Net Revenue Matters

Integrated Revenue Management • 2714 Loker Avenue W., Ste 200, Carlsbad, CA • Phone: (760) 476.0077 • www.IRMinconline.com

January 2010

The Fourth Audit Discipline: Contractual Allowances 1

Prosthetics and Implant Markup Strategy 2

Accurate Hospital Documentation Ensures Best Course of Care, Proper Reim 3

Client Corner 4

NYU Langone Medical Center 4

2010 Database FTP Submission Schedule 4

PI Projects in the Spotlight 4

Accuracy is Key 5

Managed Care Database Update 5

Save the Date! 5

Inside this issue:

Welcome to the January edition of Net Revenue Matters, a publication of Integrated Revenue Management, Inc. We hope that in this issue you’ll find several topics of interest.

In his article, “The Fourth Audit Discipline: Contractual Allowances,” Executive Vice President Jack Duffy discusses contractual allowances in relation to process improvement.

Also, we hope that you’ll appreci-ate the information presented in “Prosthetics and Implant Markup Strategy” and “Accurate Hospital Documentation Ensures Best Course of Care, Proper Reimbursement.”

Finally, please note our client corner and upcoming events. We don’t want you to miss anything!

The Fourth Audit Discipline: Contractual AllowancesFor the past fifteen years, we have been focused students studying to differentiate successful hospitals from the average. Much of that time has been devoted to under-standing the relationship between charge, payment, and coding audits and the role they play in process improvement. Recent experiences have influenced the need to expand the revenue umbrella to include all forms of contractual allowances. We will use two examples to illustrate the case.

As with many contemporary insights, our current work with the Rehabilitation Hospital of Indiana contains a wealth of fresh observa-tions. As you may know, Acute Rehab is paid by Medicare using a grouper that blends patient impair-ment scores with diagnosis codes to establish the value of the stay. What was missing for several months was the evaluation of the cost-based portion of reimbursement that occurs after meeting an outlier threshold. This insight resulted in

our recommenda-tion to aggressively move to eliminate late charges and to include select accounts in a clas-sic charge audit process. These process improvements could, when annual-ized, increase bottom-line perfor-mance by up to 25%. You may say, “That is simple – we can do that,” or, ”We have already done that.” However, there are similar pockets of income available in almost every hospital and only when you maximize the space allo-cated to revenue management do they come into focus.

The second example comes from the December issue of Health Care Compliance. In an article by McBee Associates, Inc. Principal Frank X. Smith, there is a focus on the intricacies of applying the Medicare “Three-Day Payment Window Rule” to a variety of sce-narios. The rule, as with many gov-ernment-designed payment systems, has a host of exceptions. This con-tributes to both over- and under-payments and hospitals cannot allow software choices to have the only influence on compliant billing

Integrated Revenue Management - � - Net Revenue Matters - January �010

practices. Historically, the “Three-Day” rule managed inpatient financial services using logic available in the billing system. There exists a strong possibility that this type of profile lacks the intricate coding logic to accurately distinguish between a related (thus, bun-dled) service that is unrelated and should be billed separately. This level of review requires coding skills as well as an intense understanding of Medicare regu-lations. The question becomes: does the traditional business process deliver the highest, most compliant invoice or does ever-increasing audit activity predict the need for changes to the hospital’s practice?1

Most hospital reimbursement rates range from com-pletely inadequate to lucrative. The range is huge and grows wider each year as the Medicare and Medicaid burden causes all government entities to attempt to restrict the ever-increasing expense. Shifting cost to other payers has been the common strategy for almost 30 years. As the insurance industry has collapsed into a handful of national players, their network contracts increasingly restrict the hospital’s ability to make up the reimbursement deficit.

Hospitals have been in the revenue management business since at least 1983 (remember DRGs). The growing threat is the loss of reputation and revenue through increasing compliance audit activity. The next generation of revenue management will include a more global approach to managing both challenges. Hospitals that have carefully built revenue manage-ment teams over the past few years are expected to be in the best position to maintain adequate income and withstand increased audits.

1 http://www.hcca-info.org/StaticContent/compliancetoday/2009/dec/ct1209_Smith.pdf

“Three-day Payment Window Rule: A source of confu-sion, noncompliant billing, and additional revenue” Frank X. Smith Health Care Compliance Association Pgs 24, 25, 28, 41 December 2009 edition

This article, published in the December 2009 issue of Compliance Today appears here with permission from the Health Care Compliance Association. Call HCCA at 888/580-8373 with all reprint/copy requests.

IRM clients will find more information regarding this topic in the Client section of the IRM Web site. Other interested parties are encouraged to use the “Contact Us” feature to ask a question or share a comment.

Prosthetics and Implant Markup StrategyThe purposes of using carve-out pricing strategies for material that meets the Revenue Code definition for Prosthetics and Implants are to:

Recover the often high cost paid to suppliers for these items, and

Contribute to earned net income in sufficient amounts to cover uncompensated and under-com-pensated care and to provide a sustainable bot-tom-line of at least 5%.

To effectively use carve-out strategies, the hospital must first understand the impact of contractual dis-counts, bad debt, and subsidized care. For example, if the average insurance company discount is 20%, bad debt is 5%, and charity and subsidized care costs are 30%, then to maintain a 5% profit the markup must average a minimum of 60%.

Thus a $100 item would have a minimum charge master price of $170. This is a minimum and eco-nomic shortfalls caused by other types of fixed or per-spective paid contracts could lead to increases in this target price.

The common practice is to distribute this markup using one of two strategies:

Equal markups for all items regardless of cost. This method is simple to use, but can lead to mas-sive bills when applied to the highest cost items such as implantable deliberators or complex ortho-pedic surgeries.

►

►

►

Integrated Revenue Management - � - Net Revenue Matters - January �010

Accurate Hospital Documentation Ensures Best Course of Care, Proper ReimbursementAngleton Danbury Medical Center (ADMC) of Angleton, Texas, has agreed to a two-year engagement to utilize IRM’s clinical documentation improvement (CDI) offering. Already a Revenue Management Department client of IRM, ADMC expects to take advantage of IRM’s expertise to improve hospital and physician documentation, overall patient quality of care, compliance and outcome data, physician and hospital profiles, coding, and reimbursement.

ADMC’s Chief Financial Officer, Bill Garwood, stated, “The benefits from this expanded relationship include not only reviews for clinical documentation quality but also coding accuracy.” Mr. Garwood continued, “We expect IRM to provide guidance and education as we work with members of our medi-cal staff to improve documentation in patient charts. IRM brings both expertise and tools to enable our staff to obtain the documentation needed to ensure that ADMC collects every dollar to which it is legally entitled. We expect to experience an increase in our case mix and quality scores. Finally, we expect that this relationship will help reduce exposure to the RAC audits.”

National Director of Healthcare Reform for IRM, Adriana van der Graaf, a 34-year veteran of the healthcare industry, applauds the efforts of ADMC. Ms. van der Graaf commented, “Angleton Danbury has taken an important step to improve their docu-mentation and quality of patient care, while position-ing themselves appropriately for the coming changes in hospital reimbursement and audits.” IRM will work with ADMC to educate, improve, and train staff to ensure that the medical record accurately reflects the course of care provided.

The second method is to “tier” prices based on cost with lower-cost items being priced at a sub-stantially higher markup when compared to high-cost material.

For example, items costing from $0 to $100 may be marked up at cost plus 300%, costs between $100 and $500 at cost plus 200%, and items above $500 at cost plus 150%.

The tiered method causes the hospital to not only calculate the required margin, but to also know about usage and changes in suppliers and physician prefer-ences. At the end of the day, the pricing strategy must yield the required economic impact.

Either method requires accurate information related to cost and the diligence to maintain this cost infor-mation in an up-to-date manner. The shortfall of many of these strategies is discovering that the underlying cost information has not been pro- perly maintained and the yield from implants has seriously eroded.

Other considerations:Insurance companies are becoming more aggres-sive in challenging prices and using many compar-ative pricing tools to deny payment. The hospital’s policy must be clear, easy to explain by staff mem-bers who interact with insurance companies and patients, and based on some explainable economic strategy.Keep it as simple as possible. The more complex the strategy the higher the cost of maintenance and the higher the risk of failure.Avoid contracts that require any form of “proof of cost.” These terms have a massive failure rate and a high cost to process. They represent one of the most common reasons for insurance underpay-ments. Rather, use a discount from price for the impacted revenue codes.Pay particular attention to the Revenue Code(s) used for high-cost pharmacy. This area is often undermanaged and high cost drugs make up an increasing portion of a hospital’s expense budget. Be aware that many other merchants in your com-munity use markup practices of 300% to 700%

►

►

►

►

►

►

of their cost. Consumers, for some reason, believe we can maintain a hospital with a small markup or none at all. This speaks again to the need to “script” the answer to the question of how prices were established to insure a consistent message to all concerned publics.

C l i e n t C o r n e r

Integrated Revenue Management - � - Net Revenue Matters - January �010

NYU Langone Medical CenterIRM welcomed NYU Langone Medical Center’s newly hired RMD staff to Carlsbad October 12 through October 21 for training. The team of nine members – three charge auditors, two CBR analysts, two pricers, Manager Doris Nadres, and Director Prabhjot Grewal – spent two weeks in Carlsbad learning how to audit and analyze accounts. It was a successful RMD training.

The training concluded with an informative and entertaining skit that used the positions on a baseball team to demonstrate what the team had learned (the NY Yankees were in the playoffs at the time).

The following week, the IRM team followed NYU to the Big Apple for a successful implementation.

Congratulations and welcome, NYU!

2010 Database FTP Submission ScheduleBelow is the 2010 Database FTP Submission Schedule. Please plan to submit all databases on the requested dates.

Please note that the first database submission for the month is to check for data integrity and pricing, and the second database submission is to complete execu-tive summary reporting. As a reminder, if the data-bases are sent on the 9th of the month for executive summary reporting they are not acceptable because

they are unlocked databases. The databases would have to be requested again on the 10th.

Please contact the Data Integrity team with any ques-tion that may arise:

Jennifer Huddleston jhuddleston@irminconline.com 760-448-1045

Erin K. Draper edraper@irminconline.com 760-448-1040

2010 Database FTP Submission Schedule

January 4 January 11

February 3 February 10

March 3 March 10

April 5 April 12

May 3 May 10

June 3 June 10

July 1 July 12

August 3 August 10

September 3 September 10

October 4 October 11

November 3 November 10

December 3 December 10

PI Projects in the SpotlightIn 2010, IRM will be proudly highlighting process improvement (PI) projects that have been completed by client RMDs (each quarter, a client will be asked to share a successful PI project). The PI project will be presented in IRM’s PDCA (Plan-Do-Check-Act) format and will include the detailed actions that were taken to improve the process, as well as the financial impact of the project. Also, the staff of the RMD will be on hand for a Q&A session.

Our first RMD to be highlighted is Archbold Medi-cal Center in Thomasville, Georgia and the project to be featured is Anesthesia Time Charging. Clients should have received their invitation earlier this week and we hope that you’re able to listen in.

Integrated Revenue Management - � - Net Revenue Matters - January �010

Don’t Forget!All CBR activity for the month must be entered into the CBR Software application/DRG Catalyst prior to the 10th of the following month. Be sure to follow the steps below so that results from retrospective CBR audits translate onto the Executive Summary:

Inpatient (DRG Catalyst)

The rebill checkbox must be checked. (Please make sure that you send the checked accounts to PFS for rebilling!)

Outpatient (CBR Database)

The completion date must be entered under the CBR Utilities tab and

The rebill checkbox must be checked. (Please make sure that you send the checked accounts to PFS for rebilling!)

Before the database closes each month, IRM recom-mends that you complete the following checklist:

Confirm that all completed retrospective audits for the month have an end date entered into the CBR database.

Check the rebill box in the CBR database or DRG Catalyst for each retrospective claim that has been approved for rebilling.

Complete a Summary of Audit Findings form for any projects you closed this month and submit it to the coding Subject Matter Expert (SME).

Ensure that data is entered for all accounts audited for the current month.

►

►

►

►

►

►

►

Save the Date!Best Practice Forum 2010

May 17-20 Charleston Renaissance, Charleston, SC

Planning continues for this year’s Best Practice Forum and we hope that you’ll be there. In addition to the guest speakers introduced in our last two newsletters, IRM experts will be presenting, as well. Watch for registration information in the weeks to come.

Managed Care Database UpdateReminder: Change the Audit End Date

This is a reminder to change the audit end date in the Data Manager screen. In order to pull reports for accounts that are audited in 2010, please do the fol-lowing to each Managed Care database once:

Open the Managed Care Screens

Before loading data on the Data Manager screen, change the Audit End Date to: 12/31/2010

If you have any questions, please contact Jennifer Huddleston at 760-448-1045 or Andrew Miller at 760-448-1055.

►

►

Accuracy is KeyWhen entering charge audit findings into the data-base, it is important to be as accurate as possible when choosing a reason code.

Some reason codes are inherently indicative of over-charges or undercharges.

Codes representative of overcharges:No MD orderMissing documentation (MD, RN, PT, RT etc)Service or Procedure not performedIV start/stop times missingBundled ProcedureNot Chargeable

Codes representative of undercharges:Omitted chargesUnbundled Service

The “Other” reason code may be used with either over- or undercharges, however, be sure to add a com-ment to clarify your use of this code.

As the databases are reviewed for trends, reason codes become invaluable in justifying your findings. Accu-racy is key.

Happy auditing!

Integrated Revenue Management - � - Net Revenue Matters - January �010

Net Revenue Matters is a monthly publication of Integrated Revenue Management, Inc. (IRM), and is offered as an informational service. Due to the nature of this publication, examples cited and advice given must often be general in nature and may not apply to a particular facility or situation. Thus, IRM does not warrant or guarantee the information contained will be applicable or appropriate in all situations. Each facility will have to evaluate its specific opportunities and take such action as to best meet its business needs. To find out more about a given subject or for information tailored to your specific circumstances, contact an IRM professional.

If you have questions or would like to submit information for a future newsletter, please contact: Cynthia Hufferd 760-448-1034 chufferd@irminconline.com

Client Code-Based Reimbursement Project Rollout Topics 2010 Live webinars begin at 11:30 Pacific

Potential Project Rollout Topics

Injections and Infusions

Introduction to Inpatient Audits

Inpatient Mechanical Ventilation

POA and HAC

Observation and One-Day Stays

Device Dependent APCs

Wound Care

Pain Management

Outpatient Orders

Spine Surgery

Chemotherapy

Pathology

Brachytherapy

Moderate Sedation

Radiology Imaging

Erythropoiesis Stimulating Agents

Discharge Dispositions

Interventional Cardiology and Electrophysiology

Emergency Department

Vascular Access Devices

Neurostimulators

GI Endoscopy

Tracking and Trending CCI Edits

For more information, please contact us. Thank You

Client RMD WorkshopWebinars 2010(Workshop webinars have replaced TCG webinars)

Jan 28: PI Spotlight: Archbold Medical Center Anesthesia Time Charging

Feb 18: Managed Care Forum

Potential Workshop TopicsConsumer-Driven Healthcare/Pay for PerformanceMedicare Managed CareAuditing ICU AccountsHow to Handle AdversitySilent PPOsHow to Update and Maintain the CPMHow to Interact with Internal CustomersWrite-off AnalysisSoftware Data Entry and ProcessSoftware Reporting

2009 Topics (available through the Clients Only section of the IRM Web site)

Injections and InfusionsHow to Analyze CBR Project FindingsHow to Quantify PI ResultsDefense Data EntryBilateral Procedures and Managed Care PayersObservations and Process ImprovementsThe PCDA FormLet’s Do Pharmacy!How to Quantify CDM Changes

Please watch for your e-mail invitation approximately three weeks prior to the scheduled event.

UpComing Webinars