Blog

Wage Index Changes

5 June 2019
Cleverley
No comments
Categories: Blog

FY 2020 IPPS Proposed Rule: Wage Index Changes

The FY 2020 IPPS Proposed rule introduces a new approach to the hospital wage index to address payment differences between low and high wage index hospitals.  CMS proposes to increase the wage index for hospitals with a wage index value below the 25thpercentile (.8482 for FY 2020) and decrease the wage index for hospitals with a wage index value above the 75thpercentile (1.0351 for FY 2020) as well as changing the calculation of the rural floor.  CMS also proposes these policy changes be effective for at least 4 years.

To what extent is Wage Index changing from FY 2019 to FY 2020?

Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table 2.
Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table.

Regardless of whether the proposed quartile policies are implemented or not, the clear majority of hospitals will expereince an increase or decrease less than 5% or no change at all (86%and 92%).  CMS states in the proposed rule that addressing the wage index disparities at the high and low ends ensures those hospitals in the middle do not have their wage index values affected by this proposed policy.    

Why should hospitals be aware?

Although the proposal to address wage index disparities between high and low wage index hospitals is intended to be budget neutral, the effect to the overall change in payment to an individual hospital could be significant. 

Case Hospital Example:  Urban California Teaching Hospital with Wage Index > 75thPercentile

Reviewing an example hospital illustrates a change in payment from 2019 to 2020 using the proposed FY 2020 wage index and the FY 2020 wage index prior to the policy change. In this example, the volume and case mix index remain static to isolate wage index changes.  The other key ingredients to payment include the labor-related operating base rate and the wage index.

  • FY 2020 Proposed Wage Index = 1.8263
  • FY 2020 Wage Index (Prior to Proposed Policy Change) = 1.8619
  • FY 2019 Wage Index = 1.7827

The increase in the labor-related operating base rate as well as the increase in wage index from FY 2019 to FY 2020 drives an overall increase in payment for this facility.  However, payment is $4.3M less than it would have been prior to adjustments to the FY 2020 wage index.

Interested to comment to CMS on the IPPS Proposed Rule?

Be sure to review Table 2 of the proposed rule to see where your facility stands regarding wage index changes.  Comments must be received no later than 5 p.m. EDT on June 24th, 2019.  CMS encourages electronic submission of comments to https://www.regulations.gov.  Follow the instructions under the “submit a comment” tab.

Data Sample: Hospital Charge Index®

29 March 2019
Cleverley
No comments
Categories: Blog

Data Sample: Hospital Charge Index®

 

Pricing is certainly a hot topic right now with the disclosure requirement becoming effective on January 1, 2019.  The Hospital Charge Index® helps hospitals understand how high or low they are relative to peers for both inpatient and outpatient charges.  The metric utilizes total claim charges and is adjusted for resource intensity and cost of living.  Because the new requirement includes a provision to display average charges by MSDRG, the Hospital Charge Index® can help busy executives evaluate encounter-level charge comparisons for their hospital to any other in the country in one central place.  As seen in the data display, there are several low-charge states and MSAs in the New England area.  Maryland – and the Baltimore MSA – continue to be the lowest charge benchmarks nationally as the state has strict price and payment regulations.  Still, these low charges don’t always translate to lower payments as Maryland and Massachusetts are two of the top three highest payment states as measured by Net Patient Revenue per Equivalent Discharge™.  The State of the Hospital Industry publication highlights several other interesting points about relative charge positions nationally.  Among them, higher charge hospitals tend to be larger, urban facilities that also tend to have a less favorable payer mix which creates upward price pressure to recover payment deficiencies.  Proprietary facilities, as a group, also have higher median charge levels than other organization types.  And, finally, while many in the industry question the connection between gross charges and net revenue, there are significant charge differences between high and low operating margin groups.   

To see more detail on the data above and more than 80 other metrics of hospital performance, click here for the 2018 – State of the Hospital Industry”

Data Sample: 2-Year Change in Discharges

2 October 2018
Cleverley
No comments
Categories: Blog

Equivalent discharges™, our replacement measure for “adjusted discharges,” continues to gain acceptance as the new standard for volume measurement as it isn’t influenced by pricing changes and calculates a volume value specific to inpatient and outpatient areas.  The latest research shows that positive growth occurred in all but three states/territories (HI, MD, PR).  The national average has continued to increase, as well; climbing from 1.5% growth in our 2015 study to 5.8% in our current study.  Our top five states are primarily in the West, which as a region saw the highest growth.  Metro areas among the top five appear to be among areas that have seen population growth.  Still, while volume growth could be good economically for hospitals with fee-for-service reimbursement, areas that have been able to contain equivalent discharge growth might be better positioned in value-based structures.  If payment moves in that direction, we could see more emphasis on restricting volume growth.

To download the pdf click here.

Focused On Pricing Transparency

22 August 2018
Cleverley
No comments
Categories: Blog

Are Hospitals Still Focused On Pricing Transparency?

Pricing transparency has been the topic and trend in healthcare for the past few years.  The industry has responded with numerous research articles, solutions and products.  Hospitals have made prices more publicly available, reduced charges and restructured pricing methodology.  However, with pricing transparency being all the buzz, where has that left the focus on costs in healthcare?

Recently, at HFMA’s Annual Conference in Las Vegas, we asked respondents in a random poll: “What is your hospital currently concerned about?”  We found out that more than half (~55%), were currently concerned about costs, while only 20% were currently concerned about pricing.  Obviously the two are always going to be inextricably linked as they both impact profitability. Therefore, you can never be solely focused on pricing without considering the cost and vice versa. However, with all the attention pricing transparency has been getting we were a little surprised about the high concern with costs.

So let’s examine the Hospital Cost Index™ and what changes we have seen across the nation in the last few years.  For trending purposes, we will be looking at two specific metrics that make up the Hospital Cost Index™, Average Cost per Medicare Discharge case mix and wage index adjusted and Average Cost per Visit case mix and wage index adjusted.  The table below presents the 25th, 50th, and 75thquartile from 2014 – 2016 and is derived from public use files.

From the data we can see consistent growth in inpatient costs but virtually no change in outpatient costs. This may result from intense competitive pressure from free standing providers in surgery and imaging.

If you would like know how your hospital has trended give us a call at 888.779.5663.

Price Change – Other Hospitals

16 May 2018
Cleverley
No comments
Categories: Blog

Price Change – What are Other Hospitals Doing?

It’s no secret that industry leaders are continually tasked to do more with less.  Economic pressures, regulatory changes, technological advancements, transparency initiatives, and payer negotiations continue challenging leaders as the healthcare industry transforms.

Financial goals frequently drive a hospital’s health and long term viability.  As part of the budget cycle, many hospitals identify revenue goals in terms of either an overall percent change or a gross or net dollar change.  Here at Cleverley + Associates, we are often asked what levels of overall price change are being observed.  Here are some of the things we’ve found.

Overall Rate Change– The Hospital Charge Index® (“HCI”), developed by Cleverley + Associates, incorporates two metrics:Medicare Charge per Discharge and Medicare Charge per Visit.  Both hospital specific metrics are adjusted  for case complexity and wage index differences based upon US median values for both measures.  The resulting inpatient and outpatient indices are then weighted by the percent of gross all-payer revenue to arrive at the overall HCI.  The result is the most objective overall charge comparison available and can be calculated for all hospitals serving Medicare patients. The value for the US median is approximately 100, so a higher index score indicates a higher relative charge position.  For example: if Hospital A has a HCI of 120, then they are priced 20% higher than the US median adjusting for case mix and cost of living differences.

A study of changes to the HCI for 3,200 plus hospitals during the years 2014 to 2016 show median inpatient prices increased 3% and median outpatient prices increased 5%. Further examination shows half of all providers implemented price changes +/- 1.5% from the US median.  The remaining providers shifted prices as much as +/- 6% from the US median.  The median target rate of increase is 4% based on the hospitals for which we help develop pricing strategies.

Patient Type Rate Change– Further examination of annual gross rate change into inpatient and outpatient components yields interesting results:

Outpatient charge growth has exceeded inpatient charge growth in the two year study period which may indicate shifting prices to outpatient areas that often have a higher incidence of percent of charge payment.  However, this trend may be ending as hospitals begin to compete for many outpatient services with free standing providers who often have significantly lower prices.  Many of our clients have established dual inpatient and outpatient procedures to enable them to offer lower prices for highly competitive procedures.

In an earlier study that we conducted from 2011 to 2014 we found no significant differences between inpatient and outpatient rates of change.

Further analysis of outpatient pricing trends reveals a correlation between pricing changes and operating margins.  For the median provider in the lower charge growth quartile, the operating margin deteriorated 2.5%.  The median provider in the higher charge growth quartile experienced no change in operating margin from 2014 to 2016.  Though the lowest and highest quartiles have median operating margin shifts that are more extreme at (25.7%) and 21.5%, respectively, the relationship between pricing and operating margins does appear to exist.  As pricing increases, operating margins appear to increase as well.

Remember – Short-term strategies fuel long-term success.  Each year presents a fresh opportunity to gradually improve your pricing position both from a competitive and defensible standpoint.  What steps will you take this year?

 

By Janessa Welch

Strategic Consultant