hfma southern california educational webinar october 4, 2012 presented by: jamie cleverley cleverley...
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HFMA SOUTHERN CALIFORNIA EDUCATIONAL WEBINAROctober 4, 2012
Presented by:
Jamie CleverleyCleverley + Associates
REGIONAL & OPERATIONAL EFFECTS ON HOSPITAL PRICING& STRATEGIC RESPONSES FOR PRICE DEFENSE
| 2 |
Why pricing?
National Health Expenditures (top five areas – millions)
1 GROWTH IN HOSPITAL COSTS/CHARGES
| 3 |Source: CMS
Why pricing?
1980-1990 % Change 1990-2000 % Chg 2000-2009 % Chg
Drugs 12.8% Drugs 11.6% Drugs 8.4%
Physician 12.8% Admin Priv Hlth Ins 7.7% Admin Priv Hlth Ins 8.1%
Admin Priv Hlth Ins 12.4% Other 6.1% Hospital 6.9%
Nursing Home 11.4% Dental 7.0% Other 6.5%
Other 11.3% Nursing Home 6.6% Physician 6.4%
Hospital 9.6% Physician 6.2% Struct & Equip 6.3%
Struct & Equip 9.4% Struct & Equip 5.9% Dental 5.7%
Dental 9.0% Hospital 5.2% Nursing Home 5.4%
TOTAL ALL 11.0% TOTAL ALL 6.6% TOTAL ALL 6.8%
1 GROWTH IN HOSPITAL COSTS/CHARGES
Annualized Change in National Health Expenditures by Area
| 4 |
Why pricing?
Inflationary Changes by Metric & Year
1 GROWTH IN HOSPITAL COSTS/CHARGES
| 5 |
6.0%
Why pricing?
1 GROWTH IN HOSPITAL COSTS/CHARGES
Rate Increase Median Limit Value
5.0%
5.0%
5.0%
| 6 |
2 INCREASED GOVERNMENT/LEGAL ATTENTION
Why pricing?
Hospitals, SEIU-UHW Reach Visionary Agreement on Future of Health Care Policy, Relationships in California
May 2, 2012The California Hospital Association and SEIU-United Healthcare Workers West have reached a comprehensive, strategic agreement to jointly take on the many challenges facing the health care system, including rising costs, burgeoning levels of chronic disease, and the need to provide the highest quality of care for the people of California.
Reached after two months of meetings and conversations to discuss issues of mutual interest, the agreement calls for SEIU-UHW and CHA to work in good faith, along with other key stakeholders, to find practical solutions that can replace or improve the current hospital pricing system and protect the neediest patients by addressing uncompensated care in hospitals in a manner that accounts for low Medicare and Medi-Cal payments.
Issued jointly by CHA and SEIU-UHW
| 7 |
What is driving the need for transparency?
2 INCREASED GOVERNMENT/LEGAL ATTENTION
Why pricing?
| 8 |
Growth in HSA/HDHP Plans by Year (thousands)
Source: Center for Policy & Research, America’s Health Insurance Plans
3 GROWTH IN HSA/HDHP AND CONSUMER-DIRECTED HEALTHCARE
Why pricing?
| 9 |
Why pricing?
3 GROWTH IN HSA/HDHP AND CONSUMER-DIRECTED HEALTHCARE
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1) Understand the relationships of operating environment factors on hospital price through a national data studyWHAT INFLUENCES HOSPITAL PRICING?
2) Assess current price position with critical performance metrics for inpatient and outpatient areasHOW DO WE COMPARE PRICES?
3) Defend hospital pricing in light of unique operating environments by implementing appropriate policies and strategic modelsHOW DO WE DEFEND PRICES?
Today’s Objectives
WHAT INFLUENCES HOSPITAL PRICE?
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What influences hospital pricing?
Three spheres of influence on price
PRICE
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Who is likely to have the highest charges among hospitals that are:
-Urban vs Rural
-For-Profit vs Non-Profit
-Large vs Small
-High Market Share vs Low Market Share
-High Medicaid vs Low Medicaid
-High Cost vs Low Cost
Testing price variablesW
hat influences hospital pricing?
$
| 14 |
Urban/Rural Status by Hospital Charge Index® Quartiles
What influences hospital pricing?
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What influences hospital pricing?Organization Type by Hospital Charge Index® Quartiles
| 16 |
What influences hospital pricing?Median Net Patient Revenue (millions) by Hospital Charge Index® Quartiles
| 17 |
What influences hospital pricing?Median Market Share Percentage by Hospital Charge Index® Quartiles
| 18 |
What influences hospital pricing?Median Medicaid Days Percentage by Hospital Charge Index® Quartiles
| 19 |
What influences hospital pricing?Median Collection Percentage From Self-PayBy Year
| 20 |
What influences hospital pricing?Median Hospital Cost Index® by Hospital Charge Index® Quartiles
| 21 |
What influences hospital pricing?
What influences hospital pricing?Median Operating Margin by Hospital Charge Index® Quartiles
| 22 |
What influences hospital pricing?
What influences hospital pricing?Median Payer Environment by Hospital Charge Index® Quartiles
Payer Environment: Markup Ratio/Deductions %
| 23 |
What influences hospital pricing?
Regional differences in hospital pricing
Regional Divisions Used by the United States Census BureauNORTHEASTConnecticutMaineMassachusettsNew HampshireNew JerseyNew YorkPennsylvaniaRhode IslandVermont
MIDWESTIllinois MissouriIndiana NebraskaIowa North DakotaKansas OhioMichigan South DakotaMinnesota Wisconsin
SOUTHAlabama Georgia North Carolina TexasArkansas Kentucky Oklahoma VirginiaDelaware Louisiana South Carolina West VirginiaDist of Columbia Maryland TennesseeFlorida Mississippi
WESTAlaska NevadaArizona New MexicoCalifornia OregonColorado UtahHawaii WashingtonIdaho WyomingMontana
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What influences hospital pricing?Median Hospital Charge Index® by Regional Divisions
88.3
110.6
94.9119.7
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Urban/Rural Status by Regional Divisions
What influences hospital pricing?
| 26 |
What influences hospital pricing?Organization Type by Regional Divisions
| 27 |
What influences hospital pricing?Median Net Patient Revenue (millions) by Regional Divisions
151
78
110121
| 28 |
What influences hospital pricing?Median Market Share Percentage by Regional Divisions
18.6
50.7
41.513.6
| 29 |
What influences hospital pricing?Median Medicaid Days Percentage by Regional Divisions
13.3
15.3
13.818.0
| 30 |
What influences hospital pricing?Median Collection Percentage From Self-Pay byRegional Divisions
IP: 6.0OP: 7.6IP: 2.7
OP: 3.0
IP: 2.7OP: 2.9
IP: 5.0OP: 5.0
| 31 |
What influences hospital pricing?Median Hospital Cost Index® by Regional Divisions
96.8
100.5
102.8101.8
| 32 |
What influences hospital pricing?
What influences hospital pricing?Median Operating Margin by Regional Divisions
-0.58
1.13
1.412.74
| 33 |
What influences hospital pricing?
What influences hospital pricing?Median Payer Environment by Regional Divisions
Payer Environment: Markup Ratio/Deductions %
4.20
4.48
4.264.84
PAYMENT IS KEY IN HOSPITAL PRICING
| 35 |
PayerNumber of
PatientsNet Payment per
PatientTotal
PaymentTotal
CostMedicare 50 $92.50 $4,625 $5,000Medicaid 10 $75.00 $750 $1,000Uninsured 5 $5.00 $25 $500Managed Care 30 $125.00 $3,750 $3,000Other 5 ??? $500
Totals 100 $9,150 $10,000
less Total Cost $10,000 less Required Profit $500
Balance Remaining ($1,350)
Average Cost per Patient = $100
Required Payment from Five Remaining Patients = $270 ($1,350/5)
???
Analysis of Payer Environment & Hospital PricePaym
ent key in hospital pricing
| 36 |
Average costs
Losses on patients who pay less than cost
Discounts to charge patients Uninsured Commercial
Reasonable return on investment Sustainable growth
Pricing Requirements
Analysis of Payer Environment & Hospital PricePaym
ent key in hospital pricing
| 37 |
Price =(NI + fixed pay loss)
(1 - charge discount)
Pricing Model
avg cost + charge volume
Average cost increases
Use this model for price-setting at facility level:
Net income requirementsincrease
Losses from fixed pay businessincreases
The percentage of charge paying patients decreases
Price must increase when:
The discount from charges increases
Analysis of Payer Environment & Hospital PricePaym
ent key in hospital pricing
| 38 |
Avg cost = $100NI = $4 (4%)
FP loss = $0Charge payers = 20%
Charge discount = 30%Required price = $171.43
Pricing Model – Payer Impact on Pricing
Analysis of Payer Environment & Hospital PricePaym
ent key in hospital pricing
| 39 |
Analysis of Payer Environment & Hospital PricePaym
ent key in hospital pricing
MODEL
# 1 # 2 # 3
Profit margin 4% 4% 4%FP loss 0 2 0
% charge 50% 20% 100%Average discount % 15% 60% 5%
Mark-up required 127 325 109
Pricing Model – Pricing Sensitivity Analysis
HOW DO WE COMPARE HOSPITAL PRICES?
| 41 |
CPT® is a registered trademark of the American Medical Association. All rights reserved.
How
do we com
pare prices?
Level of Comparison Metric
FACILITY Hospital Charge Index®
Medicare Charge per Discharge (CMI/WI adj)
Medicare Charge per Visit(RW/WI adj)
DEPARTMENT BETOS Analysis
INPATIENT CASE Charge by MS-DRG
OUTPATIENT CASE Charge by APC
PROCEDURE Price by CPT®/HCPCS Code
Levels of hospital price comparison
Bundling
Bundling
Leve
l of D
etai
l
| 42 |
Facility-level charge measure:Hospital Charge Index®
Outpatient ChargesOutpatient Charge Index
Formula:Your Medicare Charge
per Visit (RW/WI adj)US Median Medicare Charge per
Visit (RW/WI adj)
Inpatient ChargesInpatient Charge IndexFormula:Your Medicare Charge per Discharge (CMI/WI adj)US Median Medicare Charge per Discharge (CMI/WI adj)
Facility-level price comparisonH
ow do w
e compare prices?
Inpatient Charge Index
Outpatient Charge Index
Hospital Charge Index®
Sample Hospital 136.1 119.4 128.9
Peer Average 96.6 65.9 85.2
| 43 |
Sample Hospital
Peer Average
% of Peer Average
Evaluation & Management – selected detail Office Visits 126.58 111.74 113.28%
Emergency Room 406.53 323.20 125.78%Evaluation & Management Total 298.09 213.27 139.77%
Procedures – selected detail
Major Procedures – Cardiovascular 193.56 113.00 171.30%Eye Procedures - Cataract/Lens 130.76 196.93 66.40%
Procedures Total 287.50 185.65 154.86%
Imaging – selected detail Standard Imaging - Nuclear Medicine 230.29 281.86 81.70%
Advanced Imaging - CT/CTA Scan Brain/Head/Neck 569.35 396.29 143.67%Imaging Total 467.71 343.16 136.29%
Tests – selected detail Lab tests - Pathology 358.81 368.38 97.40%
Lab tests - Routine venipuncture 1,854.80 705.90 262.76%Tests Total 495.30 297.09 166.72%
Department-level price comparison
CPT® Description87075 Culture specimen, bacteria
87076 Bacteria identification
87077 Culture Aerobic Identify
CPT® is a registered trademark of the American Medical Association. All rights reserved.
Department/Family Analysis“Lab Tests – Microbiology”
How
do we com
pare prices?
| 44 |
DRG Description
Sample Hospital Volume
Sample Hospital Average Charge
Peer Average Charge
470 Major joint replacement or reattachment of lower extremity w/o MCC 795 52,246 45,870
652 Kidney transplant 55 183,983 147,994
871 Septicemia w/o MV 96+ hours w MCC 162 54,714 31,379
460 Spinal fusion except cervical w/o MCC 54 128,559 92,961
468 Revision of hip or knee replacement w/o CC/MCC 72 73,391 55,107
Inpatient/Outpatient/Procedure-level price comparison
APC Description
Sample Hospital Volume
Sample Hospital Average Charge
Peer Average Charge
0301 Level II Radiation Therapy 8,680 1,481 1,146
0412 IMRT Treatment Delivery 2,635 4,642 2,820
0310 Level III Therapeutic Radiation Treatment Preparation 367 24,955 11,648
0615 Level 4 Emergency Visits 2,698 2,988 2,102
0616 Level 5 Emergency Visits 1,265 5,210 4,272CPT® Description
Sample Hospital Volume
Sample Hospital Average Charge
Peer Average Charge
77418 Intensity modulated treatment deliver 2,652 3,354 2,213
77414 Radiation treatment delivery 4,981 991 851
77334 Radiation treatment aid(s) 2,954 1,650 1,026
99284 Emergency dept visit 2,945 1,331 1,027
77413 Radiation treatment delivery 3,896 991 808
CPT® is a registered trademark of the American Medical Association. All rights reserved.
How
do we com
pare prices?
HOW DO WE DEFEND HOSPITAL PRICES?
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How
do we defend prices?
Three approaches to hospital price defense
1 2 3ROI Model Peer Position Cost Markup
| 47 |
(volume x price) - (volume x cost) investment
ROI FormulaROI =
Relating pricing to ROI: the public-utility approach
Public utilities have used a Return on Investment (ROI) model to justify price increases to rate regulatory boards. The approach isolates the price variable from the ROI formula (below) and “tests” the remaining elements. If it can be proved that ROI, Cost, and Investment are not excessive, then price must also not be excessive. In the following pages, we present these tests.
Tests
1. Is ROI excessive?
2. Is cost excessive?
3. Is investment excessive?
If “no” to all three, price is not excessive.
Return on Investment ModelH
ow do w
e defend prices?1
| 48 |
Group Median Return on Equity
Los Angeles-Long Beach-Santa Ana 13.6
Riverside-San Bernardino-Ontario 11.6
San Diego-Carlsbad-San Marcos 17.5
San Francisco-Oakland-Fremont 14.4
Sacramento-Arden-Arcade-Roseville 14.0
California 12.2
US 9.0
Tests Is ROI excessive? Is investment excessive? Is cost excessive?
How
do we defend prices?
Return on Investment Model1
ROE: Excess of Revenue over Expenses/Net Assets
| 49 |
How
do we defend prices?
Return on Investment Model1
Average Age of Plant: Accumulated Depreciation/Depreciation ExpenseFixed Asset Turnover: Total Revenue/Net Fixed Assets
Tests Is ROI excessive? Is investment excessive? Is cost excessive?
Group Median AAP FAT
Los Angeles-Long Beach-Santa Ana 7.8 3.82
Riverside-San Bernardino-Ontario 8.8 4.42
San Diego-Carlsbad-San Marcos 9.9 3.94
San Francisco-Oakland-Fremont 13.0 3.37
Sacramento-Arden-Arcade-Roseville 12.1 3.17
California 9.5 3.39
US 9.6 2.55
| 50 |
Facility-level cost measure:Hospital Cost Index®
Outpatient CostsOutpatient Cost Index
Formula:Your Medicare Cost
per Visit (RW/WI adj)US Median Medicare Cost per
Visit (RW/WI adj)
Inpatient CostsInpatient Cost IndexFormula:Your Medicare Cost per Discharge (CMI/WI adj)US Median Medicare Cost per Discharge (CMI/WI adj)
How
do we defend prices?
Return on Investment Model1
| 51 |
Tests Is ROI excessive? Is investment excessive? Is cost excessive?
How
do we defend prices?
Return on Investment Model1Group Median Hospital Cost Index®
Los Angeles-Long Beach-Santa Ana 95.7
Riverside-San Bernardino-Ontario 91.3
San Diego-Carlsbad-San Marcos 98.1
San Francisco-Oakland-Fremont 103.5
Sacramento-Arden-Arcade-Roseville 93.0
California 95.9
US 101.3
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Comparing your pricing to pricing at peer facilities
The second method used to assess the defensibility of your pricing is direct comparison with peers. Data at these levels is useful:
1) Facility level
2) Departmental level
3) Inpatient-case level
4) Outpatient-case level
5) CPT®/procedure level
How
do we defend prices?
Peer Position Model2
| 53 |
Facility-level
How
do we defend prices?
Peer Position Model2
Group Median Hospital Charge Index®
Los Angeles-Long Beach-Santa Ana 156.4
Riverside-San Bernardino-Ontario 126.0
San Diego-Carlsbad-San Marcos 141.7
San Francisco-Oakland-Fremont 148.9
Sacramento-Arden-Arcade-Roseville 150.3
California 143.7
US 103.7
| 54 |
Facility-level
How
do we defend prices?
Peer Position Model2
Group Median Medicare Charge per Discharge (CMI/WI adj)
Los Angeles-Long Beach-Santa Ana 29,718
Riverside-San Bernardino-Ontario 24,912
San Diego-Carlsbad-San Marcos 27,859
San Francisco-Oakland-Fremont 27,954
Sacramento-Arden-Arcade-Roseville 28,722
California 28,177
US 19,858
| 55 |
Facility-level
How
do we defend prices?
Peer Position Model2
Group Median Medicare Charge per Visit (RW/WI adj)
Los Angeles-Long Beach-Santa Ana 422
Riverside-San Bernardino-Ontario 417
San Diego-Carlsbad-San Marcos 357
San Francisco-Oakland-Fremont 377
Sacramento-Arden-Arcade-Roseville 373
California 391
US 331
| 56 |
Facility-level
How
do we defend prices?
Peer Position Model2
Group Median Medicaid Days %
Los Angeles-Long Beach-Santa Ana 23.8
Riverside-San Bernardino-Ontario 25.3
San Diego-Carlsbad-San Marcos 16.7
San Francisco-Oakland-Fremont 13.9
Sacramento-Arden-Arcade-Roseville 17.9
California 21.0
US 16.4
| 57 |
Relating pricing to cost:Sources of Cost Data
Hospital cost-accounting system
Direct Cost
Fully allocated cost
RCCs
How
do we defend prices?
Cost/Markup Model3
| 58 |
1. Reduced net patient revenue, e.g., $5.1 million vs. $9.6 million in ATB
2. Major pricing changes, e.g., -99% to 3,580%
Relating pricing to cost:Two Usual Outcomes
How
do we defend prices?
Cost/Markup Model3
CREATING AN APPROPRIATE PRICING STRATEGY
| 60 |
Secondary/Tertiary Hospital Market
Understand your market positionCreating appropriate prices
Core HospitalMarket
Non- HospitalMarket
WHO??
SERVICES??
PRICE COMPARE??
| 61 |
Critical Areas of Contract NegotiationContract languagePayment terms
Understand and manage payment
Contract Language Areas Clean claims definition Most favored nation clauses Appeal-process fairness Payment arrangements after
termination Silent PPO arrangements Price-increase limits
Creating appropriate prices
| 62 |
* 80 comparison plansPayer Z
Average Value*Sample Hospital
All services % of Billed Charges 81%
DRG Base Rate $6,125 $4,806
Per-Diem Rates
Medical $1,659
Surgical $1,921
TCU/Telemtry $2,036
ICU/CCU $3,314
PTCA $4,091
Psych $711 $485
Alcohol/ Chemical Dependency $637 $485
Rehab $1,293
Payment terms – Inpatient (payer Z & hospital)
Understand and manage paymentCreating appropriate prices
| 63 |
* 80 comparison plans Payer ZAverage Value*
Sample Hospital
All services % of Billed Charges 72%
Radiology (% BC) 75%
38.6% (except case rates for SPECT, MRI/MRA, &
CT Scan)
Laboratory (% BC) 76% Fee Schedule
Emergency Department (% BC) 73% 38.6%
Level 1 $93
Level 2 $141
Level 3 $339
Level 4 $600
Level 5 $1,212
Payment terms – Outpatient (payer Z & hospital)
Understand and manage paymentCreating appropriate prices
| 64 |
Set the desired profit target Establish initial rate-increase limits and parameters Use the right data to estimate rate-increase impact Model your contract terms Assess fee-schedule pricing Incorporate cost data Examine competitive pricing comparisons Review pharmacy / medical-supply issues Evaluate impact by case categories Evaluate impact by payer Adjust parameters as necessary and implement final CDM changes
Critical steps in a hospital’s rate-setting strategy
Developing a rate strategyCreating appropriate prices
| 65 |
Meet net income requirements?
Maintain or enhance competitive position?
Maintain related pricing relationships?
Establish equitable distribution to case categories?
Establish equitable distribution to payers?
Developing a rate strategyCreating appropriate prices
Does the pricing strategy:
| 66 |
Summary
• Hospital pricing is impacted by various demographic and operating factors
• Payment is critical in rate establishment
• Price comparison can change significantly based on the level of comparison
• Defensibility and required net revenue production can be attained through strategic pricing assessments
| 67 |
Jamie CleverleyPrincipalCleverley + AssociatesEmail: jcleverley@cleverleyassociates.com Phone: (614) 543-7777
Thank you. Questions?
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