2 The Big QuestionCan we provide care for our patients (treatment and service) and receive reimbursement that will cover our costs ?
3 Healthcare is a Business Like it or not, healthcare is a businessAn efficient ED can be a source of revenue for a hospital, or it can be a cost centerIn many hospitals, the ED is the main source of admitted patients
4 Healthcare is a Business, cont. Compare an ED to an assembly line:Units produced must be of high qualityMust be produced in a timely fashionFluctuations in demand must be metCost of production cannot exceed payment receivedOne key to the success for any ED is being efficient enough to provide the level of service needed in a cost effective manner.
5 Considerations Does standard work exist for: Is communication strong ? Patient process flowDocumentationAncillary testsData flowSupply levelsQuality AssuranceException processingIs communication strong ?What is the mix of payer sources ?
6 Charges & codes entered Patient arrivesPatient roomedProvider treatsCharges & codes enteredBill createdBill(s) sent to payerPayer ProcessesPayer PaysED Revenue CycleMoney in BankWHAT could go wrong ?Professional BillFacility Bill
7 What Could Go Wrong ?Using and billing for items or services that are not reimbursableAssuming they areBilling on incorrect form or using incorrect codesUsing supply items that cost more than the reimbursement amountPoor documentation prevents appropriate billing codes being assigned
8 What Could Go Wrong ?Overstaffing drives costs up with no reimbursement benefitPaperwork gets lostLack of standard work creates waste in motion, supplies, inventory, human capacityBusiness office does not maximize collections – leaves $$$$ on the table
9 Profit margins in healthcare are razor thin Simplified ExampleFacilityCharges = Total of $850$ 250 for E&M level 2$ 200 for lab tests$ 400 for EKGFacilityCosts = Total of $85$70 for staff$5 for labs$10 for EKGPatient Pay Source = MedicareReimbursement = $ 87.25Operating margin for some hospitals (ours included) is below 1%Profit margins in healthcare are razor thin
10 Given the previous example, imagine how many Medicare patients it would take to offset losses/expenses incurred due to:Billing opportunity lost due to poor documentation or misplaced chartPatients without insuranceOveruse/waste of supplies or drugsEquipment downtimeStaff overtime due to sick callsRework costs due to errors in patient information or billing issues
11 Not to mention…………….. Transport costs (getting sample to Lab) Facility overhead (rent, utilities, maintenance)Technical costs (lab staff, lab supplies)IT costs (phones, PC’s, support)Administrative costs (coders, QA, billing office, payroll, etc)
12 What Can You Charge For? Facility Physician Evaluation & Management (E&M) services and proceduresNon-routine suppliesDrugsPhysicianE&M servicesProcedures and treatmentOther services (possibly)
13 Facility E&M Charge Facility E&M charge typically includes: Overhead costsbuilding maintenance, housekeeping, utilities, depreciation costs, equipment, administrative costs, personnel costsAll of these costs should be analyzed on a per patient basis prior to establishing each facility E&M charge
14 Charges Beyond the E&MIn a busy ED, there are many opportunities for revenue beyond the E&M chargeLaceration repairCastingIV infusion therapyCatherizationTransfusionCPRIntubationImmunizationsInjectionsFracture treatment
15 Professional ChargesProfessional charges (Pro-fees) are intended to charge for:Physician training and knowledgePhysician procedural skill setPhysician medical decision makingThe method used to set charges for professional services is often determined by a Board of Directors or other governing body
16 ReimbursementWith both facility and pro-fee charging, it is critical to understand how reimbursement is calculatedCharges do not equal CASHProper documentation, along with skilled coders (both facility and pro-fee), and an aggressive billing department will result in appropriate reimbursement
17 2nd Example of Medicare Reimbursement E&M Level three = cpt 99283“Emergency department visit for the evaluation and management of a patient, which requires these three key components: an expanded problem focused history, an expanded problem focused examination; and medical decision making of moderate complexity….. Usually, the presenting problem is of moderate severity.”Reimbursement = $
18 Know Your Payer MixPayer Mix is the % of each type of payment source across your patient populationYou can’t always pick your payer mix but you can maximize it:Measure and track the quality of patient registration informationDevelop a strong discharge processCollaborate with other areas of hospital to share infoBuild rapport with the billing officeMonitor up front collections of patient co-pays
19 Know Your ED What are the demographics of your ED ? How many beds?What is the bed turn-over rate?Do you have a flow problem?What % of patients are > 65 or < 15?What different types of treatment do these disparate age groups require ?How does that contribute to your expenses ?
20 What is the most frequently provided treatment in your ED ? How much does it cost to provide?Are you minimizing the cost ?How are resources (RN’s, MD’s, techs) used in your ED ?Are resources used to their level of training ?Nurses transporting non-monitored patients
21 Know How Coding is Assigned Regardless of the use of an Electronic Medical Record (EMR) or paper records, it is important to know how procedure codes are assignedAll coding is based on documented servicesFollow the old axiom – “if it isn’t written down (or in the computer) – it didn’t happen”
22 Facility vs Pro-feeFacility coding and pro-fee coding are very differentEach should have a dedicated, specially trained staffA feedback loop to educate clinicians on documentation improvement is criticalIn a hospital setting, RN documentation supports the facility charges, MD documentation supports the pro-fee charges
23 Charges and CashIf you can’t charge for it, you sure won’t get paid for it !At the end of the day – your cash has to exceed your expensesRemember:Charges are not cashNet income is not cash
24 Expanding Your Comfort Zone More and more physicians are “business savvy”Not unusual to see MD followed by MBAThis is almost a necessity in today’s competitive healthcare marketHealth providers should understand basic business concepts
25 Basics Inflows must exceed outflows The bottom line: No different than your household budgetThe bottom line:+ Charges- Less Contractual Adjustments- Less Bad Debt (non-payers)- Less other expenses (direct and indirect)Equals Net Income
26 Net Income is only a term that describes the mathematical difference between charges, contractuals, and expensesNet Income does not equal CashA percentage of net income (based on historical cash collections from charges) is typically used to project actual cash
27 Contractual Adjustments Most hospitals have a variety of contractual arrangements with insurance carriers (eg: Blue Cross, Aetna)Services are provided at the hospital standard price to all payersGovernment payers (Medicare, Medicaid) establish their own payment ratesContracts for payment from insurance carriers are established at either a % of billed charges or a flat rate
28 Contractual Arrangements, cont. The gross charge amount is reduced by the contractual (netted) prior to the subtraction of expenses.Example:Charges = $850 – payer is Blue CrossBlue Cross has a flat rate agreement to pay $200 per ED visitCharges are netted to $200, then expenses are subtracted to arrive at Net Income
29 Bad DebtBad Debt is an (indirect) expense created when amounts owed to an organization are not paidBad Debt expense is usually due to patient non-payment, but can be due to insurance non-paymentMinimizing bad debt through strong billing and collection practices is essential
30 Other Expenses“Other” expenses can vary from hospital to hospital, but usually include:External resources (eg: consultants, contracted billing companies)Allocated overhead amounts (eg: maintenance, equipment, utilities, information technology)Travel, education, subscription fees
31 Net Income Continuing the example – from your “Net” charge of $200: Subtract your direct expense:Expense for RN’s = $40Expense for MD’s = $75Supply Expense = $ 10Your net income becomes $ 75Subtract your indirect expense:Overhead = $50Bad Debt = $15Your net income is now $ 10
32 Finance Speak Don’t confuse “net income” with Cash Net Income is the difference of charges less ALL expenseSome organizations use the term “revenue” to indicate charges, and “net revenue” to indicate charges less contractuals“Overhead” is typically an allocated expense that combines all indirect costsSome organizations use actual bad debt and an estimate of overhead as reductions to charges
33 Tracking & ReportingAll organizations (non-profits included) carefully track all information related to net income (charges & expenses)Departmental annual budgets are based upon the anticipated volume of patients and related chargesDepartments where expenses exceed expectations can expect to answer some tough questions
34 Asking for New Equipment ? Today’s medical professionals must have a good understanding of profit and loss issuesBe prepared to discuss revenue (charges), cash, bad debts, and other expenses if asking for an investment by your organizationDemonstrate your knowledge of business concepts by submitting a business plan to justify an expenditure request
35 Business Plans Don’t have to be complex – keep it simple Describe: What you wantWhy you want itWhat will it costHow quickly can the cost be recovered (through increased patient volumes and/or reimbursement)
36 Remember – charges do not equal cash Few organizations are in a position to acquire new technology or equipment based on improved patient care aloneBudgets are tight, and expenditures must demonstrate a Return on Investment (ROI)
37 Basic Business Plan Format Vision statementWhy this is good for the organization, and for patientsThe people involved – stakeholders, management, customersWho will directly benefit and who is committedBusiness profileThe volumes anticipated, day to day operational facts and figuresEconomic assessment (money making opportunity)Bottom line = what cash will this bring ?
38 Example New Ultrasound Machine Cost $100,000 If used 20 times per day for one year, each use has an expense of $13.69 (equipment only)Facility Charge for US is $125.00Average reimbursement for US is $20.00
39 Anticipate Questions Like What payer mix was used to calculate the average reimbursementHow long will it take to pay for the initial cost of this equipmentWhat is the useful life of the equipmentWhat staffing is needed to operate thisIs special training involvedWhat are those costsAre there 20 patients per day that need an US
40 And….. What are the warranty costs How long is the warranty What about maintenance expense after the warrantyWhat hours would this service be offeredAre those hours when demand existsIs there a related professional fee chargeWhat is the reimbursementAnd those are just a few !
41 Work with your Finance Department or Business Office Manager to confirm assumptions and calculations Develop a “best case” and “worst case” scenarioAnd a back up plan