This document discusses factors to consider when setting healthcare prices, including desired net income, competitive position, and market structure. It recommends conducting a pricing study using hospital claims data and charge description master to identify opportunities for selective price increases in areas with higher recovery rates. This approach is usually more effective for increasing profits than across-the-board price hikes. The study should also account for costs, competitors' prices, contracts, and the goal of having defensible prices that do not appear excessive.
Clinical Co-Management Arrangements: Trends, Issues and FMV ConsiderationsCBIZ, Inc.
Healthcare providers are under scrutiny and feel pressure from patients, employers, insurance and the federal and state governments to provide higher quality care at lower costs and higher efficiency.
The Need to Embrace Profit Cycle Management in Healthcare - WhitepaperGE Healthcare - IT
Executive Overview
Healthcare organizations have been operating under a fee-for-service
model for many years. As such, financial leaders have become well
versed in implementing revenue cycle management systems and
processes that primarily focus on the money that comes into an
organization. Today, a new need is emerging. Healthcare reform
and other system changes are moving the industry toward hybrid
payment models such as bundled payments, shared savings, and
capitation. To thrive in this new environment, financial leaders need
to move toward profit cycle management – an emerging model
that matches the revenues from new payment models with an
improved understanding of the true costs to deliver patient care.
The result: Positive financial performance – even in the face of
declining payments – that can be reinvested in the mission to
provide better care.
The foundation of any business or household is profit, defined as
revenue net of expenses (and applicable as such even to not-for-profit
organizations). Regardless of whether you are start-up, a Fortune 500
company, or a family of four, you need to ensure that you are bringing
in more money than you are spending. In many businesses, the
formula to determine your “profitability” is fairly straightforward.
In healthcare, however, the situation is significantly more complex,
as existing and new payment models make it difficult to determine
exactly how much revenue is going to come in the door. On the cost
side, the move to accountable care and value-based payment has
shifted the management of risk and cost onto the providers and
delivery networks, yet most providers lack the tools that would
provide a detailed understanding of the costs required to deliver
quality care, especially when that care is delivered in multiple
locations. A new model of software tools is required – representing
the next generation of revenue cycle management tools and an
emerging class of healthcare cost accounting tools. The end goal?
A solution for profit cycle management that will help organizations
generate a positive financial performance and can be reinvested
in the mission to provide better care.
This change will not happen overnight. Rather, it will be an evolution
over the next five years, as integrated delivery networks update
their revenue cycle solutions to accommodate the new payment
models, and as they deploy new activity-based costing solutions.
Key issues in physician alignment and compensation 6 7-15Polsinelli PC
Developing and implementing effective physician alignment and compensation strategies is essential to the stability and success of any health care entity. Alignment and compensation strategies that evolve along with industry trends and follow proven "best practices" will yield dividends from both a legal and fiscal standpoint, and ensure that health care organizations and providers enjoy stable and productive relationships that reduce the probability of future challenge.
PYA Principal Scott Clay presented “Pacing Volume-to-Value Transition” at the AlaHA Annual Meeting, June 8-11, 2016.
The presentation explored volume- to value-based reimbursement, and how the pace of change is unique to each organization. The presentation introduced a strategic framework to establish and communicate a pace of change befitting various organizations, explaining:
How government policies “set the floor” on the degree of change requested.
How to determine the pace of change in your market.
How to identify your organization’s current position and culture in relation to value-based payment models.
How to set and communicate the pace of transition consistent with your market and your organization’s culture.
Risk-Based Contracting: Background, Assessment, and ImplementationPYA, P.C.
PYA Principal Bob Paskowski presented “Risk-Based Contracting: Assessments and Implementation,” at the National Association of Managed Care Physicians Fall Managed Care Forum, November 10-11, 2016. The presentation allows participants to:
Understand the different types and core elements of risk-based contracting (RBC).
Prepare for additional discussions with key stakeholders regarding RBC assessment and readiness.
Make informed decisions as to next steps while evaluating associated financial risks.
Key Trends in ASC Valuations: Benchmark and use common valuation methodologiesCBIZ, Inc.
The increase in transaction activity in the health care industry has resulted in increased regulatory scrutiny. Having an accurate valuation is critical for avoiding costly mistakes and maintaining compliance. Learn about these topics and key trends in ASC valuations in this article by Tami Bolder who leads the Valuation & Litigation Advisory practice for CBIZ MHM, LLC.
Clinical Co-Management Arrangements: Trends, Issues and FMV ConsiderationsCBIZ, Inc.
Healthcare providers are under scrutiny and feel pressure from patients, employers, insurance and the federal and state governments to provide higher quality care at lower costs and higher efficiency.
The Need to Embrace Profit Cycle Management in Healthcare - WhitepaperGE Healthcare - IT
Executive Overview
Healthcare organizations have been operating under a fee-for-service
model for many years. As such, financial leaders have become well
versed in implementing revenue cycle management systems and
processes that primarily focus on the money that comes into an
organization. Today, a new need is emerging. Healthcare reform
and other system changes are moving the industry toward hybrid
payment models such as bundled payments, shared savings, and
capitation. To thrive in this new environment, financial leaders need
to move toward profit cycle management – an emerging model
that matches the revenues from new payment models with an
improved understanding of the true costs to deliver patient care.
The result: Positive financial performance – even in the face of
declining payments – that can be reinvested in the mission to
provide better care.
The foundation of any business or household is profit, defined as
revenue net of expenses (and applicable as such even to not-for-profit
organizations). Regardless of whether you are start-up, a Fortune 500
company, or a family of four, you need to ensure that you are bringing
in more money than you are spending. In many businesses, the
formula to determine your “profitability” is fairly straightforward.
In healthcare, however, the situation is significantly more complex,
as existing and new payment models make it difficult to determine
exactly how much revenue is going to come in the door. On the cost
side, the move to accountable care and value-based payment has
shifted the management of risk and cost onto the providers and
delivery networks, yet most providers lack the tools that would
provide a detailed understanding of the costs required to deliver
quality care, especially when that care is delivered in multiple
locations. A new model of software tools is required – representing
the next generation of revenue cycle management tools and an
emerging class of healthcare cost accounting tools. The end goal?
A solution for profit cycle management that will help organizations
generate a positive financial performance and can be reinvested
in the mission to provide better care.
This change will not happen overnight. Rather, it will be an evolution
over the next five years, as integrated delivery networks update
their revenue cycle solutions to accommodate the new payment
models, and as they deploy new activity-based costing solutions.
Key issues in physician alignment and compensation 6 7-15Polsinelli PC
Developing and implementing effective physician alignment and compensation strategies is essential to the stability and success of any health care entity. Alignment and compensation strategies that evolve along with industry trends and follow proven "best practices" will yield dividends from both a legal and fiscal standpoint, and ensure that health care organizations and providers enjoy stable and productive relationships that reduce the probability of future challenge.
PYA Principal Scott Clay presented “Pacing Volume-to-Value Transition” at the AlaHA Annual Meeting, June 8-11, 2016.
The presentation explored volume- to value-based reimbursement, and how the pace of change is unique to each organization. The presentation introduced a strategic framework to establish and communicate a pace of change befitting various organizations, explaining:
How government policies “set the floor” on the degree of change requested.
How to determine the pace of change in your market.
How to identify your organization’s current position and culture in relation to value-based payment models.
How to set and communicate the pace of transition consistent with your market and your organization’s culture.
Risk-Based Contracting: Background, Assessment, and ImplementationPYA, P.C.
PYA Principal Bob Paskowski presented “Risk-Based Contracting: Assessments and Implementation,” at the National Association of Managed Care Physicians Fall Managed Care Forum, November 10-11, 2016. The presentation allows participants to:
Understand the different types and core elements of risk-based contracting (RBC).
Prepare for additional discussions with key stakeholders regarding RBC assessment and readiness.
Make informed decisions as to next steps while evaluating associated financial risks.
Key Trends in ASC Valuations: Benchmark and use common valuation methodologiesCBIZ, Inc.
The increase in transaction activity in the health care industry has resulted in increased regulatory scrutiny. Having an accurate valuation is critical for avoiding costly mistakes and maintaining compliance. Learn about these topics and key trends in ASC valuations in this article by Tami Bolder who leads the Valuation & Litigation Advisory practice for CBIZ MHM, LLC.
PYA Principal Carol Carden presented “Fundamentals of Healthcare Valuation” at the American Society of Appraisers (ASA) 2015 Advanced Business Valuation Conference. The presentation explored unique characteristics of the healthcare industry, particularly those relevant to appraisers for avoiding common mistakes in assessing risk and projecting cash flow.
Booz Allen convened some of the smartest minds to explore making healthcare more accessible. This report shares the latest healthcare payment trends and what policy experts discovered when planning for different health reform scenarios.
PYA Principal Martie Ross presented the keynote address, “The March to MIPS: The Merit-Based Payment System,” at the Kansas Medical Group Management Association 2016 Fall Conference, September 21-23, 2016, at the Overland Park Marriott in Overland Park, Kansas.
The presentation will include:
An introduction to the Medicare Merit-Based Incentive Payment System (MIPS).
A discussion of the four components of the MIPS composite score.
An exploration of the penalties and bonuses associated with the MIPS composite score, as well as the reputational impact of the publicly reported MIPS composite score.
PYA Highlights Next Steps of Meaningful UsePYA, P.C.
At the 2013 AICPA Healthcare Industry Conference, PYA Principal David McMillan and Senior Manager Chris Wilson recently explored the “new normal” of meaningful use as compliance and strategic standards in new care/reimbursement-model development.
Five forces that will change healthcare marketingKaren Corrigan
In the healthcare industry, powerful demographic, economic, societal, technology and legislative forces are converging to change the underlying basis for competition. For health systems, new economic models, disruptive technologies and transformation of care delivery systems are front and center – challenging marketing executives to better understand and anticipate the impact of this change.
The Healthtech Exits site tracks deals and trends in a vital sector. Our goal is to provide relevant records and tools to serve the health technology sector. We want to be a resource for executives and investors in health technologies companies who are considering their strategic growth and exit options in today’s environment.
Description of the "KAM Expert Wheel" which is a method to structure the activities of Key Account Managers and help them cope with the complexity of their task
Managing Risk: Maximizing Opportunities in the MAPD MarketCognizant
The Medicare Advantage (MAPD) marketplace is growing as memberships and revenue potential increase. At the same time, it is marked by risks associated with healthcare reform, continuing cost pressures, and healthcare consumerism. To operate and compete successfully, payers will have to find new and better ways to sharpen their strategies, integrate systems, increase collaboration and optimize processes.
USA Pharmacy Benefits Management Market OverviewNiraj Singhvi
This report is prepared by Maple Growth Partners, an investment research and strategic advisory firm.
Our US-based middle-market focused private equity client assigned us to review the pharmacy benefits management sector.
Here, they were largely interested in the broad overview of the sector and addressable market size opportunity for various services segments. In addition to this, we presented overall generic and specialty drug spending trend in the US, along with a detailed discussion on the shift to transparency and PBM rebates.
We also provided a detailed section on how do PBMs make money, segmenting PBM gross profits into five distinct revenue sources. Further, there is an interesting piece of analysis of President Trump’s changing stance on prescription drugs before and after presidency campaign.
Later, we analyzed the competitive intensity within the sector and gathered that top 3 firms account for ~80% market share. In such a highly concentrated industry, we presented our insights on how small or mid-sized firms are sustaining their operations largely by offering specialized services.
We identified ~200 relevant competitors or bolt-on targets across the 21 PBM service segments and provided a detailed one-pager profile for each of them.
This overall 300 pager report is categorized by ~100 page industry overview and ~200 page of company profiles
While the full report is exclusively prepared for the said client, we have provided a gist of our overall analysis to showcase our research capabilities, especially for a niche market such as PBM.
Commercial Reasonableness in Hospital-Physician TransactionsPYA, P.C.
PYA Principals Lyle Oelrich and Darcy Devine presented “Commercial Reasonableness in Hospital-Physician Transactions” to the Health Care Fraud Working Group in Memphis, TN, April 10, 2013.
PYA Principal Carol Carden presented “Fundamentals of Healthcare Valuation” at the American Society of Appraisers (ASA) 2015 Advanced Business Valuation Conference. The presentation explored unique characteristics of the healthcare industry, particularly those relevant to appraisers for avoiding common mistakes in assessing risk and projecting cash flow.
Booz Allen convened some of the smartest minds to explore making healthcare more accessible. This report shares the latest healthcare payment trends and what policy experts discovered when planning for different health reform scenarios.
PYA Principal Martie Ross presented the keynote address, “The March to MIPS: The Merit-Based Payment System,” at the Kansas Medical Group Management Association 2016 Fall Conference, September 21-23, 2016, at the Overland Park Marriott in Overland Park, Kansas.
The presentation will include:
An introduction to the Medicare Merit-Based Incentive Payment System (MIPS).
A discussion of the four components of the MIPS composite score.
An exploration of the penalties and bonuses associated with the MIPS composite score, as well as the reputational impact of the publicly reported MIPS composite score.
PYA Highlights Next Steps of Meaningful UsePYA, P.C.
At the 2013 AICPA Healthcare Industry Conference, PYA Principal David McMillan and Senior Manager Chris Wilson recently explored the “new normal” of meaningful use as compliance and strategic standards in new care/reimbursement-model development.
Five forces that will change healthcare marketingKaren Corrigan
In the healthcare industry, powerful demographic, economic, societal, technology and legislative forces are converging to change the underlying basis for competition. For health systems, new economic models, disruptive technologies and transformation of care delivery systems are front and center – challenging marketing executives to better understand and anticipate the impact of this change.
The Healthtech Exits site tracks deals and trends in a vital sector. Our goal is to provide relevant records and tools to serve the health technology sector. We want to be a resource for executives and investors in health technologies companies who are considering their strategic growth and exit options in today’s environment.
Description of the "KAM Expert Wheel" which is a method to structure the activities of Key Account Managers and help them cope with the complexity of their task
Managing Risk: Maximizing Opportunities in the MAPD MarketCognizant
The Medicare Advantage (MAPD) marketplace is growing as memberships and revenue potential increase. At the same time, it is marked by risks associated with healthcare reform, continuing cost pressures, and healthcare consumerism. To operate and compete successfully, payers will have to find new and better ways to sharpen their strategies, integrate systems, increase collaboration and optimize processes.
USA Pharmacy Benefits Management Market OverviewNiraj Singhvi
This report is prepared by Maple Growth Partners, an investment research and strategic advisory firm.
Our US-based middle-market focused private equity client assigned us to review the pharmacy benefits management sector.
Here, they were largely interested in the broad overview of the sector and addressable market size opportunity for various services segments. In addition to this, we presented overall generic and specialty drug spending trend in the US, along with a detailed discussion on the shift to transparency and PBM rebates.
We also provided a detailed section on how do PBMs make money, segmenting PBM gross profits into five distinct revenue sources. Further, there is an interesting piece of analysis of President Trump’s changing stance on prescription drugs before and after presidency campaign.
Later, we analyzed the competitive intensity within the sector and gathered that top 3 firms account for ~80% market share. In such a highly concentrated industry, we presented our insights on how small or mid-sized firms are sustaining their operations largely by offering specialized services.
We identified ~200 relevant competitors or bolt-on targets across the 21 PBM service segments and provided a detailed one-pager profile for each of them.
This overall 300 pager report is categorized by ~100 page industry overview and ~200 page of company profiles
While the full report is exclusively prepared for the said client, we have provided a gist of our overall analysis to showcase our research capabilities, especially for a niche market such as PBM.
Commercial Reasonableness in Hospital-Physician TransactionsPYA, P.C.
PYA Principals Lyle Oelrich and Darcy Devine presented “Commercial Reasonableness in Hospital-Physician Transactions” to the Health Care Fraud Working Group in Memphis, TN, April 10, 2013.
Presenter: Hunter Tura
Summary: What we’re asked to do as designers has fundamentally changed; technology, globalization and the increasing fluidity of markets has changed how design is produced and consumed in a global context. What are the qualities that we as designers, marketers and creative people need in order to deal with this rapidly changing landscape? How do we maintain our position as people who can continue to speculate about the future in order to deal with the social, ecological and cultural challenges of tomorrow? Hunter explains 7 essential qualities to this future and how we can be ready for the next 100 years.
BENISON Media is the publisher of Think Grain Think Feed –Only monthly magazine in India for feed technology. The magazine provides important information about the developments in Indian livestock nutrition. The magazine focuses on feed crop production to feed additives and premixes, processing and storage technology for poultry, dairy and aqua sector.
31 Quotes To Celebrate Teamwork and CollaborationHubSpot
When true team work happens, everything changes. You're working faster, finding mistakes easier, and innovating better. To inspire your team to band together and celebrate collaboration, we've gathered some of our favorite quotes on the power of teamwork.
Research several types of reimbursement methods for healthcare for.docxronak56
Research several types of reimbursement methods for healthcare for physicians in Saudi Arabia. Draft a paper comparing the different methods.
Be sure to include:
Reimbursement of Claims
1. Introduction
2. Elements of Reimbursement
3. Reimbursement in Saudi Arabia
4. Evaluating Types of Reimbursement
5. Compare and contrast Types of Reimbursement
6. Impact of reimbursement on healthcare facilities
7. Trends in Healthcare Reimbursement
8. Conclusion
The following information can be used
1- Introduction (minimum 100 words) Definition of reimbursement
Reimbursement is another term for payment. A provider or facility submits a claim. Then the health insurance company or third-party administrator pays the provider or facility for their claim based on their contract. It sounds simple, but the payment arrangements in healthcare can be complex. As providers do not generally receive full payment for services upon a patient’s receipt of services under a health insurance scheme, reimbursement becomes essential to a provider’s livelihood.
2- Elements of Reimbursement (minimum 100 words)
· Coverage refers to a set of rules that explain when a payer will or will not pay for a product or service. Coverage can vary by payer and depends on what each payer considers to be medically necessary. In general, payers want to see regulatory approval, strong clinical evidence demonstrating the treatment is at least as beneficial as the established alternative, and a demonstration of the treatment’s cost-effectiveness. Payers expect well-designed clinical trials with results published in peer-reviewed journals. Support from the physician community and professional societies are also increasingly important to adoption and coverage of new technology.
· Coding refers to the sets of alphanumeric codes that are the language of billing. Providers use codes to tell a payer what products or services were provided and why. There are three main sets of codes: CPT, HCPCS, and ICD-10-CM. Choosing the right code to accurately describe a product or service while maximizing payment requires a detailed understanding of the coding structures. If no code exists, it is important to understand the approval process for acquiring a new one – whether it be a CPT code used by physicians to describe what is done to a patient, or an HCPCS code which describe products not described by CPT codes. Finally, it is important to understand that choosing the wrong code creates not only financial implications but also legal culpability.
· Payment is driven by the coding systems and is probably the most complicated element of reimbursement. Although coding drives payment, reimbursement is not quite as simple as just submitting an active code. Payment is driven by complex payment methodologies that differ depending on the site of care where delivery is provided. For example, payment for the same procedure in an Ambulatory Surgery Center (ASC) is often less than payment for the same procedure perfo ...
Patient-Level Costing and Profitability Making It Workhfma..docxkarlhennesey
Patient-Level Costing and Profitability: Making It Work
hfma.org/Content.aspx
Gary Cokins, Raef Lawson, PhD, CMA, CSCA, CPA, CFA, and Rob Tholemeier
Increasing changes in how insurers pay for health care in the United States and public
pressure to reduce the overall cost of care are forcing healthcare organizations to move away
from revenue-centric approaches to maintain their financial stability. This move requires
placing a greater emphasis on measuring, managing, and monitoring the cost of providing
care and the resulting profit margins—a change that is necessary even for not-for-profit
healthcare organizations.
To reduce costs, provider organizations must take a substantially different approach to
managing costs. Measuring costs must involve a consumption view of how resource
expenditures (e.g., employee salaries, materials, supplies, power) are used for procedures,
treatments, surgeries, and the like by individual patients.
Traditional costing approaches in health care, such as those based on ratio of costs to
charges (RCCs) or relative-value units (RVUs), are inadequate. RCCs and RVUs use broad
averages that do not reflect cost accounting’s causality principle: Costing should reflect the
cause-and-effect relationship between costs and the consumption of resources by cost
objects (e.g., patients, procedures) that cause costs to be incurred.
The Data-Driven, Consumptive Approach
A more accurate method of measuring costs is to adopt a comprehensive patient-level cost
management analytics approach using data that already exist in a provider’s clinical and
financial systems. The IT used in health care generates substantial transactional data that can
be converted into cost data for each patient, in real time, as costs are incurred. This
information is continuously produced, but rarely used.
Industries such as aviation, manufacturing, transportation, and retail are spending billions of
dollars equipping their plants, trucks, planes, loading docks, and workers to produce the kind
of cost data needed to improve their analyses and decision making. Most healthcare
organizations already have information systems in place that are automatically producing
such robust source data, which can be used to enable accurate cost reporting. In health care,
however, there often is a large gap between the availability of actual cost data and an
organization’s ability to use such data for insights and decision making.
Complying with the Causality Principle
1/5
https://www.hfma.org/Content.aspx?id=62679
Healthcare data—both clinical information and usage logs—reside in electronic health records
(EHRs), barcode scanners, pharmacy and lab systems, imaging machines, and nearly every
other device and computer system used around the hospital. These rich but neglected data
streams contain massive amounts of useful data that can be used for measuring costs. If that
information were gathered up, stored, analyzed, and converted into financial terms, and then
pr ...
CFO Strategies for Balancing Fee-for-Service and ValuePhytel
Moving from fee-for-service to value-based care is not easy. However, leading health systems are all following a similar blueprint that enables the move to value-based care.
Download this whitepaper to learn how:
- Bon Secours Richmond - Closed 75,801 gaps in care within 12 months, generating $7 million in revenue for chronic & preventive care, while improving quality.
- Northeast Georgia Medical Center - Decreased HbA1C levels across uncontrolled diabetes by an average of 1.6 points within 120 days.
- Riverside Medical Center - Reduced unnecessary readmissions by 40% by using automation to reach and assess patients post discharge.
- Prevea Health - Increased care management productivity by 150% by automatically identifying high risk patients, and automating patient engagement.
Value-Based Purchasing and the Role of Home Care TechnologyAlayaCare
While shifting financial models is a major challenge facing healthcare, we can safely assume where that shift is heading. As it stands, there continues to be a paucity of good evidence as to how to run an effective Value-Based Purchasing (VBP) program, and definitive metrics on how it can lead to better outcomes. Thus, this shift is underway filled with far more expectations than answers.
With this guide will you learn how your home care agency can prepare, adapt and thrive in a value-based purchasing landscape with the help of modern home care technology.
Top Healthcare and Revenue Cycle Trends to watch for in 2019Manish Jain
2017 required healthcare organizations to respond to several new challenges – political change, growing role of technology, shift to value-based care and the increasing role of information security. While we anticipate that these issues will continue to influence through 2018, we will also see new challenges. The blurring lines between providers and payers, a refocusing on care (and more so on the patient), and a changing policy environment will occupy the center stage for 2018.
Week #5-To Do List-CCHWeek 5 IntroductionIntroduction To Co.docxcelenarouzie
Week #5-To Do List-CCH
Week 5: Introduction
Introduction To Compliance Documentation & Reporting
Proper documentation is an inherent component of delivery of care, not an add-on. One of the oldest battles in healthcare is that between the hospital Medical Records department and the admitting Physician to complete necessary documentation for the Patient’s Chart. The most common cause of loss of admitting privileges has been from this source. This process has only become more important and necessary with the increasing recognition of the importance of proper documentation for legal and ethical defense purposes.
Documentation also serves a number of financial aspects of patient care delivery, including billing, grant writing for research projects, medical research to discover future tests, procedures, and cures, and funding for government supported agencies and programs.
Objectives
To successfully complete this learning unit, you will be expected to:
Identify the uses for health care documentation.
Learn the essential components of quality documentation.
Categorize the document guidelines under the federal False Claims Act.
Identify the documentation required for compliance under the Federal Stark Law.
List the aspects of documentation compliance with regard to electronic health records.
Identify the important issues regarding ethical coding practices.
Learn the most common illegal practices for HIM reporting.
Identify the key concerns under the federal False Claims Act that relate to reporting.
Determine the impact of the Physician Quality Reporting Initiative (PQRI) on HIM processes in physicians’ offices.
Identify the circumstances in which a health care professional is mandated to report a patient’s diagnosis.
Week 5: Discussion
Answer the following questions:
Review the various uses for health care documentation and discuss how each has an impact on the health care delivery system
Discuss procedures you might enact in your facility to avoid violating the False Claims Act
Discuss why physician offices should participate in PQRI
Week 5: Case Study Assignment
Please read and choose one of the following case studies:
Case study on page 111 of your textbook. (This Case Study is in the section for Securing EHR and starts with "NOTE: In each CMP (Civil Monetary Penalties) case resolved through a settlement agreement, . . . ")
Case study on page 127 of your textbook. (This Case Study is in the section for Phantom Patients and starts with "Two Charged in False Claims to Medicaid."
Case study on page 128 of your textbook. (This Case Study is in the section for Services not Performed and starts with "WASHINGTON—April 14, 2008—A board-certified radiologist, Fred Steinberg, M.D., his imaging centers . . ."
Case study on page 131 of your textbook. (This Case Study is in the section for Upcoding and starts with "July 2007: In Florida, a doctor was sentenced to 78 months in prison .
How Providers Can Reshape their Operations to Master Value-Based ReimbursementsCognizant
Healthcare providers must make sweeping system, process and operational changes to thrive under the inevitable move to value-based payments. Here are our recommendations on how to get started.
1 3. Compare and contrast the external financing options t.docxhoney725342
1
3. Compare and contrast the external financing options that are available for healthcare organizations
today.
Reading Assignment
Chapter 4:
Understanding Costs
Unit Lesson
This unit will introduce you to the concept of costs in healthcare. For public service organizations and
healthcare organizations of all kinds, an understanding of costs is absolutely essential. The better that
healthcare managers understand costs, the more accurate their planning will be, and the better they will be
able to control spending for the organization within their areas of responsibility. A solid understanding of costs
will also improve a manager’s ability to make effective decisions on a day-to-day basis for his or her
department. Thus, for many reasons, you need to get a solid understanding of costs. That is what we will
seek to provide in Unit III.
First let us face reality, costs in healthcare are complicated. They are considerably more complicated than
costs in industries such as manufacturing, construction, or retail. One important emphasis of this unit is on
providing a clear understanding of key definitions for widely used cost terms. Such terms include direct costs,
indirect costs, average costs, fixed costs, variable costs, and marginal costs.
In this unit, you will come to realize that finance has its own language, and in order to be effective as a
healthcare manager, you must be able to speak that language. Otherwise you will find yourself in foreign
territory at management team meetings and board of directors meetings. You will also be at great
disadvantage when budget time rolls around each year. Accordingly, in this course, we will teach you the
language of finance so that you can communicate clearly with the chief financial officer (CFO) and other
members of management.
Another focus for Unit III is on understanding how costs change as service volumes change. The relationship
between costs and volume has a dramatic impact on the profits or losses incurred by an organization, and
this relationship is critical to effective decision making. Healthcare organizations must generate black ink on
the income statement in order to survive. That is true for both for-profit and not-for-profit entities, so you must
understand the impact of service volumes on costs.
The old story about the Long Island Tailor comes to mind here. It was said that the tailor lost money on every
single suit that he produced for clients, but he made it up in volume. Well, clearly that will never work. Losing
money on every healthcare service we provide, and then getting busier losing money, will close down the
hospital or clinic in a very short time. In healthcare, we need to find a way to provide services for our patients
at cost levels which allow some margin of revenues over expenses. This may not be true for every patient that
we treat, but it must be true for our patient population overall. Otherwise we could be in a lot of troubl ...
1. Setting healthcare prices at levels that are appropriate for
both your revenue stream and your community’s well-being,
while challenging and fraught with landmines, is possible.
How do you set prices that generate enough revenue to sustain
operations and that are still considered reasonable to your
consumers and payors?
2. market share, capital intensity and payor mix as com-
pared with its competitors. Healthcare organizations that
are perceived as quality leaders in a marketplace often
can realize higher prices in several ways. They may be
able to negotiate more favorable payment terms with
major health plans in the area. If the general community
perceives one hospital to be higher quality, employers
may desire to have that hospital in the plan’s network.
The hospital also can establish prices that are above
its local competitors’ because it knows that it has a
premium quality advantage.
Lower-cost healthcare organizations can afford to sell
their services at lower prices and still generate adequate
levels of profit, or they can sell their services at competi-
tive prices and realize higher returns. In either case, it
usually means market expansion for the lower-cost orga-
nization. By establishing lower prices, the organization
should be able to increase its market share. If it main-
tains competitive prices, the greater profit may lead to
expansion in the marketplace because of better access
to capital; it may even be in a position to acquire
local competitors.
There is no magic formula, but healthcare pricing can be
leveraged to manage your hospital’s bottom line. When
tackling price setting for your organization, some funda-
mental tenets must be understood. First, to the extent
that revenue from any patient class is insufficient, pay-
ment increases will be needed from other classes. Second,
any pricing strategy should recognize the impact of costs,
competitors, contracts and return on investment.
Healthcare Pricing Factors
Three sets of factors affect healthcare pricing: desired net
income, competitive position and market structure. The
foundation for most short- and long-term pricing deci-
sions is the desired net income. Every business must be
able to generate enough revenue through its sales of prod-
ucts and services to sustain its operations and allow for
the replacement of its physical assets as well as provide a
return to its investors. Deficiencies in net income levels
can be tolerated for short time frames, but inadequate
pricing eventually will result in failure of the business.
Competitive position also affects pricing policy signifi-
cantly. Organizations must assess their quality, cost,
Healthcare Executive 9JAN/FEB 2007
Setting Defensible and Appropriate
Prices in Healthcare
by William O. Cleverley, PhD, and James Cleverley
3. Setting Defensible and Appropriate Prices in Healthcare
the press about overcharging the poor. For example, accord-
ing to a March 17, 2003, article in The Wall Street Journal,
the uninsured typically are charged 100 percent to 230 per-
cent more than insurance companies for the same service
and are thus subsidizing the for-profit insurance industry.
To assure the media and your community that your health-
care prices are appropriate, you must have a pricing model
in place that is defensible. This means developing or main-
taining a pricing strategy that covers your costs, considers
the factors discussed earlier, and does not allow excessive
charges to any one population of patients, particularly the
self-pay segment.
To be sure that your organization’s prices are not excessive,
measure your organization against the return on investment
(ROI) public utility model.
The ROI public utility model formula is:
ROI =
revenue – cost
=
volume × net price per unit – volume × cost
investment investment
This equation has four variables: ROI, cost, price and invest-
ment. If a hospital can demonstrate that its cost is reasonable,
it is not making excessive levels of profit and it does not have
excessive levels of investment, then by definition its revenues
are reasonable, which means that its prices are reasonable.
Answering the question of cost reasonableness often is diffi-
cult; it involves comparisons of costs between similar hospi-
tals. The measure that is often used is the cost per adjusted
discharge-case mix adjusted. We believe this measure suffers
from several fatal flaws that render its application useless at
best, and potentially misleading at worst. In a July 2002
article in Healthcare Financial Management, “The Hospital
Cost Index: A New Way to Measure Hospital Efficiency,”
we proposed a new methodology. The hospital cost
index assigns a separate cost measure for inpatient and
outpatient costs and adjusts those measures for differences
in case mix complexity.
Most healthcare markets are regional and subject to the
travel limits beyond which most consumers will not go for
care. Greater market share leads to greater leverage when
negotiating managed care contracts. For example, if a hospi-
tal controlled 85 percent of the acute-care capacity in the
region, virtually every health plan would be required to
include that hospital in its network. This gives the hospital
tremendous leverage when negotiating payment terms with
payors or for contracts.
Organizations that are heavily capital intensive often have
higher levels of fixed cost. Their variable cost of production
as a percentage of total cost also may be lower, which may
lead to marginal cost pricing in markets that have excess
capacity. This behavior was seen in many urban hospital
markets in the early days of managed care growth. Hospitals
would sign agreements with health plans at payment levels
below their average total cost but above their variable or
marginal cost. These hospitals were afraid that they might
be excluded from a plan’s network and lose critical volume,
so they agreed to payment levels that just barely covered
their variable costs.
Payor mix has perhaps the most pervasive influence on
prices in the healthcare marketplace. Organizations with
heavy percentages of Medicaid and uninsured patients usu-
ally will experience large losses on these books of business
no matter how efficiently they produce healthcare services.
Therefore, these organizations must be in a situation to
increase revenue derived from other patients to offset losses
from Medicaid and uninsured patients.
Realities of Price Setting
The realities of price setting in healthcare, then, are dictated
by such concerns as average costs, losses on patients who
pay less than cost, discounts to uninsured and commercial
charge patients, and return on investment that is at a
reasonable level to sustain growth.
Another important factor is the public’s perception of your
pricing policy and its reaction to the demoralizing stories in
10 Healthcare Executive
JAN/FEB 2007
4. Healthcare Executive 11JAN/FEB 2007
1. Deleted or invalid Common Procedural Terminology
(CPT)/Healthcare Common Procedure Coding System
(HCPCS) codes
2. Duplicated line items
3. Medicare noncovered items
4. Item codes requiring a CPT code for Medicare payment
5. Incorrect revenue code
6. Pass-through codes
Most hospitals typically encounter issues in all six areas;
a careful review may help avoid lost reimbursement.
Line Item Claims
Line item claims provide the basis for determining recovery
rates by item code. A recovery rate defines the percentage of
any charge increase that will be recovered as increased profit.
Recovery rates may range from 0 percent (no payors pay
charges) to 100 percent (all payors pay 100 percent of charges).
Recovery rates are defined by relating payor frequencies
by item code to payor payment terms. An item code that
had only Medicare patient utilization would have a zero
recovery. The major issue in claims sampling is the period
of time to review. We have found that a minimum three-
month sample should be used with a maximum of nine to
12 months. Sample periods less than three months can lead
to a bias in estimating payor frequencies by item code. A
larger sample over a longer period of time should be used
when seasonality could be a significant factor. For example,
hospitals in Florida with high winter Medicare utilization
may require nine months to a year sample period.
When using CDM data for pricing changes, be aware of
one potential problem. When CDM changes have taken
place in the claims period, the claims data will not totally
reflect the current CDM. Some remapping of claims data
Comparing your hospital’s relative cost index can help you
assess the reasonableness of your current and proposed
prices. Hospitals with excessive levels of cost may find it
much more difficult to justify price increases until their
relative cost is near or below industry standards.
Getting to Appropriate Pricing Levels
If your organization needs to tweak—or even overhaul—
its pricing approach to bring it in line with defensible
criteria, one of your most valuable resources in this effort
is your hospital’s charge description master (CDM).
Changing prices at the CDM level can lead to a healthy
bottom line, and using a mechanism such as the CDM
can help ensure that hard data are driving your pricing,
not a vague, broad-brush approach to pricing. This allows
you to set prices that are responsive to the community and
enable the organization to provide high-quality care both
now and in the future.
Hospitals that initiate price changes at the CDM level
usually adopt one of two strategies. The first approach is
the “across the board” increase. In this method, all item
codes in the CDM are changed at some constant percent-
age. The second approach is selective price increases—or
decreases—for each item code to achieve some stated
overall charge increase. The latter approach usually
attempts to place price changes in areas where recovery
opportunities are greater. Our experience in pricing
studies suggests that selective price increase strategies are
more effective, often generating 30 percent to 80 percent
more profit than a given overall rate increase. Perhaps
of greater importance in today’s climate, this approach
provides better alignment of rates with both cost and
competitive prices.
Before starting a pricing study, three data sets must be avail-
able: the current CDM, three to nine months of claims with
line item detail and payor contract information. A review of
the CDM should be part of the initial process for gathering
the required information. This review should include the
following areas:
5. There are, however, two major disadvantages to high-rate
corridors. First, they may destroy present pricing relativity.
Second, they may eventually kill the goose that laid the
golden egg. Increasing prices to payors who pay charges
may hurt their competitive position and eventually force
them to exit the market, leaving low fixed-fee payors.
Pricing is an effective strategy for increasing hospital prof-
itability. Across-the-board price increases, while easy to
implement, usually are not as effective as selective price
increases. In addition to providing an increase in profit,
selective price increases may create stronger price competi-
tiveness if combined with detailed competitive price con-
straints and cost-based modeling.
The two major model constraints in pricing studies, com-
petitive price comparisons and estimated cost of production,
can provide conflicting signals. For example, a specific radi-
ology procedure may be priced well below competitors but
have an extremely high mark-up (price to cost) relationship
in comparison with other procedures. Let us also assume
that this procedure has a high recovery rate, which means
that a price increase for this procedure is likely to generate a
larger increase in net patient revenue than other procedures.
There is no simple solution to a dilemma like this, which
is often the rule and not the exception in hospital pricing.
Hospital management must carefully evaluate and assess the
importance of required levels of profit compared to price
competitiveness and price-to-cost alignment.
William O. Cleverley, PhD, is president of Cleverley and
Associates, Worthington, Ohio. He can be reached at
bcleverley@cleverleyassociates.com. James Cleverley is a
consultant with Cleverley and Associates. He can be reached
at jcleverley@cleverleyassociates.com.
William and James Cleverley will present their seminar,
“Setting Defensible and Profitable Prices in Healthcare,”
during ACHE’s Congress on Healthcare Leadership,
March 19–22, 2007, in New Orleans.
to current CDM will need to be done.
Payor Contract Information
A review of all the claims data will identify the relevant
payors represented in the claims sample. Each of those
payor categories must be reviewed to appropriately define
payment terms. This is perhaps the most critical part of
any pricing study. If payment terms are not accurately
modeled, the study’s conclusions will be flawed. Key
areas that should be examined are:
• Presence of stop-loss provisions
• Presence of carve-outs for drugs or devices
• Nongrouped outpatient surgical categories
• Expected recovery on self-pay portions
• Presence of fee schedules for selected outpatient areas,
such as lab and radiology
Usually a large number of payors have no hospital contract.
They may account for a relatively small dollar volume, but it
is important to validate specific recovery rates for these pay-
ors and not apply a universal factor that may not be accurate.
While dollar volumes for these payors may be relatively
small, they represent a substantial percentage of the total
recovery rate for many item codes.
Model Constraints
Most pricing studies deal with three major model con-
straints: absolute total charge increase, corridors for individ-
ual item codes and competitive price limits. Rate corridors
limit individual item code price changes. A rule of thumb
in pricing studies is to limit the corridors to no more than
twice the absolute rate increase. For example, a 10 percent
overall rate increase would limit rate corridors to increases
between 0 and 20 percent. Larger corridors permit hospitals
to load more of the total rate increase into areas with higher
recovery rates, thus maximizing rate-increase profitability.
12 Healthcare Executive
JAN/FEB 2007
Setting Defensible and Appropriate Prices in Healthcare