professional financial analysis & patient out of pocket costs
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Professional Financial Analysis & Patient Out of Pocket CostsChristopher Baugh MD, MBAVice Chair of Clinical AffairsDepartment of Emergency MedicineBrigham and Women’s HospitalAssociate ProfessorHarvard Medical School
September, 2021
Disclosures
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Agenda
➢ Observation models of care
➢ Financial rationale of observation units for the hospital
➢ Professional observation fees
➢ Professional staffing models
➢ Negotiating for financial success
Settings of Observation Care
Ross, Health Affairs, December 2013
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Inpatient Management of Observation Patients
JAMA Internal Medicine, July 8th , 2013
Inpatient All Obs Medicine
Obs
Type 4 observation care
Take us to your loss
leader
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Systematic Review of Facility Cost Savings
Disease First Author Year
Total Cost Savings of Observation Unit vs.
Inpatient Admission
Asthma
Rydman(35) 1998 $1,726
Chest Pain
Gaspoz(36) 1994 $1,322
Sayre(37) 1994 $2,745
Field(38) 1995 $2,645
Mikhail(39) 1997 $2,505
Roberts(40) 1997 $966
Stomel(41) 1999 $2,387
Robinson(42) 2002 $1,675
Chang(11) 2008 $653
Chang(11) 2008 ($1,219)*
Miller(43) 2010 $605
Infections
Roberts(44) 1997 $1,746
Pediatrics
Listernick(12) 1986 $6,641*
Greenberg(45) 2006 $426
Sickle Cell
Benjamin(46) 2000 $968
TIA
Ross(47) 2007 $748
Upper GI Bleed
Longstreth(48) 1995 $1,795
Average $1,528 (SD +/- $789)
Baugh et. al. Health Affairs. 2012
Type 1 observation care
Monte Carlo Simulation
Run 1000 trials
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Mean savings: $4.6 millionMean avoided admissions: 3,600
Modeled Savings: Hospital Level
Real Options
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100%
Back to Observation Medicine
Default care without an observation unit
Observation unit
Value of an Observation Unit Stay
80%
20%
Saves $1,528 in direct costsSaves hospital bed hours
Default cost
= investment
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Total Value Per Observation Unit Patient
Total = $2,990
How to Add Capacity
Two main options:Build beds
Takes time (months/years) and money ($ millions)
Reduce length of stayPull the observation patients out of the inpatient beds and manage them using a different model
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Did You Say “Observation?”
Source: AARP
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Policy Reform: SAM and SNF
Home medications: Medicare should reimburse for home medications administered while in observation status (self-administered medications)
Qualifying inpatient minimum for SNF benefit: Midnights in observation status should count toward 3-night minimum for SNF benefits
94% of observation beneficiaries had a lower expense than the inpatient deductible
$725
$401
$127
$0
$100
$200
$300
$400
$500
$600
$700
$800
Short stay inpatient Observation
Self administered medicationsIncreased to $207 in 2014
2012 Medicare Data
2013 OIG data
OIG Report – Inpatient vs. Observation Expense
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SNF Expense Real But Rare
Obs to home, 866,831
Subsequent inpatient
admission, 617,702
Subsequent SNF care, 25,245
No Medicare benefit for SNF
care, 2,097
(0.14%)
(1.7%)
Average SNF patient expense = $10,503
(57%)
1 in 714 visits
2013 OIG data
(41%)
Supplemental Insurance Reduces Patient Expense85% of Medicare beneficiaries have supplemental insurance
-MedPAC 2016
Doyle et. al. Supplemental Insurance Reduces Out-of-Pocket Costs in MedicareObservation Services. Journal of Hospital Medicine Vol 11 | No 7 | July 2016
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Adrion et. al. Rising Use Of Observation Care Among The Commercially Insured May Lead to Total And Out-Of-Pocket Cost Savings. Health Affairs 36, NO. 12 (2017): 2102–2109.
Lower Expense for the Commercially-Insured
Back to Professional Billing and Staffing
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Observation CPT Codes: RVUs
ED codes Same-day obs codes Two-day obs codes
99217
ED arrival Order to assign to
observation
Midnight
If observation stay starts and ends of same
date
Discharge
Discharge
If observation stay crosses midnight
Day 1:992189921999220
Plus Day 2:99217
992349923599236
Observation CPT Codes: Timing
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Billing Models: One versus Two Service
•CPT/Payers: cannot bill two E&M codes on the same calendar date from the same specialty and group
•Stark Law: self-referral risk
Billing Models: One versus Two Service
Can’t control the date of service, so there are two options to get paid for both the ED visit and observation visit on the same date if you staff with a separate physician:
Different group (Tax ID number)
Different specialty (NPI number)
One Service Two Service
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2 Nurses 1 Medical Assistant
1 Physician (rounds and PRN)1 Advanced Practice Provider
1 Unit Secretary
10 beds
Key collaborators: Physical therapy, social work, pharmacy, IS, radiology, consulting services
Leadership: Medical director, APP leader and nurse manager
1 Case Manager (shared)
Staffing Model for One Service Dedicated Unit
One Service Cash Flow Model
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Daily Patient Throughput
Fixed APP cost Fixed EM attending cost Variable EM attending cost Total daily cost Total daily revenue
Revenue = marginal difference between observation and ED E&M payments
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Net Loss at All Levels of Patient Throughput
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Daily Patient Throughput
Fixed APP cost Fixed EM attending cost Variable EM attending cost Total daily cost Total daily revenue
Simulation – Annual Net Loss from One Service Model
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Per
cen
t o
f It
erat
ion
s
Assumes 10 bed EDOU with throughput of 9 patients/day
12h of APP staffing
2.5 hours of EM attending coverage
Net loss = $315,382 +/- $89,635
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5 Nurses 2 Medical Assistants
1 Physician (dedicated)1-2 Advanced Practice Providers
1 Unit Secretary
25 beds
1 Case Manager (dedicated)
Key collaborators: Physical therapy, social work, pharmacy, IS, radiology, consulting services
Leadership: Medical director, APP leader and nurse manager
Staffing Model for Two Service Dedicated Unit
Two Service Cash Flow Model
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Daily Patient Throughput
Fixed APP cost Total daily cost Total daily revenue Fixed EM attending cost
Revenue = recaptured ED E&M payments
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Breakeven Potential Over 20 Patients/Day
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Daily Patient Throughput
Fixed APP cost Total daily cost Total daily revenue Fixed EM attending cost
Simulation – Annual Net Cash Flow in Two Service Model
Assumes 25 bed EDOU with throughput of 22 patients/day
24h of APP staffing
12 hours of EM attending coverage
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Per
cen
t o
f It
erat
ion
s
Net profit = $37,569 +/- $359,583
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Why Should You Own Observation?
ProsExpand reach/footprint of departmentIncrease department resourcesStrengthens interdepartmental relationshipsPolitical “win”Access to research and training settingGain experience and expertise in rapidly growing area
ConsPractice creep“Not what I signed up for”Observation is not a profit centerVulnerable to policy changes
Summary➢ Observation has been around for decades and isn’t going away
➢ Benefits of observation come from protocol use in dedicated units
➢ Observation unit staffing model will dictate need for hospital subsidy
➢ Observation care is an opportunity for emergency physicians, hospitalists and specialists to collaborate
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