Pricing Physician Services
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A systematic approach to pricing physician services that provides a method to the madness of healthcare pricing. The presentation presents several steps to creating a strategy for pricing services that recognizes both covering one's costs as well as responding to market forces and sensativity. The goal is to help physicians prepare a rationale for pricing their services in the healthcare marketplace.
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Pricing Physician Services
- 1. Experience the Eide Bailly Difference A Method to the Madness Pricing Physician Services
- 2. www.eidebailly.com Pricing Physician Services • David Manning, CPA, CMPE • Manager in Health Care Consulting, Eide Bailly LLP • 20+ years in health care • Former manager of several clinics, both hospital owned and private practice • T. 701-476-8334 • dmanning@eidebailly.com
- 3. www.eidebailly.com Pricing Physician Services Madness? Method? What is it about pricing physician services that is so frustrating?
- 5. www.eidebailly.com Pricing Physician Services Only 15,471 Rows! Medicare Physician Fee Schedule
- 6. www.eidebailly.com Pricing Physician Services Madness? We get caught up in the complexities of providing services: • Eligibility and prior authorizations • Copayment collection • Appeals and denials • Bonus payments and penalties • Reimbursement calculations At the end of the day, it can be exhausting!
- 7. www.eidebailly.com Pricing Physician Services Make money the old fashioned way – We smile and look cute until someone has pity on us! Lemonade Stand
- 8. www.eidebailly.com Pricing Physician Services Price? – What the market will bear! But what if the girls down the street setup a competing stand? Lemonade Stand
- 9. www.eidebailly.com Pricing Physician Services And what if they’re really cute? Lemonade Stand
- 10. www.eidebailly.com Pricing Physician Services Price? – Time to slash prices! But how low can you go? Lemonade Stand X 15¢
- 11. www.eidebailly.com Pricing Physician Services What about your costs? Costs? I thought Mom bought the lemonade? OK: Lemonade Mix 8¢ /glass Lemon slice 7¢ /glass Labor…..(Dad, I’m 12!) 0¢ /glass Total operating costs 15¢ /glass Lemonade Stand
- 12. www.eidebailly.com Pricing Physician Services Let’s see… If we sell for 15¢… And our costs are 15¢ We going to need a Bigger Truck! Lemonade Stand
- 13. www.eidebailly.com Pricing Physician Services “All I Really Needed to Know I Learned In Kindergarten” - Robert Fulghum Really? Sometimes I wonder.
- 14. www.eidebailly.com Pricing Physician Services The Four Fundamentals 1. Cover Your Costs 2. Leave Nothing Behind 3. Know Your Market 4. Play Fair Method:
- 15. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs • Provider labor • Clinical staff • Front office, business office & administration • Supplies • Equipment • Facilities & overhead
- 16. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs • Detailed cost reporting system? • Can your practice track costs to the procedure level? • Overhead to a daily total?
- 17. www.eidebailly.com Pricing Physician Services The Resource-Based Relative Value Scale (RBRVS) was researched at Harvard University in the 1980’s. RVU’s have been in use by CMS since 1992. RVS Update Committee (RUC)
- 18. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs Medicare Relative Value System (RVUs) (3 Components) o Work RVUs (WRVUs) o Practice Expense RVUs (PE RVUs) - Non-Facility PE RVUs - Facility PE RVUs o Malpractice RVUs (MP RVUs) Professional Liability Insurance (PLI)
- 19. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs Medicare Relative Value System (RVUs) Provider Work RVUs Practice Expense RVUs Malpractice Expense RVUs Total RVUs + + =
- 20. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs Total RVU’s are then multiplied by a dollar value conversion factor to arrive at a payment for the procedure. Total RVUs $ Conversion Factor Medicare Payment x =
- 21. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs But, the costs of delivering medical care vary across the country. To adjust for cost differences from region to region, CMS calculates and applies Geographic Practice Cost Indices (GPCIs): • Work GPCI • Practice Expense GPCI • Malpractice GPCI
- 22. www.eidebailly.com Pricing Physician Services Medicare Physician Fee Schedule payments are calculated: RVU – Relative Value Unit GPCI – Geographic Practice Cost Index Medicare Payment = Work RVU X Work GPCI Practice Expense RVU X Practice Expense GPCI Malpractice Expense RVU X Malpractice Expense GPCI ++ X Payment Conversion Factor ($)
- 23. www.eidebailly.com Pricing Physician Services Medicare Physician Fee Schedule payments for each CPT code: Work RVU X Work GPCI Practice Expense RVU X Practice Expense GPCI Malpractice Expense RVU X Malpractice Expense GPCI ++ = Locality Adjusted Total RVUs
- 24. www.eidebailly.com Pricing Physician Services Locality Adjusted Total RVUs $ Conversion Factor RVU Based Payment x = Medicare Physician Fee Schedule payments are calculated:
- 25. www.eidebailly.com Pricing Physician Services Total Locality Adjusted RVUs Cost Allocation Factor Total Operating Costs =÷ 1. Cover Your Costs • But what about costs? • Let’s rework the formula: Units of Production Cost per Unit Operating Costs =÷
- 26. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs • The Cost Allocation Factor used in conjunction with Locality Adjusted RVU’s for each CPT code can be used as a proxy cost accounting system. • Allows for cost allocation at the CPT code level
- 27. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs • $38.24 (Cost Allocation Factor) Medicare currently pays $34.04 per RVU Total Operating Costs 342,592$ Total RVUs (Annual) 8,958 Total Op Cost per RVU 38.24$
- 28. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs • On average, you’ll need to be paid more than $38.24 per RVU in order to stay solvent • Can this knowledge inform your pricing and contract negotiations?
- 29. www.eidebailly.com Pricing Physician Services 1. Cover Your Costs • You’ll need to average $54.54 - just to break even Cover Your Costs! Facility CPT Code WRVUs PE RVUs MP RVUs Total RVUs 99213 0.97 0.42 0.07 1.4600 GPCI Factors 1.000 1.000 0.517 Locality Adj Total RVUs 0.97 0.42 0.03619 1.4262 Cost Allocation Factor 38.24$ Break Even Point for 99213 54.54$
- 30. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind • We’re not talking about “Leave no man behind”
- 31. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind • We’re talking about “Leave no money behind!”
- 32. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind • Medicare PFS, Lab, Drugs, DME • Medicaid, Lab, DME • Commercial Fee Schedules All Pay on a contracted Fee Schedule
- 33. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind All Pay on a contracted Fee Schedule But, they will pay: “The lesser of billed charges or the negotiated fee schedule amount” Your Charge Allowable
- 34. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind • Commercial % of Charge • Self Pay Patients Granted, these payers/patients pay based on whatever is charged.
- 35. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind • Inventive: Set charge at least above the highest maximum allowable amount • Or receive lesser amount when additional reimbursement could have been received
- 36. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind • Line up fee schedule maximum allowable amounts and compare to identify the largest allowable amount • This is the threshold below which you have left dollars on the table
- 37. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind Locality Adj Facility Conversion CPT Code Total RVUs Payment Factor 99213 1.4262 46.78$ 32.80$ 42.81$ 30.02$ 71.00$ 49.78$ 71.41$ 50.07$ Medicare Medicaid Big Commercial Smaller Commercial
- 38. www.eidebailly.com Pricing Physician Services 2. Leave Nothing Behind • We’ve identified the maximum of the Maximum Allowable Amounts • This is a virtual floor below which you likely will not go
- 39. www.eidebailly.com Pricing Physician Services 3. Know Your Market
- 40. www.eidebailly.com Pricing Physician Services 3. Know Your Market • How far does your market stretch? • What other providers are in your market? • What are you core services? • Where are you in the health care marketplace? • Market knowledge?
- 41. www.eidebailly.com Pricing Physician Services 3. Know Your Market How far does your market stretch? • Unless you’re a regional tertiary provider, your market likely matches local or regional retail markets • Amazon.com, Walmart? • Abuse your local marketplace and make big profits, and you’ll invite in big box competition
- 42. www.eidebailly.com Pricing Physician Services 3. Know Your Market What other providers are in your market? • How far will your patients travel for services with competitors? • Retail travel patterns • Compete or collaborate? (But do not conspire)
- 43. www.eidebailly.com Pricing Physician Services 3. Know Your Market
- 44. www.eidebailly.com Pricing Physician Services 3. Know Your Market • Everybody guesses 1st • Top group compete for 2nd (top group could be within 25c or top10) • Top two compete for 3rd price • Farmer’s Cost is tie-breaker • Prize is Cookies & Milk
- 45. www.eidebailly.com Pricing Physician Services 3. Know Your Market A Gallon of Milk Price Supermarket ? Big Box Market ? Gas Station ? Tie Breaker Farmer’s Costs $3.15
- 46. www.eidebailly.com Pricing Physician Services 3. Know Your Market Where are you in the health care marketplace? • Price leader / volume dependent • Convenience store • Boutique
- 47. www.eidebailly.com Pricing Physician Services 3. Know Your Market Sources of Market Knowledge • Patients (employees) • Mystery shopper • Associations & publications • Government reports • Commercial databases (e.g. Ingenix Custom Fee Analyzer)
- 48. www.eidebailly.com Pricing Physician Services 3. Know Your Market Sources of Market Knowledge Ingenix Custom Fee Analyzer Sample: For a provider specific GeoZIP area Area Area Area Area Area Area Area CPT 50th 60th 75th 80th 85th 90th 95th 99211 59 61 66 66 68 72 81 99212 83 85 92 94 96 101 114 99213 106 109 117 119 123 129 146 99214 152 156 169 172 177 186 210 99215 242 249 270 273 282 296 335 Description Office/outpatientvisitestL1 Office/outpatientvisitestL2 Office/outpatientvisitestL3 Office/outpatientvisitestL4 Office/outpatientvisitestL5
- 49. www.eidebailly.com Pricing Physician Services 3. Know Your Market Sources of Market Knowledge Our Cost Allocation Factor for 99213 is $54.54 • Remember there is cost shifting going on Locality Adj Area Conversion CPT Total RVUs 75th Factor 99211 0.2652 66.00$ 248.90$ 99212 0.7207 92.00$ 127.66$ 99213 1.4262 117.00$ 82.04$ 99214 2.1917 169.00$ 77.11$ 99215 3.0824 270.00$ 87.59$
- 50. www.eidebailly.com Locality Maximum Max Allow Ingenix Ingenix Adjusted Allowable Conversion Area Conversion CPT Total RVUs Fee Schedule Factor 75th Factor 99211 0.2652 17.93$ 70.17$ 66.00$ 248.90$ 99212 0.7207 36.25$ 52.28$ 92.00$ 127.66$ 99213 1.4262 71.41$ 51.95$ 117.00$ 82.04$ 99214 2.1917 109.83$ 51.97$ 169.00$ 77.11$ 99215 3.0824 154.03$ 51.82$ 270.00$ 87.59$ Average 55.64$ 124.66$ Pricing Physician Services 3. Know Your Market Calculating RVU Based Reimbursement
- 51. www.eidebailly.com Locality Current Proposed Proposed Proposed Adjusted Clinic RVU BASED Increase Percentage CPT Total RVUs Fee Schedule Fee (Decrease) Change E&MConversion Factor 98.00$ 99211 0.2652 103.00$ 26.00$ (77.00)$ -75% 99212 0.7207 113.00$ 70.60$ (42.40)$ -38% 99213 1.4262 139.00$ 139.80$ 0.80$ 1% 99214 2.1917 205.00$ 214.80$ 9.80$ 5% 99215 3.0824 275.00$ 302.10$ 27.10$ 10% Pricing Physician Services 3. Know Your Market Calculating RVU Based Reimbursement
- 52. www.eidebailly.com Pricing Physician Services 4. Play Fair
- 53. www.eidebailly.com Locality Current Proposed Proposed Proposed Adjusted Clinic RVU BASED Increase Percentage CPT Total RVUs Fee Schedule Fee (Decrease) Change E&MConversion Factor 98.00$ 99211 0.2652 103.00$ 26.00$ (77.00)$ -75% 99212 0.7207 113.00$ 70.60$ (42.40)$ -38% 99213 1.4262 139.00$ 139.80$ 0.80$ 1% 99214 2.1917 205.00$ 214.80$ 9.80$ 5% 99215 3.0824 275.00$ 302.10$ 27.10$ 10% Pricing Physician Services 4. Play Fair Calculating RVU Based Reimbursement Is a 75% decrease or 10% increase OK?
- 54. www.eidebailly.com Pricing Physician Services 4. Play Fair Calculating RVU Based Reimbursement Is a fee of more than 11 times the market fee appropriate? Fair? Locality Maximum Ingenix Proposed Adjusted Allowable Area RVU BASED CPT Total RVUs Fee Schedule 75th Fee 65205 1.1636 120.56$ 18.00$ 203.63$
- 55. www.eidebailly.com Pricing Physician Services 4. Play Fair Management must apply local market information and business judgment to the process of setting and evaluating fees. Being 11 times higher than market may have a reasonable explanation.
- 56. www.eidebailly.com Pricing Physician Services 4. Play Fair The majority of providers generate 80 to 90 percent of their revenue on 25 or fewer procedure codes. A significant impact can be made by focusing on these top codes.
- 57. www.eidebailly.com Pricing Physician Services 4. Play Fair Many existing fees are significantly different from RVU based fees. The clinic may justify a minimum charge amount regardless of RVU value. For instance a minimum $50 charge for a provider visit regardless of the RVU value top cover the basic costs of being seen.
- 58. www.eidebailly.com Pricing Physician Services 4. Play Fair The clinic may establish a ceiling amount above which they will not charge, even if the market is above this level (e.g. 7 times Medicare, etc.).
- 59. www.eidebailly.com Pricing Physician Services 4. Play Fair A phased approach to arriving at RVU based fees can mitigate the impact of large price variances.
- 60. www.eidebailly.com Pricing Physician Services How to handle new fees • Do we have RVUs? • Do we have payer fee schedules? • Do we know the costs? • Is there a substantially similar procedure that we have data for?
- 61. www.eidebailly.com Pricing Physician Services How do we handle laboratory, drugs, vaccines, DME and other items without RVUs? • Not paid on RVUs • Reimbursement based on retail or other benchmarks • Use times government ratio to set rational fees or other reference (such as cost)
- 62. www.eidebailly.com Pricing Physician Services Provider-based billing? • Provider-based billing splits professional and technical components • We recommend first establishing a global fee for all non-governmental payers • Then, set 80% of the global as the professional fee. • Evaluate professional fee to leave nothing behind
- 63. www.eidebailly.com Pricing Physician Services Provider-based billing? • Technical fee is balance of global fee • Because technical fee is paid on retrospective settlement of costs, price is relevant only for copayment amount. • Patients pay copayment amount on both professional and technical components
- 64. www.eidebailly.com Pricing Physician Services The Four Fundamentals 1. Cover Your Costs 2. Leave Nothing Behind 3. Know Your Market 4. Play Fair Review:
- 65. www.eidebailly.com Compelling Clinic Metrics David Manning, CPA, CMPE Manager in Health Care Consulting, Eide Bailly, LLP T. 701-476-8334 dmanning@eidebailly.com Thank you for your kind attention.
- 66. www.eidebailly.com Compelling Clinic Metrics Who Has the First Question?