Essential Elements of Charge Protection Language

 

The chargemaster, or CDM (charge description master), is an integral component of hospital financial strategy, reimbursement, and the revenue cycle. It is important to understand the complexities of the CDM as well as the consequences of even seemingly simple changes.

Throughout the year, this “menu” of hospital service prices changes to reflect minor adjustments. Larger modifications are typically implemented at least once a year to maintain policy changes and stay competitive in an ever changing healthcare market. While raising prices can appear to lead to higher payments from managed care payers, charge increase limitations are often  negotiated to prevent sizeable payment increases.

The limit percent itself as well as how the payer evaluates the change to charges determines how restrictive a limit will be. Limits can range from a fully restrictive 0 percent upward to as high as 9% in some cases, with a usual average of around 4 to 5 percent. The percent can be defined in the contract, or tied to a published amount – typically some component of the consumer price index (CPI).

An increase to the chargemaster can have a different impact on contract terms depending on how the payer evaluates the charge increase. Though many payers evaluate the overall change to the chargemaster, other methods can be used. A few of the most common are as follows.

  • Overall change to health plan’s patient mix
  • Overall change reported separately for inpatient and outpatient services
  • Overall change reported for services paid a percent of charge

Multiple departments, including managed care, chargemaster, and finance should work together to align financial strategies with knowledge of how managed care contract language plays into the bottom line. It is critical for hospitals to understand how limits are determined, as well as how health plans are evaluating reported charge adjustments. Understanding these components can help hospitals evaluate net revenue impacts that are the result of charge adjustments while remaining in line with financial goals.

 

By Laura Jacobson, RHIA, CSMC

Data Quality and Reimbursement Consultant

Data Sample: States With The Lowest Charges

The effects of Maryland’s all-payer rate regulation, the only of its kind in the nation, are clearly seen in the HCI results where Maryland hospital charges are approximately one-third of the US average.  As rate changes have been heavily limited for the past thirty-plus years, it’s no surprise to see Maryland and the Baltimore metro area as the lowest charge regions in the country.  As we know, payment is the real key in hospital-rate setting and our latest research on charges supports that conclusion.  Smaller rural hospitals, typically with more percentage of charge contracts, have lower charges than larger urban hospitals where more fixed payment levels exist.  We also see high margin hospitals with significantly higher charges than low margin hospitals nationally.

To download the pdf click here.

 

 

A response to the FY19 IPPS Proposed Rule (CMS-1694-P) for Requirements for Hospitals to Make Public a List of Their Standard Charges via the Internet

The FY19 IPPS Proposed Rule contains a section for requirements for hospitals to make public a list of their standard charges via the internet. This section of the proposed rule revisits a reminder contained in the FY15 IPPS Proposed Rule and ultimately the initial calls for transparency in the Affordable Care Act (specifically, 2718(e) of the Public Health Service Act). That language required hospitals to “either make public a list of their standard charges (whether that be the chargemaster itself or in another form of their choice) or their policies for allowing the public to view a list of those charges in response to an inquiry.”

It is no surprise that the CMS is attempting to continue this national dialogue as many providers still struggle with how to effectively improve price transparency. In fact, our firm has conducted national provider surveys on how hospitals are approaching price transparency and the areas that tend to receive the most price inquiries from patients. The results of those surveys have been transferred into HFMA-related publications. What we’ve found is that the vast majority of hospitals are complying with the ACA transparency language by providing a means for patients to request pricing information – but not – through public display of pricing information via a website or some other form.

As a result, the FY19 IPPS Proposed Rule indicates that as of January 1, 2019 guidelines will be updated to require hospitals to make prices available via the internet. In addition, the proposed rule requests input on several price transparency definitions, methods, and measures. The purpose of this paper is to provide hospitals with language that can be used to respond to the CMS. We have submitted this as an official comment, however, we believe multiple voices should be heard so we are providing our thoughts as a resource.

Click here to view our full response and learn how you can comment on the proposed rule as well.

 

 

 

Price Change – What are Other Hospitals Doing?

It’s no secret that industry leaders are continually tasked to do more with less.  Economic pressures, regulatory changes, technological advancements, transparency initiatives, and payer negotiations continue challenging leaders as the healthcare industry transforms.

Financial goals frequently drive a hospital’s health and long term viability.  As part of the budget cycle, many hospitals identify revenue goals in terms of either an overall percent change or a gross or net dollar change.  Here at Cleverley + Associates, we are often asked what levels of overall price change are being observed.  Here are some of the things we’ve found.

Overall Rate Change– The Hospital Charge Index® (“HCI”), developed by Cleverley + Associates, incorporates two metrics:Medicare Charge per Discharge and Medicare Charge per Visit.  Both hospital specific metrics are adjusted  for case complexity and wage index differences based upon US median values for both measures.  The resulting inpatient and outpatient indices are then weighted by the percent of gross all-payer revenue to arrive at the overall HCI.  The result is the most objective overall charge comparison available and can be calculated for all hospitals serving Medicare patients. The value for the US median is approximately 100, so a higher index score indicates a higher relative charge position.  For example: if Hospital A has a HCI of 120, then they are priced 20% higher than the US median adjusting for case mix and cost of living differences.

A study of changes to the HCI for 3,200 plus hospitals during the years 2014 to 2016 show median inpatient prices increased 3% and median outpatient prices increased 5%. Further examination shows half of all providers implemented price changes +/- 1.5% from the US median.  The remaining providers shifted prices as much as +/- 6% from the US median.  The median target rate of increase is 4% based on the hospitals for which we help develop pricing strategies.

Patient Type Rate Change– Further examination of annual gross rate change into inpatient and outpatient components yields interesting results:

Outpatient charge growth has exceeded inpatient charge growth in the two yearstudy period which may indicate shifting prices to outpatient areas that often have a higher incidence of percent of charge payment.  However, this trend may be ending as hospitals begin to compete for many outpatient services with free standing providers who often have significantly lower prices.  Many of our clients have established dual inpatient and outpatient procedures to enable them to offer lower prices for highly competitive procedures.

In an earlier study that that we conducted from 2011 to 2014 we found no significant differences between inpatient and outpatient rates of change.

Further analysis of outpatient pricing trends reveals a correlation between pricing changes and operating margins.  For the median provider in the lower charge growth quartile, the operating margin deteriorated 2.5%.  The median provider in the higher charge growth quartile experienced no change in operating margin from 2014 to 2016.  Though the lowest and highest quartiles have median operating margin shifts that are more extreme at (25.7%) and 21.5%, respectively, the relationship between pricing and operating margins does appear to exist.  As pricing increases, operating margins appear to increase as well.

Remember – Short-term strategies fuel long-term success.  Each year presents a fresh opportunity to gradually improve your pricing position both from a competitive and defensible standpoint.  What steps will you take this year?

 

By Janessa Welch

Strategic Consultant

 

Where Should Hospitals Focus Transparency Efforts

 

In our work with hospitals around the country, we have found that many hospitals are struggling to identify what services are most subject to price transparency concerns. Some are taking a broad-brush approach and reduce all charge codes to the level of free-standing entities. This approach is usually not the most effective methodology because it does not focus on the critical procedures where transparency is a major concern.

We decided to identify what procedures hospitals should be most concerned about when they face significant price competition from free-standing outpatient centers. If a hospital can compete with free-standing entities on price for those critical procedures, they should enhance their competitive position without sacrificing revenue in areas where price transparency is not a patient selection factor. Our study resulted in our latest price comparison report, the Transparency Fifty™.

To develop the Transparency Fifty™ we used two data sets. The first data set was the 2016 Medicare HOPPS data file which we used to identify high volume hospital outpatient procedures grouped in four categories that are similar to four major free-standing entities – labs, imaging, therapies, and surgeries. We reviewed the data using both total charges and total volumes by CPT/HCPCS procedure code but decided to use total charges as the best indicator of areas of concern for hospitals, although the top charge and top volume procedures frequently overlapped.

The second data set used came from the 2015 Medicare Physician/Supplier Procedure Summary file. We used this data set to identify high volume procedures performed in free-standing laboratories, imaging centers, therapy centers and ambulatory surgical centers. We then ranked each free-standing group’s procedures by CPT/HCPCS code from highest volume nationally to lowest. The final step was a comparison of the high volume hospital outpatient procedures with high volume free standing procedures to identify procedures that were on both lists.

So what services were included in the top fifty procedures from our study?

Laboratory tests (17 Procedures)

Seventeen procedures were selected that all ranked in the top 30 for free-standing labs and the top 25 for lab procedures performed in hospitals. Topping the list were comprehensive metabolic panel (CPT 80053) and complete blood count with white blood cell differential (CPT 85025). Not surprisingly, routine venipuncture, urinalysis and blood glucose test also appear as top procedures.

Imaging procedures (18 Procedures)

Imaging is the area where we experience the most hospital client requests to assess the revenue impact of setting hospital prices to free-standing centers. Eighteen procedures were selected including 6 MRIs, 2 CTs, 1 PET scan, 2 chest x-rays, diagnostic mammogram, 5 echography/ultrasound procedures and a bone density x-ray.

Surgical procedures (6 Procedures)

Six surgical procedures were selected including four endoscopy procedures, cataract surgery and an epidural injection of the spine.

Therapy services (6 Procedures)

Six procedures were selected including PT evaluation, therapeutic activities and therapeutic exercises.

Other procedures (3 Procedures)

Two sleep study procedures and an electrocardiography holter monitoring procedure ranked high for services performed by entities categorized as free-standing imaging centers.

We believe the Transparency Fifty™ report is a good starting point for those hospitals that are concerned about price transparency for services that are frequently performed in free-standing centers and that are easily shoppable by ambulatory patients. This new report allows hospitals to benchmark against peer hospital prices and the state averages for free-standing centers in their state.

Changes to address price transparency and competition may not happen quickly, but hospitals need to stay ahead of the curve as payers and patient patterns adjust in this cost-conscious industry. We hope that the Transparency Fifty™ report is a tool that will be used to help hospitals successfully navigate in the age of price transparency.

To learn more give us a call or learn more about our reports here.

 

By Scott Houk, CPA

Director – Consulting Services