Succeed with Internal Pricing Analysis: Part 2. Fundamental Audit Protocols
Succeed with Internal Pricing Analysis:
Part 2. Fundamental Audit Protocols
As budgets tighten and consulting investment is scrutinized, many health systems are internalizing pricing analyses and updates. Using ChargeAssist®, proactive customers analyze and monitor prices to:
- Support compliance with payer or state limitations on pricing updates
- Identify prices that have an extreme variance to the organization’s standards
- Understand how their organization compares to similar health care providers and competitors
- Engage department representatives in high-level pricing aspects of service line management
- Nimbly address pricing when charge structure, cost, or CPT-4/HCPCS Level II codes are modified
- Prepare for increased public scrutiny under mandated publication of charge data
Holliday & Associates’ ChargeAssist® software tool users have the data, functions and reference information to effectively and efficiently analyze, update, and monitor prices. This article summarizes several ways that your team can quickly and easily evaluate pricing using our suite of tools.
Phase I : Three-Tiered Pricing Analysis Options
Today’s healthcare organizations evaluate pricing in various ways. Tasks may vary from basic monitoring to deep analysis. We’ve outlined some popular pricing analysis options reflected through a staged, multi-tiered approach in the sections below.
At times, limited price monitoring activities are all ChargeAssist® customers need. Other times, they examine their prices against prospective payment rates or market rates. The following options for internalized pricing analysis can be conducted in any order or separately as needs arise.
Tier 1 – Basic Assessments
ChargeAssist® customers often wish to obtain a snapshot of their pricing to monitor for red flags. Easy and fast pricing assessment options:
- High-priced Charge Master items and services for:
- Erroneously priced charge items (ex. charge items marked up or priced incorrectly)
- High cost items or services (ex. expensive pharmaceuticals or implants)
- Data entry errors within price field(s)
- Prices of similar charges by:
- Description terms
- Multi-entity charge items
- Targeted or priority charge items (ex. contract carve out items, audit targets, recent operational changes, or charge capture challenges)
- Top revenue-producing charge items (by charge utilization quantity or gross charges) for significant changes in charging trends
- Charges assigned price override functionality (ex. outside services, send out tests, invoice-based pricing, etc.)
- Charges assigned ‘unlisted’ or ‘not otherwise specified’ codes or ‘miscellaneous’ charge descriptors)
The basic monitoring and auditing tasks noted above are only a small example of activities that customers perform. Collaborate with your team to establish a simple set of preferred protocols, and schedule them at least once a quarter.
Tier 2 – Payment Model Rates or Relative Value Scales
Organizations periodically perform pricing evaluations using resource-based data. Some teams occasionally assess the relativity of charge item to charge item. When actual cost isn’t available, teams often evaluate at prices compared to a multiple of a payment rate. Many of our customer finance teams use ChargeAssist® to evaluate their pricing using:
- Medicare Outpatient Prospective Payment System (OPPS) Rates
- Medicare Fee Schedules
- Medicare Physician Fee Schedule (MPFS)
- Medicare Clinical Laboratory Fee Schedule (CLFS)
- Medicare Durable Medical Equipment/Prosthetic/Orthotic/Supply Fee schedule (DMEPOS)
- Others as applicable
- Other payer fee schedules or rate tables
- Relative Value Units (ex. MPFS Work RVU, commercial RVU systems, internally–developed RVUs)
- Commercially developed “reasonable and customary” price references
- Cost data with specific mark up formulas
When assessing prices, consider the different function and structure of the data and systems you choose. For example, OPPS is based on historical claims data with rates limited to fixed budget amounts. Packaging concepts and uniquely designed payment calculations must be understood for proper interpretation. The MPFS is based on RVU components that are vetted through the RVS update committee (RUC) and various work groups and then finalized by CMS. The CLFS was overhauled effective 1/1/18 and is based on lab-reported data including rates paid by private payers, Medicaid managed care organizations, and Medicare Advantage plans. Other Medicare, Medicaid program, and commercial payer fee schedules may be developed in an altogether different manner.
Relative based systems all vary and should be understood if used for pricing analytics. In tandem with relative based methods, many hospital finance teams look to other benchmarks to ensure prices are reasonable and could be defended if necessary.
Tier 3 – Market Analysis
Medicare and some commercial players compile pricing information from claims data to portray market prices for a historical period. These are included in ChargeAssist® through CMS standard analytical file data, and helpful for ensuring that prices are positioned accordingly within the competitive market.
Proactive finance teams develop their own unique strategies and methodologies when evaluating pricing against market rates. Prices can be compared against an unlimited market mix using ChargeAssist®.
Team’s analyses may include outpatient pricing, room & board rates, pricing by DRG, physician pricing, blends of multiple market providers, or a variety of other provider types. Teams often look at a variety of competitive or comparative provider data. Here are several market options to consider when using ChargeAssist®:
- National or State rates
- Competitive Hospitals
- Similar Hospitals (Regional hospitals, Similar bed-size, CAHs, Similar Multi-Hospital Systems, For-Profit Organizations, Cancer Hospitals, etc.)
- Alternative Competitors (Reference Labs, Imaging Centers, GI Labs, Retail Pharmacy, etc.)
- Physician practices (individuals or groups)
- Home Health, Hospice, Skilled Nursing Facilities, or other service lines or provider types
- Prestigious health systems or industry-leading organizations for select services
In addition to the above market options, your team may choose to determine whether the market is better evaluated through aggregated provider data (by city, state, zip code, etc.). This feature in ChargeAssist® is excellent for obtaining the ‘big picture’ of where select prices compare to other hospitals or physician groups in the region. Other functions in the Pricing Studies modules allow more extensive analysis and modeling.
Based on the above three tiers of pricing analytics (basic audits, payment rate comparisons and market analyses), the organization typically has sufficient information to perform immediate pricing updates and formalize longer-term monitoring. Of course, at times more strategic, analytical, or modeling work is needed.
Phase II: Strategic Analytics
Based on what finance teams uncover with the Phase I analyses tasks, it may be beneficial to dig deeper into targeted areas. This may continue as internal work or may warrant engaging a strategic pricing consulting firm. Some examples of more sophisticated pricing activities may include:
- Strategic pricing and price modeling based on contract terms
- Audit for the relativity of charges within the same code family
- CT, MRI, MRA, (without, with, and without and with contrast)
- Similar laboratory tests with different sources
- Initial vs. subsequent charges
- Visit charge price comparisons
- Many more unique audit tasks for related codes
- Timed charges
- Infusion therapy/drug administration
- Chemotherapy administration
- Critical Care ER charges
- Surgery Charge levels
- Recovery Room charges
- Observation charges
- Moderate Sedation or Anesthesia charges
- Select Respiratory Therapy (ex. Ventilation Charges, Manipulation Chest Wall))
- Certain Rehab (PT, OT, ST) charges
- Cost (when known) in tandem with organizationally-defined mark up formulas (when allowed)
- Reference Lab tests
- Supplies, Implants, Prosthetics, Orthotics, or DME (if licensed)
- Drugs and Biologicals
- Outside Services
- Contracted Services
- Cost accounting-based data for select services
- Other proprietary methods of pricing consultants
- Services considered “Commodity Service” pricing against hospital, free-standing, or retail competitors (ex. ambulatory surgery, laboratory, imaging)
The list above represents only a small example of areas your team may wish to assess. Pricing studies are highly varied, and often require varied software functions or consulting expertise based on your organization’s needs.
Today’s hospitals should be prepared to defend their pricing whether questioned by the Board, Patients, or the Press. A ready response to challenges requires analytical support. By performing internalized pricing analysis tasks your organization can more confidently stand by its pricing.
As your hospital undertakes in-house pricing analysis work, consider the methods of analysis we’ve shared in this article. Be sure to have a plan as noted in Part 1, and read on to learn about potential pitfalls in Part 3 of this series.
This article is Part 2 in a three-part series. To read the preceding and following articles please click below:
Holliday & Associates offers ChargeAssist®; an HFMA Peer Reviewed™ Charge Master auditing and resource tool for easily auditing, collaborating, and maintaining Charge Master files. We also provide Charge Management CDM Coordinator Education and CDM Reviews by a team of credentialed clinical, coding and technical auditors.
Contact information: (800) 831-3323 | Web Site: www.ChargeAssist.com | email@example.com