Revenue Integrity in the Pharmacy
Ensuring compliant revenue integrity in the pharmacy setting is an emerging opportunity to strengthen financial operations. The stakes are high when it comes to correctly capturing and coding pharmacy charges as these efforts directly affect reimbursement, regulatory compliance, and the bottom line. With the dual forces of drug shortages and price escalation, the financial implications grow even more significant. In this roundtable, sponsored by Craneware, several financial and pharmaceutical leaders discuss the challenges and opportunities associated with preserving pharmacy revenue integrity and offer strategies for improvement.
Why is it important to get a handle on revenue integrity in the pharmacy?
Lisa Nelson: Drug costs have skyrocketed in recent years, moving from a few cents or dollars per dose to $500 or even $1,000 per dose. This has prompted the University of Rochester Health System to take a closer look at how it deploys various drugs—not just monitoring them on the clinical side but across the entire health system. We started examining how we charge for drugs and get paid for them. Basically, we track the entire pharmaceutical supply chain.
Drug shortages also motivated this work. A number of drug shortages have occurred in the last 10 years. For example, there were some issues due to Hurricane Maria in Puerto Rico because some drug companies only make certain drugs there. Because inventory processes have been automated to reduce waste in the system, challenges arise when there are drug shortages because it can be harder to get critical drugs quickly, which can impact patient care.
Monica Hoch: Preserving revenue integrity in the pharmacy is an important exercise primarily because of the substantial spending related to pharmacy, as well as the reimbursement opportunities tied to our payer contracts. Those two factors alone make it one of Providence St. Joseph Health’s key focus areas. In addition, from a compliance standpoint, it’s crucial that the correct charges are made for medications, so charges neither overstate nor understate the care and treatment that has been provided.
Elise Myers: Providence St. Joseph Health also wants to make sure that data from the pharmacy system, including National Drug Codes (NDCs), charges, and billable units, consistently makes its way to the claim for reimbursement. By not looking at that, somewhere along the line something might get missed or communicated incorrectly, and there could be negative ramifications.
Matthew Bates: Striving to have reliable and accurate data for decision-making is another driver for this work. As providers integrate their health information technology and aim to improve clinical and business workflows throughout the enterprise, they frequently struggle with “bad data in/bad data out” scenarios. This certainly applies to pharmacy information, and without good data informing decisions, it can be hard to improve performance in this area.
Craig Frost: At Catholic Health Initiatives, we firmly believe that pharmacy revenue integrity is a unique part of the revenue cycle and warrants a specialized approach given its nuances. Drug charges, as well as the cost basis of those charges, are dynamic and must be monitored closely—as does payment. If entities don’t engage in this work, then they don’t get paid appropriately for the patient care provided. In some cases, sizeable underpayments can occur if the chargemaster and other elements of pharmacy revenue cycle are not adequately maintained.
What are some of the challenges involved in preserving revenue integrity in the pharmacy, and how can organizations overcome them?
Nelson: One of the biggest difficulties is data disparity. Organizations often have information about the pharmacy spend scattered around different systems that don’t effectively communicate with one another. To get around this, the University of Rochester Health System created a pharmacy datamart, where it houses relevant electronic health record (EHR) data, claims data, and information from its purchasing system. This allows tracking a drug all the way from intake through patient use through billing. We can see how it comes into the pharmacy, where it goes in the hospital, and how it lands on the claim and patient bill. We can then examine each step in the process to identify improvement opportunities.
Hoch: Another challenge for large health systems is the variance in drug formularies across the enterprise. When you have different-sized facilities offering various services, you may have diverse formularies. There can even be regional and drug sourcing differences. When possible, maintaining some sense of standardization in the formulary is beneficial.
Complying with 340B regulations presents another hurdle because the work is quite cumbersome, centering around correctly identifying the drugs that are purchased through 340B and accurately reporting them. The goal is to maximize your discounts while avoiding over-reporting situations. Keeping up on the regulations and the changes, as well as building your systems to follow them, can be a tall order.
Frost: Due to the level of complexity in the pharmacy, it is helpful to devote adequate resources to the equation—whether it’s people, processes, or technology. This may involve assigning a specialist to maintain pharmacy chargemasters and pricing files and ensure charging market formulas are supportable and sustainable. In addition to allocating the necessary resources, good management hygiene is required to be sure that defined processes are consistently and correctly documented and followed.
Bates: This work requires knowledge of both the pharmacy and revenue integrity functions. Often, the person or people tasked with the job are addressing problems that are not core to their business or experience. When thinking of a pharmacist or a finance leader, their functions are different and so are their perspectives. A pharmacist is looking at how to efficiently and effectively procure and distribute medicine to treat patients. The financial leader is focusing on medication-related revenue and reimbursement. Sometimes finding a group to tackle revenue integrity that has the combined perspectives and knowledge can be hard.
To address this issue, an organization’s executive leadership must commit to bringing the work to the forefront. With drugs being one of the largest expenses for providers, there can be a significant impact when organizations gain collaboration between pharmacy and finance to improve processes. These groups must find ways to work together to better communicate, share information, and optimize efficiencies.
Visibility and reporting around payment for reimbursable drugs is critical. How do you achieve this visibility and report on it?
Frost: That’s a work in progress for many providers. It can be extraordinarily difficult to maintain good visibility around how you’re paid, given the different types of payers. Organizations need to make sure they’re submitting the correct data to payers and receiving the expected payments. They also should have specific follow-up plans in place to track down any funds they don’t receive. Some payers make the comparison process easier than others. For example, the Centers for Medicare & Medicaid Services (CMS) makes tracking payment for outpatient reimbursable drugs fairly straightforward. However, commercial payers tend to be a little more complicated. Technology is essential in this area because automated solutions can more easily compare claim submittal data versus reimbursement data to provide a clearer picture of pharmacy reimbursement.
Bates: Providing visibility involves reviewing and analyzing multiple data sets in a consolidated and intuitive manner. Technology can play a big role if the right tool is available. Leveraging automated solutions allows users to understand what drugs are reimbursable, how much they cost, what types of procedures they’re used in, and any type of activity around those procedures. This can lay the groundwork for a solid revenue integrity effort.
How do you know if you are getting paid the right amount under different contracts?
Hoch: Our payer contracting department has an underpayment team that reviews contract compliance. They look at what the payment was for a claim based on the actual contract and the payer’s payment methodology. For some drugs, such as those used with inpatients where payment is based on a DRG, there isn’t a direct payment on a per-drug basis. In other cases, where it is a drug that is separately reimbursable, then those drugs are reviewed for appropriate payment. The team doesn’t check all claims, but they examine most of the ones that haven’t been paid or have a zero balance. They use software to identify those claims that warrant further examination and then manually review those, comparing the expected payment based on the payer contracts that were loaded into the system.
Frost: Technology can help in understanding whether the right amounts are being paid, but there is so much complexity to this process that there’s not one single comprehensive tool that solves all the challenges. We work with different technology partners that tackle parts of the problem, but it takes subject matter expertise and resources to fully interpret those contracts and verify correct payments are being made. There is a tremendous amount of data, and a combination of technology and subject matter expertise is essential to keep up with and manage it.
How does an organization reconcile drug purchases to ensure they are accounted for on the chargemaster, in the formulary, and then ultimately billed to the patient? Are there certain data elements that are essential to monitor?
Frost: I would say most pharmacy billing systems use the acquisition cost as the basis for charging formulas. One of the keys is keeping up with changing acquisition prices, whether they are increasing or decreasing. There could be decreases when a contract is signed, or there could be increases related to drug pricing or inflation. It is important to make sure the charging formulas reflect those changes. Several payer contracts will have business terms that limit providers’ ability to increase prices beyond a certain frequency. All those considerations have to be taken into account, and technology can keep track of the dynamics.
Bates: Data analytics can help with pharmacy pricing, allowing entities to first understand where they are currently pricing pharmacy and then overlay that information with specific benchmarks they’re trying to achieve. Ideally, the goal is to remain financially viable, but at the same time competitive in the market and provide good quality care.
Determining appropriate pricing requires diverse information and data to come together. It’s not merely the foundational pharmacy data and charge data, but it’s also all the contractual language around reimbursement that needs to be understood. Technology solutions can help with this by collecting and using all the relevant data to model scenarios that show various net impacts.
Nelson: As far as what metrics to monitor, organizations want to see what drugs are coming in the door and the quantities they have. Sometimes when we have shortages, we’re buying in a “just-in-time” scenario. Other times we are buying in bulk to save funds. After gaining an understanding of what’s coming in, it is important to appreciate what is being sent out of the pharmacy to administer to patients. For some high-risk drugs, we review every single use case to verify there is a one-to-one relationship between bringing the drug in and dispensing it. Because we are a 340B hospital, we want to be confident that we are clear about compliance. We don’t want to jeopardize that program, so we allocate significant resources to auditing.
Hoch: Comprehensive auditing is critical. At Providence St Joseph Health, the pharmacy takes ownership for auditing what is stored and dispensed, as well as what gets returned. Pharmacy is responsible for auditing its actual charges, costs, and markup formulas. The chargemaster team reviews the information coming from the pharmacy system into the EHR to make sure the charges flow appropriately. Our business office reimbursement team audits claims for overall expected reimbursement to verify that we’re being paid appropriately. We have other audits as well; for example, the internal audit team reviews all charges, including pharmacy. A third-party auditor does this as well, looking at charges from the sub-system all the way through to the billing system. There are also the external government and commercial payer audits that audit every charge tied to an account, including drugs. All this information is reported up through finance for further analysis and decision-making.
What are some lessons learned you would offer to organizations looking to optimize pharmacy revenue integrity?
Frost: From my perspective as a pharmacy leader, it’s most important to acknowledge and appreciate that the pharmacy revenue cycle is a priority and devote the necessary resources to manage it. Many times, the generalist revenue cycle resources are not sufficient to adequately manage the pharmacy piece. I think the biggest tip would be to pay attention to pharmacy revenue cycle and commit resources to that business need.
Some organizations choose to have a senior leader dedicated to pharmacy as part of the senior revenue cycle team. This individual is charged with getting considerations for pharmacy revenue cycle on the agenda, especially during the payer contracting process. This ensures that someone with the necessary expertise is looking at those contracts to check that providers will be paid appropriately for the services they provide.
Nelson: Designating a senior leader to take ownership can definitely be valuable. This is one of those areas where if it’s everybody’s job, it’s nobody’s job. There are so many moving parts—rising drug prices, the drug shortage, 340B compliance, and the need to balance clinical care and reimbursement. Having a person in charge and dedicated resources to support the function are critical. We have an associate director of pharmacy supply chain who has put a lot of effort into preserving pharmacy revenue integrity. We also have dedicated resources focused on the EHR for the pharmacy. They live in the same location as our pharmacy finance staff, and they manage the datamart, running reports, analyzing data, and identifying risk points and improvement opportunities.
The good news is that pharmacy staff are amenable to understanding the revenue side and are usually willing to work as a team to improve performance. Pharmacy staff traditionally have been relatively business savvy because drugs cost money, and they are a cost center for the organization. Although they can generate revenue as well, they are a big expense. As a result, pharmacy staff tend to be fairly knowledgeable about what’s coming in the door and what’s going out. The trick is to formalize those activities and define a revenue integrity process from beginning to end. By doing that, organizations can start to make progress toward improved performance.
Myers: In addition to allocating resources, I would recommend standardizing the formulary as much as possible, especially as new organizations are brought into the fold. Even though they come with their own existing formularies, it’s important to limit the variations and thus the need to manage multiple structures. Likewise, it’s valuable to have a reasonable number of markups and drug categories and keep them consistent across the organization.
Frost: It is also wise to resource front-end operations, so the team can thoroughly address the prepatient care workflow related to pharmacy. This avoids chasing revenue at the back end because claims are as pristine as possible going out the door. This usually means having the necessary front-end staff in the patient care areas, managing pharmacy preauthorizations, and collecting appropriate documentation. Although organizations may be doing this for the revenue cycle in general, it can be helpful to have an allocated resource focusing specifically on pharmacy.
Bates: The biggest thing to keep in mind is that details matter. Considering high-cost drugs, charge capture gaps, cost and price management, and data governance, it is truly a complex endeavor. To be successful the right people, processes, and technology must be pulled together while keeping the patient as the prime focus for the work. By committing to the effort, providers can take steps toward optimizing the pharmacy spend, further providing high-quality care at the lowest cost.
HFMA Roundtable Participants
Craig Frost is system vice president of pharmacy operations at Catholic Health Initiatives in Englewood, Colorado.
Lisa Nelson is senior director core clinical systems for University of Rochester Health System in Rochester, New York.
Elise Myers is vice president revenue cycle strategy and innovation for Providence St. Joseph Health in Renton, Washington.
Monica Hoch is executive director of revenue cycle CDM for Providence St. Joseph Health in Irvine, California.
Matthew Bates is senior vice president, products, for Craneware in Atlanta, Georgia.
Value-based economics is the movement away from traditional revenue cycle management to understanding the underlying pressures on margin and its impact on patient outcomes. Craneware is uniquely qualified to partner with U.S. healthcare providers to plan, execute, and monitor the success of these emerging initiatives. Our flagship solution, Chargemaster Toolkit®, has earned the KLAS No.1 ranking in revenue cycle–chargemaster management since 2006 and is part of our value cycle management suite, which includes patient engagement, charge capture (including pharmacy) and pricing, claims analysis, revenue recovery and retention, and cost analytics solutions. www.craneware.com