• Should Hospitals Bundle or Charge Separately for Routine OR Supplies?

    Apr 20, 2010

    A Letter to the Editor

    A recent Leadership article about charging payers for OR supplies led to this enthusiastic back-and-forth between one reader and the author.

    Dear Editor:

    The March 2010 Leadership e-bulletin article included an article entitled "How to Stop Supply Reimbursement Leaks" by Aron Klein and Jeffry A. Peters.

    The focus of Klein and Pater's article is on capturing charges for commonly used OR supplies, such as trocars and sutures. The authors state that "most ORs lose millions of dollars per year in used but uncharged supplies," creating the erroneous impression that these "lost" supply charges equate to lost reimbursement.

    Generally, the cost of routine OR supplies, equipment, instrumentation, etc. should be factored into the OR's time or procedure charges. High-cost devices (for example, orthopedic implants, stents, pacemakers, etc) should always be charged separately in addition to time or procedure charges.

    However, whether hospitals charge separately for all supply items or bundle them into a time or procedure charge, the impact on reimbursement is completely dependent on a hospital's payer mix and contract terms-both of which are highly variable. Hospitals with contracts that base reimbursement for surgical cases on a percentage of total charges stand to gain the most, but such arrangements are growing increasingly rare. Medicare outliers and similar stop loss provisions are the only other situations where additional supply charges may contribute to increased reimbursement.

    We need new ideas about how to establish charges for our services that cover our costs (labor, equipment, supplies, etc), provide an adequate profit margin, and reflect the risk incurred to provide them. Sadly, the article by Klein and Peters may mislead readers and result in wasted efforts to capture charges for routine items that may yield little more than additional contractual adjustments.

    JoAnne L. Allen, is director of reimbursement, McLeod Health, Inc., Florence, S.C. and a member of HFMA's South Carolina chapter (joallen@mcleodhealth.org).

    The Author's Reply

    I appreciate Ms. Allen's valuable feedback related to our article. The article you are referring to was intended to be a section of a larger article that was published in HFMA's February 2010 Healthcare Cost Containment newsletter. Published as a separate article, "How to Stop Supply Reimbursement Leaks" leads a reader to misinterpret the intent of the article-complying with individual organizations charge capture policies and procedures.

    The intent of this article is to focus OR managers and finance professionals on charge capture related to physician preference items, or "non-routine" items that are significantly impacted by physician preference. However, the definition of "nonroutine" varies depending on your source.

    I'm completely supportive of simplification of chargemasters; in general, we recommend "bundling" of routine items lower than a defined cost threshold (generally around $25) into a case level charge, and line item charging for all other items (with a few exceptions to the $25 rule, such as endomechanicals and sutures due to the variation in cost of these items between surgeons based on preference and utilization).

    In general, there tends to be significant variation between physicians in terms of the cost of supplies used for procedures. For example, the cost of supplies used for simple Lap Chole's can vary from $500 to $1,200 at a single hospital, depending on physician preference and an organization's demands on standardization of supplies and vendors. Generally, a Lap Chole would be considered a "routine" procedure, and based on Ms. Allen's strict definition of "routine" supplies, only "routine" supplies would be used to perform this procedure. Therefore, with the simplest chargemaster in place and charging from a case-level perspective, all patients receiving a Lap Chole at this site would have the exact same charge regardless of the actual cost of the procedure performed.

    Due to the trends in insurance coverage and the shift toward greater patient responsibility related to copays and deductibles, it is extremely important to pass any cost savings related to lower cost surgeons on to patients. Unfortunately, charging a flat case rate amount removes a surgeons' ability to directly impact their patient's bills and could potentially lead to increased cost for the organization in terms of medical supplies. However, passing any savings incurred based on physician preference on to the patient through itemized chargemasters is a simple method to incentivize physicians and engage them in standardization and cost savings initiatives.

    It is completely understandable that a significant portion of this itemized charge detail is written off to contractual allowances; however, most managed care plans have some form of discount from charges built into their contracts, which in the end, impacts a patient's copay and deductible amounts due to a hospital, as well as the reimbursement amounts captured by an organization.

    Overly complex chargemasters have the potential to create a great deal of administrative burden on organizations and provide little return. However, most organizations are still reimbursed, at least partially, on a discount from charges basis on the outpatient side (generally with a case maximum), leading to a need to ensure appropriate charge capture within appropriate guidelines and create greater transparency when viewed by the general public.

    Aron Klein, CPA, is a consultant, Surgical Directions, Chicago (aklein@surgicaldirections.com).