replaced seven HCPCS codes with the following due to changes in usage between 2016 and 2017:
    • Imaging
      • CAT scan of head or brain
      • CT abdomen & pelvis w/o contrast
      • Contrast CAT scan of chest
      • CT abdomen & pelvis 1+ sections/regions
    • Lab
      • Presumptive drug class screening
    • Therapy
      • PT evaluation moderate complexity 30 minutes
    • Surgical Procedures
      • Interlaminar lumbar/sacral epidural injection with imaging guidance (new code in 2017)
      • Transforaminal epidural injection; lumbar or sacral, single level 

We had a few interesting reflections on the new and improved report.

For the 18 imaging codes on this report, the US hospital price compared to the US Free-standing price is 216% higher on average. One interesting exception where the hospital price and free-standing price were almost equal is for Screening Mammography.

For the 17 laboratory tests on this report, the US hospital price compared to the US Free-standing price is 209% higher on average. The lone exception in this area was for the newly added code for Presumptive Drug Class Screening where the average hospital price is lower.

For the six therapy procedures, the US hospital price is about 231% higher on average than the US free-standing price. The percentage difference between hospitals and free-standing is very consistent across these codes. 

Sleep lab and ECG monitoring procedures for hospitals are priced 174% higher than free-standing entities on average.

In Summary, we believe the Transparency Fifty™report will help hospitals compare their prices in areas where competition is high from free-standing centers and will help them position themselves to better compete for ambulatory patients who engage in price shopping. 

For more information about the report, or any of our other reports, give us a call at 888.779.5663.