Hospital Price Quoting: How hard can it be

1. Hospital Price Quoting:How hard can it be? MDAHU, January 13, 2010 Jackie Driscoll Vice President, Payer Relations

2. So, What How Much Will It Cost to Have Our Baby?

3. Definitions of Terms: �Cost� : What it actually costs the hospital to provide the service in staff time, supplies, and overhead �Charges�: What the hospital actually charges for the service on the bill �Contracted Rate�: What the insurance company is contractually obligated to pay for the service. Or, what it �costs� the insurance company/self insured employer �Patient�s Cost�: The portion of the contracted rate that the insurance company determines is the patient�s responsibility to pay, after considering outstanding deductible, coinsurance, copay, lifetime max, benefit limitations, etc.

4. Hospital Charges. AKA �The Charge Master� Developed over the life of the hospital Charge Description Numbers (CDM) are not standardized across the industry (no �SKU�s) One charge for every billable drug, supply, procedure, Room and Board, etc In Centura, 18,000 unique numbers Price determined by market competition and specific hospital�s geography Charges have some (but not a lot) of correlation to cost

6. Creation of a Patient Itemized Account (IZs) Every patient is unique (grocery cart) Built from a variety of inputs Electronic charge capture for �orders� Paper �requisition� charge capture for �standard charges� Medical coding charge capture for procedures IZs: A very good tool for identifying issues IZs: A very bad tool for estimating patient �cost�

8. So how is a �Claim� created? �Universal Bill� � or UB02 � mandated by Medicare CDM lines �Roll up� to Industry standard �Revenue codes� (e.g. 250 = pharmacy) Use of regulated, standardized diagnoses and procedure codes Claims created by highly trained, certified coders Highly regulated, oversight by compliance/coding integrity departments

10. So, then it�s as simple as applying a percent discount, right? Wrong!! Charges have nothing (or very little) to do with how hospitals are paid Medicare � fixed payment per diagnosis/ procedure Medicaid � varies by state, but usually based on a percentage less than Medicare Health plans � based on proprietary payment schedules Charity/Self Pay � write off or deep discounts

11. Health Plan Contracted Rates Actual contract rate is dependent upon Discharge diagnosis/Acuity of patient Length of stay Procedures performed High cost drugs and implants (chosen by MD) Each insurance companies �payment rules� (subject to change without notice) Each insurance company has their own proprietary, system driven, �Template�

12. Typical Contract �Terms� Circa 2010 Inpatient Contract terms Per Diem Diagnosis Related Grouping/Case Rates Implants, High Cost Drugs �carve outs� �Stop loss� � for outliers Outpatient Contract Terms Ambulatory surgery groupings Fee schedules Case rates Per Visit / Per Unit / Per Test % of Charges

13. Actual Health Plan OB Contract Rates, 2008:

14. It�s Not A �Big Secret� �In 2004, U.S. Hospitals were only paid about 38% of their �charges� by patients or their insurers.� American Hospital Association

15. So how did �charges� get so out of whack? Medicare Payment Rules (Cost To Charge Ratio) The history of contract negotiations with health plans Financial pressures on hospital�s bottom line Market pressure to show employers �deep discounts� The �Big 8� Consulting Firms Market Surveys Complexity of maintaining so many codes (Simple Compounding �embarrassments�)

16. So, I have this H S A� how can �shop�? Understand your own benefit plan Keep tabs on your out of pocket expense, YTD Have your ID card available Visit health plan web sites/ call customer service Call hospital (and other facilities) for a �non binding� quote Be prepared for the �actual� to vary significantly Complications, Secondary Diagnosis Health Plan benefit limiters/maxes

18. Anthem �Care Compare�

19. United �Premium Designation�

20. So how much DID it �cost� to have your baby? Total Charges: $11,078 Cost to hospital: $5,243 Insurance Contracted Rate: $6,230 Insurance Payment (72 days after claim): $2,776.52 Patient responsibility: $3,453.48 �Effective discount� = 56% �Margin/profit per case� = 19%

21. 19% !!! Whatsup with THAT? Answer: Cost shifting. Medicare reimburses 75% of actual cost Medicaid reimburses 55% of actual cost Other government payers (Tricare, CICP) pay much less than cost Charity care is on the increase Insured patients bear the burden of the cost of these patients �plus the margin/profit (if any)

22. Cost Shifting: Solve for the equation��

23. Questions? ?

24. Want to know more? Health Affairs, Volume 25, Number 1, 2006 Uwe Reinhardt, �The Pricing of U.S. Hospital Services: Chaos Behind A Veil of Secrecy�