april 1, 2009 pricing transparency the role of supply chain leadership

April 1, 2009

Pricing Transparency

The Roleof

Supply Chain Leadership

“Don’t bother me, can’t you see we’ve got a battle to fight?”

Supply Chain Leadership

is Essential to Successfully

Achieving Pricing Transparency

1. Defining the Current Environment

2. Sharing Our Experiences

3. Your Leadership

Our Topics

Defining the Current Environment - How did we get here?- Legislation

Sharing Our Experiences- Chargemaster – Strategic Importance- CMS Cost Reporting - Debunking Common Myths- Cost Transparency

Your Leadership- Be at the Strategy Table- Understanding Your Role- Improving the Bottom Line – OR Revenue Maximization

Defining the Current Environment - How did we get here?

The Problem

• Surveys show consumers can come

within 1% or $300 for the Price of a new

Honda Accord

• But a 4 Day Hospital Stay Price?

Incorrect by 56% or $8,100

Harris Interactive Poll for Great-West Healthcare July 2005

Survey: Estimate Surgical Procedure Cost

Hip Replacement

WSJ Health Care Poll, “Public Perceptions of Costs for Health Care Products and Services Differ Widely” , July 2004

Survey Results

WSJ Health Care Poll, “Public Perceptions of Costs for Health Care Products and Services Differ Widely” , July 2004

Accurate Response Rate: 14%

WSJ Survey: Most Important Issue

44% Believe it’s CostsTranslated: The Price They Pay

What is Price Transparency?

Price Transparency Goals

• Increase Competition among Providers

• Help Patients Make Informed Decisions

• Reduce Charge Disparities for Same Care

The Goal: Publish Procedure Price List

ProcedurePatient Price

Implant Charge

Open Heart Bypass $19,524 Possible

Thoracotomy - Minor $10,819 No

Pacemaker Insertion $4,207 Yes

Open Heart Valve Replacement $19,200 Yes

Carotid Endarterectomy $9,088 Possible

Removal of Pacemaker $2,114 Possible

For Hospitals:

Price Transparency

Requires

Cost Transparency

Defining the Current Environment - How did we get here?- Legislation

• Bush Administration Openly Supported

Transparency Initiatives

Executive Order August 2006

Health IT Research – Strategies Funded

Health Savings Accounts – Incentive

• HHS Secretary Leavitt Pushed for State

Involvement

Federal Legislation

Transparency legislation in place

No current legislation in place

Pending legislation

Source: National Conference of State Legislatures, www.ncsl.org, December 2008

• National Conference of State Legislatures

• Pending and Enacted Transparency

Legislation by State

http://www.ncsl.org/programs/health/Transparency.htm

Where to Find State Legislation

• Obama Administration – “American Recovery and Reinvestment Act of 2009”

Health IT Grants – EMR Rollout

• Proposed Federal Budget Plan 2009

Reduce Medicare payments to Control Costs• Americans Speak on Health Reform: Report on

Health Care Community Discussions

Need to Understand Prices

New Federal Legislation

Defining the Current Environment - How did we get here?- Legislation

Sharing Our Experiences- Chargemaster – Strategic Importance

Chargemaster Problems Arise When

Patient Price

Actual Costs

How does this happen?

Limited System Integration

Software ApplicationAccurate Item

Cost Patient

Price

Patient Finance NO YES

Operating Room NO NO

Purchasing YES NO

Decision Support NO YES

Yearly Price Ramp Up Example:

Item Description: ½” Drain Tube

1995 Item Cost: $3.34

Markup: 150%

1995 Patient Price: $5.00

Separation of Costs from Prices

Separation of Costs from Prices1995 Patient Price: $5.00

2005 Patient Price: $10.78 (8% Yearly Ramp Up)

Problem: Patient Charge Data Used to Understand Costs

Patient Finance System

Decision Support

Data

Procedure Costs Analysis – Actual Costs vs. Decision Support

Result: Limited Visibility to Actual Costs

Procedure Costs Analysis – Actual Costs vs. Decision Support

Result: Limited Visibility to Actual Costs

} Inaccurate Costing

Defining the Current Environment - How did we get here?- Legislation

Sharing Our Experiences- Chargemaster – Strategic Importance- CMS Cost Reporting

Centers for Medicare & Medicaid Services (CMS)

• Annual Data Provided by Hospitals

• Used to Determine Cost to Charge Ratios

• Directly Affects Federal & State

Reimbursement Rates

CMS Cost Reporting

CMS Cost Reporting

CMS Set New Goal of Setting More Accurate

Hospital Payments

• Return to Fixed Fee Reimbursement

System

• No Longer Looks at Gross Charges

• Now it Looks at Costs

Defensible Cost Reporting Requires

Actual Costs

Patient Price

Defining the Current Environment - How did we get here?- Legislation

Sharing Our Experiences- Chargemaster – Strategic Importance- CMS Cost Reporting - Debunking Common Myths

Are All Supplies Chargeable?

Operating Room / Cath Lab

YES

Many Hospitals Do Not Charge for Every Supply Used in the OR

Our Experience

Why?

Our Experience

Most Common Reason Given: “Routine, or Commonly Used Supplies” Are Not Chargeable

According to CMS

Myth

Medicare Provider Reimbursement Manual Section (2203.2)

“They should be direct identifiable items and services provided to individual patients; furnished under the direction of a physician because of specific medical needs; and not reusable or represent a cost for each preparation.”

Myth: This refers to SNFs not Hospitals

Are Instrument Trays Individually Chargeable?

Operating Room / Cath Lab

YES

Many Hospitals Do Not Charge Individually for Instrument Trays

Used in Every Case

Our Experience

Why?

Our Experience

Most Common Reason Given: Reusable Instrument Trays are

Considered Routine and Not Billable Separately

Myth

What this Means:

Charge for All Supply & Implants Used

Charge for All Equipment & Instrument Trays Used

What this Does:

Makes Patient Charges Defensible

Aligns All Actual Costs Per Case

with Charges

Enhances CMS Cost Report

Enables Cost Transparency

Defining the Current Environment - How did we get here?- Legislation

Sharing Our Experiences- Chargemaster – Strategic Importance- CMS Cost Reporting - Debunking Common Myths- Achieving Cost Transparency in Surgery

• OR Time Charges• Surgeon Time• OR Room Time• Anesthesiologist Time

• Equipment Charges

• Instrument Tray Charges

• Supply Detail Charge

• Implant Detail Charge

Operating Room Charges

Costs Driving Price Transparency

SurgeonSurgeon

Time Charge

Dr. A $12,000

Dr. B $8,000

Achieving Cost Transparency

SurgeonSurgeon

Time Charge

OR Time Charge

Dr. A $12,000 $9,200

Dr. B $8,000 $6,100

Achieving Cost Transparency

Costs Driving Price Transparency

SurgeonSurgeon

Time Charge

OR Time Charge

Supply Charge

Dr. A $12,000 $9,200 $3,300

Dr. B $8,000 $6,100 $1,200

Achieving Cost Transparency

Costs Driving Price Transparency

SurgeonSurgeon

Time Charge

OR Time Charge

Supply Charge

Implant Charge

Dr. A $12,000 $9,200 $3,300 $7,800

Dr. B $8,000 $6,100 $1,200 $8,200

Achieving Cost Transparency

Costs Driving Price Transparency

SurgeonSurgeon

Time Charge

OR Time Charge

Supply Charge

Implant Charge

Total

Dr. A $12,000 $9,200 $3,300 $7,800 $32,300

Dr. B $8,000 $6,100 $1,200 $8,200 $23,500

Achieving Cost Transparency

Costs Driving Price Transparency

Costs Driving Charges

Achieving Cost Transparency

Acquisition Cost(Supply / Implant)

Markup(Range 150% - 279%)X

= Patient Price

Chargemaster Design – One to One

15,000 OR Items in Item Master

=15,000 Items in Chargemaster

Costs Driving Charges

SurgeonSurgeon

Time Charge

OR Time Charge

Supply Charge

Implant Charge

Total

Dr. A $12,000 $9,200 $3,300 $7,800 $32,300

Dr. B $8,000 $6,100 $1,200 $8,200 $23,500

Achieving Cost Transparency

Costs Driving Charges

Achieving Cost Transparency

Indirect + Direct Instrument Tray

Costs

Markup(Range 150% - 279%)X

= Patient Price

Improve System Integration

Software ApplicationAccurate Item

Cost Patient

Price

Patient Finance NO YES

Operating Room YES YES

Purchasing YES NO

Decision Support YES YES

Improve System Integration

Software ApplicationAccurate Item

Cost Patient

Price

Patient Finance YES YES

Operating Room YES YES

Purchasing YES NO

Decision Support YES YES

Defining the Current Environment - How did we get here?- Legislation

Sharing Our Experiences- Chargemaster – Strategic Importance- CMS Cost Reporting - Debunking Common Myths- Cost Transparency

Your Leadership- Be at the Strategy Table- Understanding the Need for Your Role- Improving the Bottom Line – OR Revenue Maximization

Strategy Design

PATIENT FINANCE

OR LEADERSHIP

CFO

SUPPLY CHAIN

LEADERSHIP

INFORMATION TECHNOLOGY

The Item File is the Master – Its Your Data

• Standardize Descriptions

• Ensure Costs are Lowest Unit of Measure

• Ensure Catalog Numbers Match Products

Drive the Integration Process

Interfaces to the ORIS must:

• Handle Price Changes

• Transmit Lowest Unit of Measure

• Transmit the Chargemaster Number

• Manage Obsolete Items