Why We Need To Rethink Adjusted Discharges

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:

Adjusted Discharges = Inpatient Discharges + [(Gross Outpatient Revenue/Gross Inpatient Revenue) x Inpatient Discharges]

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.

To find out more about our research into Equivalent Discharges™ you can read Bill Cleverley’s white paper here!

Cleverley + Associates Introduces the Consumer Shoppable Report!

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!

FY 2021 IPPS Proposed Rule: MSDRG Changes

The 2021 Inpatient Prospective Payment Systems (IPPS) proposed rule is out and as data nerds, we could not wait to dig into it and see what changed. A comparison of Table 5 – listing of MS-DRGs and relative weights – is a great place to start.

Quick refresher on terms:

  • Medicare Severity-Diagnosis Related Group (MS-DRG) is a classification system for inpatient discharges that helps standardize payment of services.
  • Relative Weight (RW) reflects the patient’s severity of illness and is a measure of costliness or average resources required to care for cases assigned to that MS-DRG. A higher RW yields a higher payment.

What are the new and deleted codes for FY 2021 (MSDRG V38)?

Six (6) MSDRGs are removed for FY 2021 and twelve (12) MSDRGs have been created.

How are relative weights changing from FY 2020 to FY 2021?

The vast majority (80.9%) of MS-DRG relative weights are experiencing an increase or decrease of less than 5%. How payment is affected by the change in relative weights at your facility depends on your specific mix of services and volumes.

What’s Happening with Bone Marrow Transplants?

We do not typically see a change in the “Type” category but noticed the switch from surgical to medical for the three bone marrow transplant procedures. CMS received the request to make the change because bone marrow transplant procedures involve transfusion services that do not require the resources of the operating room. CMS also identified eight (8) ICD-10 procedure codes associated with bone marrow transplants that are currently designated as operating room procedures. For clinical consistency, they are proposing to reassign these codes as non-operating room.

Want to make a comment to CMS on MSDRG Classification concerns?

The deadline to request updates to the MS-DRGs is now October 20th of each year – almost two weeks earlier than in previous years. For FY 2021, interested parties needed to submit comments and suggestions by November 1, 2019. CMS encourages comments and suggestions for FY 2022 by October 20, 2021 via the CMS MS-DRG Classification Change Request Mailbox located at: MSDRGClassificationChange@cms.hhs.gov

CMS’s Acute Care Hospital Inpatient Prospective Payment System FACT SHEET: https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2021-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-acute

How Do Hospitals Set Prices for COVID-19 Isolation Rooms?

COVID-19 has dramatically impacted the hospital industry. As hospitals adjust to new challenges, they must also face questions about new procedures and treatment requirements. Last week we took a close look at how hospitals are pricing COVID-19 lab tests. Now, let’s take a look at isolation rooms.

We sent out a survey to assess how hospitals were approaching this new pricing challenge. We received 40 responses.

Some of the questions focused on isolations rooms. These are not always broken out as a separate charge in the CDM. We asked our responders how many of them have an established isolation room charge. About 40% have a rate or plan to develop one. The remainder don’t and do not plan to add.

For those that already have a charge, or plan to add, a majority consider Room Capabilities (for example, a negative pressure environment) and different levels of clinical resource utilization (higher nursing ratios or protective supply usage, as example) as important when defining the charge.  

For those that have established a room rate, most consider it a separate room rate, not an add-on fee on top of the base room rate. Those that have established a rate, or plan to, about a third have for both special care (ICU) and routine (general med/surg bed).

For hospitals that currently have isolation room charges, or plan to add one, here is how they plan to proceed (it’s assumed that the 68% who did not respond represent the 60% not able to as they have no isolation room rate and/or do not plan to add one):

If you’d like more information about our survey, or to take a look at the result, let us know!

How Do Hospitals Set Prices for COVID-19 Lab Tests?

COVID-19 has dramatically impacted the hospital industry. As hospitals adjust to new challenges, they must also face questions about new procedures and treatment requirements. In our next two blog posts, we’ll take a close look at how hospitals are pricing COVID-19 lab tests and isolations rooms.

We sent out a survey to assess how hospitals were approaching this new pricing challenge and were pleased to receive 40 responses.  In the midst of this challenging time, we appreciate this sharing of information!

We’ll first look at how hospitals are pricing COVID-19 lab tests.  First, some context: On March 5 and February 13, CMS announced new HCPCS codes to test patients for SARS-CoV-2/2019-nCoV (COVID-19). Starting in April, laboratories using CDC tests are to use the U0001 code while non-CDC tests will use the U0002 code.  Medicare payment has been established at $36 for U0001 and $51 for U0002.  On April 15, reimbursement was increased to $100 for U0003 and U0004 for sites using high throughput technologies. 

Our survey focused on how hospitals are developing CDM and cash pay pricing for these tests.  Cash pay pricing is an important element as part of the stimulus package requires that providers post a cash pay price for these tests.  Three key points emerged from the survey:

  1. CDM pricing:
    1. over 60% of respondents are using some markup over Medicare payment, cost, or non-Medicare reimbursement.  Meaning, the majority are pricing these tests in a way that is likely consistent with other items in the CDM. 
    1. 25% are essentially creating a CDM price that is virtually the same as the Medicare payment/cost/or non-reimbursement rate.
  2. Cash pay pricing: Roughly half are posting a cash pay price that is virtually the same as the Medicare payment/cost/or non-reimbursement rate. 
  3. The combination of both points above make it clear that no one is trying to make money on these tests – just providing the ability to cover costs.  Even those using a markup to create pricing appear to be setting rates such that when their payer discounts or self-pay policies are applied the end payment will be virtually the same as their cost. 

If you’d like more information about our survey, or to take a look at the result, let us know!