Creative Funding: How to Get Dollars to Sustain Your Residency Programs

Jim Jorgenson, R.Ph., M.S., FASHP

Director of Pharmacy/Associate Dean

University of Utah

Objectives• Delineate costs to conduct a residency

program

• Identify external funding sources

• Examine internal funding options

• Evaluate cost avoidance opportunities

• Determine additional “value added” incentives

University of Utah Residency Programs

Current Programs• Pharmacy Practice• Critical Care• Internal Medicine• Drug Information• Solid Organ Transplant

• Informatics• Oncology• Practice Management

Program Cost

“Hard Costs”Resident Salary & Benefits

Travel (Midyear, Regional Residency Conferences, etc)

Books, Library fees, Copy fees

ASHP Fees (application fee, accreditation annual fee, residency showcase fee)

Recruitment (advertisement, PPS, travel, interviews)

ASHP Fee

Schedule

Annual Fee/Site

2005

Annual Fee/Site

2006

Programs/Site 6 year cycle 6 year cycle

1 $2,225 $2,315

2 $2,930 $3,050

3 $3,280 $3,415

4 $3,480 $3,620

5 or more $3,810 $3,965• 2005 Initial application fee is $650/residency program• 2006 Initial application fee is $650/residency program

Program Cost

“Soft Costs”

• Teaching TimePreceptor Salary & Benefits

• Administrative TimeDirectors Salary & Benefits

Program Director Salary & Benefits

Residency Advisory Committee

External FundingDirect Medical Education Expenses

• Direct costs of medical education for interns/residents are excluded from IP operating costs covered under PPS.

• Direct costs for approved medical education programs are reimbursed on a reasonable cost basis. (Social Security Act)

• COBRA 1986 changed the way Medicare pays for the direct costs of medical, osteopathic, dental and podiatric interns and residents NOT pharmacy residency and other “recognized professional and paramedical education and training programs.

Direct Medical Education• Medicine, Osteopathy, Dentistry and Podiatry receive an

average cost per resident (FY ’84 cost report). Amount is updated each year generally equal to the increase in the Urban Consumer Price Index.

• Payments are determined by multiplying the approved amount by 100% of the approved FTE residents for each year of training that is within the minimum number of years of formal training required to meet initial board eligibility plus one year to a max of 5 years (If not in the initial residency period payment is made at 50%) and then multiplying that product by the proportion of the total IP days used by Medicare patients.

Direct Medical Education Expenses: Pharmacy Residencies

• Approved educational activities continue to be reimbursed on a reasonable cost basis.

• Approved Programs mean formally organized or planned programs of study operated by hospitals to enhance the institutions quality of care.

• Pharmacy residency programs, nursing schools, and medical education paraprofessionals e.g. radiology techs

Direct Education Costs• For most organizations it is an advantage for

pharmacy residents to be considered as a recognized professional rather than being classified with other medical residencies.

• The hospital’s allowable cost may include its net cost of approved educational activities, subject to apportionment based on Medicare utilization.

• Provider Reimbursement Regulations recognize ASHP Accredited residency programs as approved for a direct medical education pass-through of costs.

Indirect Medical Education Costs• In addition to direct payments, PPS

teaching hospitals also receive a payment for the indirect costs of medical education.

• Designated to cover the increased operating or patient costs associate with approved intern and resident programs.

• Legitimate expenses involved in the post-graduate medical education of physicians.

Indirect Medical Education Costs• Not separately identifiable on the Medicare cost

report.• Statistically estimated as a function of teaching

intensity.• Proxy measure utilized (number of

interns/residents to the number of beds) to measure teaching intensity.

• This coefficient is expressed as a % and applied to the Indirect Medical Education Factor (IME).

Indirect Medical Education Factor• IME Adjustment Factor is calculated by adding

1.0 to the intern/resident to bed ratio and raising that sum to the 0.405 power and subtracting 1.0. This result is then multiplied by 1.89.

1.89[ (1 + interns + residents ) 0.405 – 1] beds

• Pharmacy residents NOT counted in this ratio – no “double dipping”

Medicare Cost Report• All hospitals servicing Medicare patients must

perform an annual “step down” of their costs and file a Medicare Cost Report with their intermediary.

• Important to establish a good working relationship with your cost report expert to ensure that they are aware of your residency program costs and accreditation status

Medicare Cost Report• Filed annually by all hospitals, HHAs, SNFs, and

Hospices with Medicare and/or Medicaid utilization

• Must be filed with the Intermediary within 5 months after the end of the fiscal year

• Subject to annual compliance audit by the fiscal Intermediary

• Detailed instructions for cost report preparation and allowable and reasonable cost rules are included in the Provider Reimbursement Manual

Medicare Cost Report

• Used to Determine Final Medicare and Medicaid Reimbursement Due to or From Hospitals

• Used to “Carve Out” and Determine Actual Medicare Costs

• Used by HCFA to Develop Cost Limits and the Hospital Wage Index

Medicare Cost Report• Payments Determined by the Cost Report

Hospital Inpatient Services• Inpatient PPS System

– DIRECT MEDICAL EDUCATION COSTS– ORGAN ACQUISITION COSTS– BAD DEBT COSTS– INDIRECT MEDICAL EDUCATION PAYMENTS– DISPROPORTIONATE SHARE PAYMENTS

• Cost Reimbursement for PPS Excluded Units

Medicare Cost Report• Payments Determined by the Cost Report

Hospital Outpatient services• Transitional Pass-through Payments for

Designated Drugs and Biological• Transitional Pass-Through Payments for

Designated Devices• Transitional Corridor Payments• Bad Debts• Direct Medical Education Costs

Calculating Pharmacy Residency Costs for Medicare Cost Report

• Large Teaching Hospital (LTH) has 5 Pharmacy Practice Residents accredited by ASHP.

• LTH has 40% of it’s admissions or pt. days accounted for by Medicare patients.

• At LTH each resident occupies 10 hours per week of pharmacist preceptor time

• Administrative time for the Director, Program Director and RAC averages 25 hours per month

Direct Costs

with benefits

• Residents Salary $40K $50,400

• Preceptor Salary $88K $110,880

• Program Dir. Salary $105K $132,300

• Directors Salary $150K $189,000

Direct Costs• Residents Salary $252,000• Travel $15,000• Books/Dues/Copy $2,000• ASHP Fees $4,000• Teaching Time $138,060

10 hrs/resident/wk• Administrative Time $19,410• Grant ($5,000)• TOTAL $425,470

Indirect Costs

• Statistically arrived at by Medicare step-down process at approximately 30% added to direct costs

425,470 X 1.3 = $553,111

Total Costs Adjusted for Medicare Patients

$553,111

X % Medicare @ 40%

___________________

Medicare Reimbursement = $221,244

Pass Thru vs. Hard CostsResident SalaryTravelBooks, etcASHP Fees $273,000

Pass Thru Funds $221,244Difference to Cover $51,756

External Funding Sources• Business Partner to “share the

residency/costs”• Explore State funds – shortage

professions; underserved areas, etc• Variety of “one time” money for grants or

research projects that can be utilized to start a program or augment an existing program

Internal Funding Sources

• College of Pharmacy

• Medical Departments

• AHEC

Cost Avoidance Strategies

• Service Component

• Average is 4 shifts per month

• If these shifts must be filled an average R.Ph. Cost (salary + benefits) is $386

• 4 shifts/month X $386/shift X 12 months = $18,528 avoided/resident

• 5 residents X $18,528 = $92,640

Cost Avoidance• College of Pharmacy Lectures

• Each Resident presents a minimum of one formal lecture at the College

• Cost of a “guest lecturer” is approximately $300/lecture

• 5 Residents X $300/lecture = $1,500

Cost Avoidance• Each resident presents one hour ACPE

continuing education lecture

• Average cost for 1 CEU = $30

• Average 50 R.Ph. & techs/lecture

• 5 residents X 50 R.Ph./lecture X $30/CEU = $7,500

Cost Avoidance• Residents create an outstanding source of well

trained future hires• By hiring your residents you avoid recruitment

costs Ex. Box Ad in a major paper for one week = $5,000; Professional Recruiter = $16,000; Interview costs

• Residents can start and be immediately productive, avoiding a prolonged “start-up and training” period Av. 6 months of training and lost productivity for a R.Ph. = $50,400

Value Added Opportunities• Residency Projects• Opportunity to cover a portion of residency costs

as part of a project grant• Substantive opportunity to conduct a project that

can generate an organizational benefitEstablishing a new clinic pharmacy operationImplementing an IV to PO programConducting a DUE and subsequent therapeutic

interchange program

Misc. Strategies• Opportunity to “trade” open pharmacist

positions for resident positions

• Generally can get 2 residents positions for each pharmacist position

• Opportunity to extend service coverage

• Can also “trade” for open nursing or physician positions

Residency Recruitment

• Salary and Benefits

• Forgivable Loan Program

• Interview Expenses

Medicare Cost Report Pharmacy Education ROI

ASHP Accredited Residency ProgramHard Costs (Salary,Benefits, Travel, Books) $432,109Soft Costs (Teaching & Admin Time) $292,568TOTAL COST $724,677

Medicare Indirect Allowance $217,403Total Reimbursable Medicare Costs $942,080Medicare Pass-Thru Reimbursement $339,149(Assumes 36% Medicare Pt. Days)

Cost Avoidance Strategies

Total Resident On-Line Shifts $129,696(7 residents x 48 shifts x $386/shift)

Resident Lectures $3,900(13 lectures @ $300 each)

ACPE Lectures $13,500(9 lectures x 50 R.Ph x $30/CEU)

Recruitment Costs $32,000

Training Costs $100,800

Value of Resident Projects

Total Residency Project Value $564,518

Erythropoietic Agent Project $500,000

Low Dose Valgancyclovir Project $49,518

Medication Abbreviation Project $5,000

Transplant Study $5,000

Medication History Project $5,000

Final Financial Summary

Total Cost Avoidance $843,614

Cost Avoidance + Medicare $1,182,763(Total Cost Avoidance $843,614 + Medicare Pass-Thru

Reimbursement $339,149)

Net Gain Residency $750,723(Total Cost Avoidance + PassThru – Hard Costs)

Summary

• If structured and conducted correctly, a residency program can be a financial plus for an organization as opposed to an added expense

• Documentation

• Reinforcement

Questions?