Beckers recently published an article on how to gauge your hospital’s financial health, and they make excellent points. You can read the full article here.
They cover many of the basics, including Aggregate Volume, Operating Ratios, Labor Costs Relative to Patient Volume, and Liquidity Ratios, but we believe there is another measurement that can shed light on your facility’s health and financial stability – Equivalent Discharges.
Equivalent Discharges is an alternative to Adjusted Patient Discharges as a measurement of patient load and resulting revenue.
Virtually every hospital finance executive knows that relative pricing methodology can influence Adjusted Discharges or Adjusted Patient Days. Increases in Relative Outpatient Prices will artificially increase Adjusted Discharges, while decreases in Relative Outpatient Prices will artificially decrease Adjusted Discharges.
In addition, modifying an Adjusted Discharge value by the inpatient case mix makes little sense because the complexity of an organization’s outpatient case mix does not always correlate with that of its inpatient case mix.
Equivalent Discharges is expressed as follows: Equivalent Discharges = Case Mix Adjusted Discharges + Conversion Factor X Case Mix Adjusted Visits
Hospital financial health can’t be measured by one metric alone, and ideally, we use many metrics and frequent checkups and reassessments. One of these can be Equivalent Discharge.
To learn more about Equivalent Discharges, and how we can use them to measure your hospital’s financial health, you can read our white paper here. Or give us a call at 888.779.5663 or contact us here.
Update: FY21 IPPS Final Rule Requirement to Post Median Payment for Medicare Advantage Plans
The FY21 IPPS Final Rule solidified a new requirement for hospitals to post the median payment (called the median “payer specific negotiated charge”) by MSDRG for Medicare Advantage (MA) plans. The plan is to use this information to establish weights for MSDRGs using hospital payments, as opposed to hospital costs via the current cost-to-charge ratio methodology. Per the rule, this transition to payment-based weights would likely begin in FY24. There are several key points to consider in this new requirement:
Hospitals are required to disclose this information through the Medicare cost report for periods on or ending after January 1, 2021.
The requirement is ONLY for Medicare Advantage plans and will represent a median across all of those plans – NOT disclosing the payment for individual MA plans separately. So, if the hospital has three MA plans, the median payment by MSDRG across those three plans will need to be calculated and disclosed through the Medicare cost report. This does not represent the median reimbursement amount but rather the median payment across patient claims for MA payers. Through the proposed rule, CMS had considered requiring hospitals to disclose this information separately for all third-party plans but finalized action for a calculated median across MA plans only.
While this new requirement comes on the heels of the Final Rule on Hospital Price Transparency released in November 2019, this new requirement does not alter those previous requirements. To be clear, CMS still expects hospitals to report all payer specific negotiated charges for all negotiated payers – including MA plans assuming those have been negotiated – and to post those on the hospital website through the single machine readable file and the consumer friendly shoppable services display.
Content included a description of the price transparency guidelines effective 1/1/21, a list of important action items hospitals must implement, and a discussion of the two different ways prices must be published.
Thanks to great attendance and participation in this event, we put together the following list of frequently asked questions!
Q: At what detail level do we have to post payer negotiated charges? We have multiple contracts for one payer i.e. Aetna, Anthem? A:We interpret the rule to mean that payer negotiated rates should be at the product level. A contract with Aetna may have multiple products (i.e. PPO, HMO, etc.) with different negotiated rates and even different payment methods.
Q: Can payer specific information be limited to top contracts…i.e. 80/20 rule? A:The CMS has not established any thresholds, so we believe that a hospital would need to provide all negotiated contracts. However, we do believe it is reasonable that a hospital would not need to show negotiated rates for older contracts for which there are currently no volumes.
Q: It sounds like payer specific charges need to be included in 2 places for each facility – 1) the list of standard charges and 2) the list of shoppable services – is this correct? A:This is correct. Facilities are required to provide a machine-readable file with five standard charges (1. gross charge, 2. discounted cash price, 3. payer-specific negotiated charge, 4. de-identified minimum negotiated charge, and 5. de-identified maximum negotiated charge) and a consumer friendly shoppable services file with all standard charges except gross charge. As an alternative to the consumer friendly shoppable services file, the CMS will deem compliant facilities that maintain a patient estimation tool that provides information on at least 300 shoppable services (including the CMS required 70).
Q: Is there any talk of consumers using this to shop for insurance plans? A:Since most consumers obtain health insurance through their employers, it is not as likely that consumers would use this information to shop for insurance plans, but it is conceivable that employers might do so.
Q: Is there anything in the rule that would deter us from locking the cells of our csv files to prevent tampering or changing items within the files loaded to our website. A:The CMS final rule includes a link to Web Standards and Usability Guidelines (https://webstandards.hhs.gov/). The link will take you to Policies and Standards, including a Checklist of Requirements for Federal Websites and Digital Services. Under the heading “Security”, this checklist states that you should “Provide adequate security controls to ensure information is resistant to tampering . . . .”
Q: My contract does not include a payer’s community fee schedule (Lab, PT/OT, Professional Fee), we just accept these rates. Would we need to post these rates? A:Below is an excerpt from the CMS final rule: “hospitals would not include payment rates that are not negotiated, such as rates set by certain healthcare programs that are directly government-financed, for example, those set by CMS for FFS Medicare. We indicated,however, that we believed the display of a non-negotiated rate (for example, display of a Medicare and Medicaid FFS rate for an item or service) in conjunction with the gross charge and the payer-specific negotiated charges for the same item or service could be informative for the public and that the proposals would not preclude hospitals from displaying them.”
Q: On the Pro fees is that really charges, or is it also reimbursement? A: Pro fees are subject to the same five definitions of charges as required of hospitals – gross charge, cash discounted price, payer-specific negotiated charge, de-identified minimum negotiated charge, and de-identified maximum negotiated charge. The disclosure of pro fees is required only for employed physicians and non-physician practitioners.
Q: Our surgical codes are not hard coded in the chargemaster. How should they be shown in this format? A:We interpret this to relate to surgical charges that are based on time in the operating room where HCPCS are assigned by HIM upon billing. We propose multiple worksheets to meet the requirements of the rule. Worksheet One would show the gross charge as built in your chargemaster and would show your time-based surgery charges by item code. Other worksheets would show discounted cash price or payer-specific negotiated rates by service packages where surgical charges may be rolled up at the HCPCS level or through other assigned case rates.
Q: We have maybe 100 supply codes for surgery supplies that cover our 8000 surgery items and the price is based on cost markup for each one when added so all the prices are different. How would we do that? A:We recommend that you use average charge for the supply code based on usage and actual charges.
Q: We have over 2000 payer contracts and they are 99% in pdf any suggestions on tackling the payer negotiated rates? A: While hospitals may have many payer plans associated with various combinations of contracts and employers, the number of contracts with different payment rates is typically much smaller.
Q: Are MA plans included in the reporting requirements or are those grouped together with Medicare Fee for Service? A:Medicare Advantage rates, if negotiated, should be reported under the rule’s requirements.
Q: Are the “Service Packages” for the Chargemaster file, or the Shoppable Services component? A:Service packages would apply to shoppable services, as well.
Q: For a multi hospital organization, do you have to provide and list the 5 standard charges for each hospital, even if each hospital has the exact same rate structure/charge structure? A:Per the Final Rule on Transparency, “each hospital location operating under a single hospital license (or approval) that has a different set of standard charges than the other location(s) operating under the same hospital license (or approval) must separately make public the standard charges applicable to that location, as stated in 45 CFR 180.50. All hospital location(s) operating under the same hospital license (or approval), such as a hospital’s outpatient department located at an off-campus location (from the main hospital location) operating under the hospital’s license, are subject to the requirements in this rule.” We interpret this to mean if the reporting of the different definitions of standard charges and items and services would yield the same results for system facilities, then one file could be produced to represent those facilities and could be indicated as such on the file’s naming structure.
Q: If you have an organization that has multiple hospitals, is the penalty applied to each of the hospitals? A:Per the explanation above, we interpret that the penalty would be applied to each facility that has a different set of standard charges. You should contact legal counsel for your specific circumstances.
Q: Has anyone discussed how to best layout bundled pricing in regard to Transplant services? (something that has different rates, structures across care phases) A:Since the continuum for care related to transplant reimbursement typically includes pre- and post-transplant services in addition to the transplant procedures, the presentation of the payer-specific rates may be complex. We would welcome a conversation with you to discuss the specific concern and how you might best address it.
Q: Has CMS released the naming convention of these files/the preferred location to be housed on our websites? A:The CMS final rule requires that the information be “displayed prominently” meaning “. . . that the value and purpose of the webpage and its content is clearly communicated, there is no reliance on breadcrumbs to help with navigation, and the link to the standard charge file is visually distinguished on the webpage.” Below is a header suggestion that CMS provided as an example in the final rule:
Q: If my hospital does not schedule labs, could labs be part of the 300 shoppable, including the labs listed in the 70 required? A:The CMS final rule provides the following definition: “Shoppable services are typically those that are routinely provided in non-urgent situations that do not require immediate action or attention to the patient, thus allowing patients to price shop and schedule a service at a time that is convenient for them.” Based on the above definition, if the lab allows the patient to receive the test at a time that is convenient for them even if not scheduled, it could still be considered shoppable.
Q: Many charges don’t drive the reimbursement rate, or the reimbursement varies based upon the context under which they are provided. How are the payer specific charges presented for these services? A:Claim payment will be variable for similar types of services based on patient experience and utilization. By disclosing the different negotiated elements (carveout, outlier, lesser-than terms, as examples) the CMS hopes to inform patients on the types of components that could impact final payment.
Q: Does this new requirement essentially incorporate the previous current requirements for DRG/Charges… We’re not expected to post the FY2019 requirement and now the FY2021 requirement? A:That is correct.
If you have any other questions, please contact us at email@example.com here!
Healthcare and hospital finance have changed dramatically over the last few years, and yet there are many things that seem slow to change. One of these is the continued reliance on Adjusted Discharges or Adjusted Patient Days.
Adjusted Patient Days made perfect sense at one time. The percentage of outpatient revenue was less than 20 percent of total operating revenue, and many hospitals were being paid on a cost or per-diem basis. After that, the primary metric for total hospital volume was Adjusted Discharge or an Adjusted Discharge that has been inpatient case mix adjusted. Most facilities still use this measurement.
The problem arises because increases in relative outpatient prices will artificially increase adjusted discharges, while decreases in relative outpatient prices will artificially decrease adjusted discharges. In addition, modifying an adjusted discharge value by the inpatient case mix makes little sense because the complexity of an organization’s outpatient case mix does not always correlate with that of its inpatient case mix.
Equivalent Discharges™ is an alternative metric for hospital volume that is not subject to the same measurement flaws as Adjusted Discharges or Adjusted Patient Days. It can be difficult to change an important cornerstone of financial guidance, and we at Cleverley understand that, but the fact is that Equivalent Discharges is a far better metric for many reasons, the primary of which is that it correlates more significantly with cost than adjusted discharges.
The Adjusted Discharge Metric is expressed in the following formula:
The case mix adjusted discharge metric is determined by multiplying the result of this formula by the inpatient case mix index.
Equivalent Discharges™ is expressed as follows:
Equivalent Discharges = Case Mix Adjusted Discharges + (Conversion Factor x Case Mix Adjusted Visits)
The hospital industry must not rely on a methodology that relies on the flawed assumption that all hospitals are pricing both inpatient and outpatient services on a similar basis. Some may argue that because the adjusted discharge method is universally understood and easily computed, it should be continued. But this position does not make the method valid, and there is ample evidence to suggest that it is heavily biased.
Shoppable services, and the issues of pricing transparency indelibly connected to them, are a hot topic in the hospital industry. In the past we’ve created several reports to help 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. In that spirit, we created the Cleverley Consumer Shoppable Report.
This report allows you to compare your hospital’s charges with those of selected peers and groups at the procedure-code level. You can compare the top hospital procedures and where hospitals and free-standing entities compete for services.
It also incorporates all CMS required HCPCS® codes plus an additional 300+ of the most frequently used outpatient services by HCPCS® in hospital settings and free-standing centers.
Although this type of charge-based report does not meet the requirement of providing contracted payment by procedure it does give hospitals valuable insight into their charge position next to their regional peers in high use shoppable procedures.
The report includes:
List of 400 procedure codes / HCPCS grouped by service
Identification of the CMS required HCPCS
Average Medicare charge by HCPCS by provider
Comparison to any selected provider or group of providers
Comparison to state, regional, or bed-size based groups of providers If you’d like to learn more about this report, please contact us!