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