Hot Topics for Financial Strength · 1/1/2019 · Introduction –Deloitte Risk and Financial Advisory Andy Hollinden Manager Deloitte & Touche LLP Indianapolis [email protected]

Hot Topics for Financial StrengthDeloitte & Touche LLPMarch 2019

Hot Topics for Financial Strength | Deloitte & Touche LLPCopyright © 2019 Deloitte Development LLC. All rights reserved. 2

Presenters

Introduction – Deloitte Risk and Financial Advisory

Andy Hollinden

Manager

Deloitte & Touche LLP

Indianapolis

[email protected]

+ 1 317 372 2762

Benjamin Fry

Manager


Seattle

[email protected]

+ 1 206 716 6827

Tammy Trovatten, CHFP

Manager


Sacramento

[email protected]

+ 1 916 330 0998

mailto:[email protected]




Contents

4Pricing transparency

10340B regulatory landscape

15Disproportionate Share Hospital (DSH)

and Uncompensated Care (UCC)

20Future considerations


Hot topics in pricing transparency


Leading practice and traditional pricing strategies

When facilities consider how to take appropriate steps in moving toward industry leading practices and creating defensible pricing strategies, a standard enterprise definition of the tenets of the term “leading practice” is required in order to appropriately align potential initiatives. Each leading practice pricing organization encompasses five elements:

Consistent pricing and charging functions across the enterprise with routine monitoring for compliance

Efficient with optimal use of automation and proper alignment of duties and roles

Rational and defensible when scrutinized internally or by a third party

Compliant with all regulatory guidelines

Aligned to preserve revenue integrity across all charging functions


Pricing transparency – catalysts for change

A number of significant federal guidelines, as well as increased pressure from consumers, are driving an increased sense of urgency across health care providers who are working to improve their price transparency practices

Patient Protection and Affordable Care Act

The Patient Protection and Affordable Care Act1 (PPACA) requires that each hospital operating within the United States, for each year, establish, update, and make public a list of the hospital's standard charges for items and services provided by the hospital

Fiscal Year ’15 IPPS Final Rule

The FY2015 Inpatient Prospective Payment System (IPPS) Final Rule2 provided implementation guidelines allowing hospitals to either publish their standard charges online or publish the process to obtain their standard charges online

Fiscal Year ’19 IPPS Final Rule

The FY2019 IPPS Final Rule3

updated the 2015 guidelines to require that hospitals make available a list of their current standard charges via the internet in a machine-readable format on January 1, 2019, and to update this information at least annually, or more often as appropriate

1 - Public Law 111 - 148 - Patient Protection and Affordable Care Act

2 - CMS-1607-F

3 - CMS-1694-F


What does this mean for providers and patients?

Embracing the transparency movement can allow for effective patient navigation with hospital pricing, while cultivating future financial strength with market defensible and rational pricing strategies

Patients are asking … Provider opportunity

I want trusted and quality service without paying an arm and a leg

What do specific charges on my bill mean? Why am I receiving two bills?

What am I paying for exactly?

Where can I find reputable information?

Providers with broad understanding and reliable quality information are likely better positioned to weather through today and lead tomorrow

• Acuity metrics – quality data

• Access to local market charges

• Cost estimate data

• Providing patient insight to billing


Many hospitals are asking themselves these questions

2019 IPPS Final Rule – specific considerations – Pricing

• How will we publish our entire charge description master (CDM) (content, format)? What additional information must we publish along side these charges to ensure public understanding?

• What information, in addition to charges, will help substantiate how pricing was developed (acuity data, cost data, pricing methodology, standard pricing vs discount/self-pay charging, etc.)

• Who will be accessing this information? – Assess National/Regional/Local impact with publishing charges

• Will we discuss charges being posted with key department stakeholders prior to publication?

• Should we consider adjusting our prices now and defining our market defensible pricing strategy?

• How will we monitor, revise, and provide ongoing support regarding price transparency for our organization?

• Are there any implications with Affordable Care Act4 (ACA) – 501R regulations5 and will we clearly define what our charges represent (full charge amount or self-pay discount)?

• What is our organizational approach (top-down/bottom-up) with pricing transparency and how will we incorporate pricing transparency into our short-term/long-term strategies?

4 - Public Law 111 - 148 - Patient Protection and Affordable Care Act

5 – 79 CFR 78953


Develop/Update pricing strategy

Refresh or begin development of the

health system’s pricing strategy to include the

customer’s pricing experience

Sort by customer interest

Post charges in order of services most often

researched by customers (shopability) as opposed

to those most often performed (service

volume)

Help staff share the value proposition

Provide patient-facing staff with updated talking points that highlight the ease with which patients

can access and understand pricing

information

Capture comparator data

Accompany standard charge data with peer

market data to illustrate price fairness

Enhance ease of access

Provide search functionality that simplifies the process of finding online pricing data for specific

services; linking search results to your appointment scheduling

system can further improve the customer experience

Updated CDM live

FY ’19 IPPS Final Rule deadline

Roadmap to transparency improvement

Align to industry standards

Report all facility charges using patient-friendly

terminology and industry standard codes

Invest in education

Through your pricing webpage, make resources

available that educate customers on health care pricing broadly, and your

pricing philosophy specifically

Tell a ‘quality’ narrative

Further enhance your customer-facing charge data by including quality metrics that demonstrate

the quality of care in conjunction with the cost

of care

Understand the competitive landscape

Conduct benchmarking research into the pricing data of local comparator

shoppable and price sensitive services

Quarterly updates to online standard charge data

Set the stage 0-3 months

Standardize for scalability 3-12 months

Evolve and enhance 12-24 months

Key

Living data initiative

Ongoing initiative Planning milestone

Price transparency initiative Customer access initiative


Hot topics in the 340B regulatory landscape


Here is a timeline of recent 340B events

340B regulatory landscape and updates

• The 340B program has come under increased levels of scrutiny since the passage of the Patient Protection and Affordable Care Act (PPACA).

• The Health Resources and Services Administration (HRSA) issued final guidance allowing covered entities to have an unlimited number of contract pharmacies

2010

2016

• HRSA announced it would be subcontracting allof its audits in 2017 to The Bizzell Group.

• Beginning January 1, the Centers for Medicare & Medicaid Services (CMS) will pay for drugs acquired through the 340B program at the average sales price (ASP) minus 22.5%, which is a significant change from the initial rate of ASP plus 6% rate

• In December, District Judge Contreras dismissed a hospital group’s lawsuit for the $1.6 billion cuts to the 340B program

2017

2018

• Government Accountability Office (GAO) report6 issued citing weaknesses in HRSA’s oversight that impede its ability to ensure compliance with 340B Program requirements

• CMS brings site-neutral payment cuts for 340B drugs at nonexcepted, off-campus, provider-based departments7

• HRSA published a final rule8 on November moving up the effective date of a long-awaited regulation that will assess civil monetary penalties (CMPs) against drug manufacturers that knowingly and intentionally overcharge covered entities for 340Bs drugs

• Judge Contreras ruled that Health & Human Services could not legally implement payment redistribution to hospitals through 2018 OPPS final rule

Present

6 - https://www.gao.gov/assets/700/692697.pdf; 7 - 83 FR 58818; 8 - 83 FR 55135


340B Audit

Process10

Bizzell Group, on behalf of HRSA, has been hired to conduct 200 340B Drug Pricing Program audits each year of registered and enrolled covered entities9

340B audit updates

Pre-Audit

1. Engagement letter from HRSA indicating selection for audit. Bizzell conduct introductory teleconference with entity and schedule opening meeting.

On-Site

2A. Auditors obtain, review and test data to examine policies, procedures, internal controls, compliance and transaction records. Auditors are now asking for more detail during audits, including attestations from external audits and validation from states regarding duplicate discounts. Auditors collect the facts throughout the audit but are not authorized to summarize any findings to the entity. Their report to the Office of Pharmacy Affairs (OPA) will contain the facts as they understand it and must undergo OPA review.

Desk Audit

2B. In place of an on-site audit, communication is channeled through secure networks. These networks are tested for encryption and security prior to audit.

CAP

5. HRSA now expects covered entities (CEs) submitting a Corrective Action Plan (CAP) in response to audit findings to also include a response to describe corrective actions specific to any area for improvement (AFI) cited in the Final Report.

Notice Hearing

4. CE has 30 calendar days from the date of the HRSA Final Report to review findings HRSA’s request for a CAP. If a CE agrees with the Final Report, a CE must submit a CAP to HRSA within 60 calendar days for HRSA’s approval. If a CE disagrees, it shall notify HRSA in writing within 30 calendar days with appropriate supporting documentation of the covered entity’s disagreement.

Post Audit

3. Auditors provide preliminary issues to OPA. OPA reviews the preliminary report, drafts a Final Report and issues the report to the covered entity (CE), with a request for a CAP, if applicable.

9 - https://www.gao.gov/products/GAO-18-48010 - https://www.hrsa.gov/opa/program-integrity/index.html


The number of CEs audited since 2013 is increasing and audited entities are chosen by two selection methods

HRSA 340B audit trends

HRSA has increased the number of covered entities

audited since it began audits in fiscal year 2012

340B CEs Audited by the HRSA by Fiscal Year

• Based on the audits for which results were posted on HRSA’s website as of February 8, 2018, 72% of the CEs audited in fiscal years 2012 through 2017 had one or more findings of noncompliance.

Fiscal YearNumber of

audits

% of CEs

audited11

2013 94 0.9

2014 99 0.9

2015 200 1.7

2016 200 1.7

2017 200 1.6

2018 200 1.512

CEs are selected using two methods; random selection

from risk-based criteria and targeted information13

Types of HRSA Audits Conducted since 2012

• HRSA’s audits include covered entities that are randomly selected based on risk-based criteria and covered entities that are targeted based on information from stakeholders such as drug manufacturers

• The criteria for risk-based audits include:

– A CE’s volume of 340B drug purchases

– Number of contract pharmacies

– Time in the 340B Program

– Complexity of its program

– History of violations or allegations of noncompliance associated with diversion and duplicate discounts

Risk-based

audits90%

Targeted-based

audits10%

11 - Determined using the number of covered entities as of January 1 of each fiscal year12 - Determined using the total number of CEs in April 2018 from https://www.hhs.gov/about/agencies/asl/testimony/2018-06/effective-administration-340b-drug-pricing-program.html13 - https://www.gao.gov/products/GAO-18-480


Results for 162 out of 200 completed audits for FY 2018 have been published on the HRSA OPA website14

Snapshot of HRSA 340B FY2018 audit results

Out of the 162 CEs audited in 2018, ~67% was a DSH or CAH covered entity

62

47

20 16 11 6

2018

Disproportionate Share Hospitals (DSH)

Critical Access Hospital (CAH)

Others

Consolidated Health Center Program (CH)

Sole community hospital (SCH)

Community Health Center (CHC)

~67% of these entities are found with

adverse findings

Of the 109 entities found with adverse findings, here is the breakdown by

types of observations found during the audits

Adverse

findings67%

No

adverse findings

33%

109 entities

53 entities

Based on the FY2018 340B audit results as of December, 88 out of 110 entities (80%) with adverse findings were required to make repayment to manufacturers

10

1

50

50

57

Inaccurate / incomplete MedicaidExclusion File information*

Violation of GPO prohibition

Incorrect 340B database record

Duplicate discounts

Diversion

No. of covered entities

14 - https://www.hrsa.gov/opa/program-integrity/audit-results/fy-18-results.html; * It was determined that duplicate discounts did not occur as a result of this finding.


Hot topics in DSH and UCC


UCC considerations

• UCC continues to be a growing risk for hospitals. It also is a growing financial strain:

– According to the American Hospital Association’s Annual Survey of Hospitals15, the cost to US hospitals for bad debt and charity care was $38.3 billion in 2016, an increase of $2.6 billion over the previous year.

• Uncompensated care also is drawing increasing focus from CMS:

– In August 2018, CMS issued its Medicare IPPS final rule for fiscal year (FY) 201916.

– In the final rule17, CMS estimates that, for FY19, total Medicare DSH payments will be $12.36 billion, with approximately $8.27 billion of those payments based on uncompensated care.

– That is an increase of $1.5 billion over uncompensated care payments in FY18.

15 - American Hospital Association (AHA) 2017 fact sheet16 - CMS-1694-F17 - Federal Register, Volume 83, Published August 17, 2018


Fiscal Year ’19 IPPS Final Rule – Five key take-aways

UCC update

1 New documentation requirements for providers – Submit patient-level records for uncompensated

charity care (effective for cost reporting periods beginning on or after October 1, 2018)

2 CMS began auditing hospitals this last fall – Provide adequate records that substantiate the figures

reported on previous fiscal year S-10 worksheets.

3Audit protocols remain confidential – CMS announced it would initially target hospitals that report a

high amount of UCC relative to their total operating costs. Otherwise, the government has kept its audit

protocols confidential.

4 CMS Is altering how it calculates DSH payments – Continue to phase UCC into its DSH payment

methodology in place of traditional Medicaid/SSI low-income days for FY19.

5Hospitals in these States stand to gain higher DSH payments – Qualifying hospitals in the following

states can expect to see a rise in their overall DSH payments due to the shift from distributing DSH funding

based on days to UCC: Texas, Tennessee, Florida, Oklahoma, Georgia, Wisconsin, Kansas, Missouri, North

Carolina, Nebraska, Mississippi, South Carolina, Utah, Alabama, Wyoming, South Dakota, and Idaho.


CMS tasked each Medicare administrative contractor (MAC) with completing or settling 50 audits (600 hospitals audited) by January 31, 2019. Noted issues/results from audited hospitals include:

UCC S-10 audit update

• Expected payments – Imputing patient payments that may not be realized/paid were applied to uninsured charity. MACs have been directed to reverse audit adjustments made for expected payments.

• Bad debts – Disallowed bad debts based on extrapolations from narrowly focused samples that were not statistically valid.

• Charity care – Disallowances of charity care charges due to subjective financial assistance policy –that are directly inconsistent with the hospitals’ policy.

• NPRs – Some MACs have issued revised Notices of Program Reimbursement (NPRs) reflecting the audits where some hospitals were reviewed.

• FFY20 – CMS has not clarified whether the data from the 600 hospitals that were audited will be incorporated in FFY 2020 or any subsequent fiscal year regulations.

• Future audits – No audit schedule has been published for future S-10 audits. Expectation is that CMS will conduct yearly audits for all DSH hospitals.

• Reporting – Need to be able to reconcile that data with amounts reported on IRS Form 990, Schedule H, and audited financial statements. Compare IRS form 990 and Worksheet S-10 to identify additional bad debts and charity to be included on S-10.


Litigation blocks DSH audit change

DSH litigation update

• CMS is abandoning one aspect of its effort to change Medicaid DSH audit standards.

• CMS used a Frequently Asked Questions (FAQs) document to require that Medicare (FAQ 33) and third party (FAQ 34) payments offset costs in DSH audits.

• Eleven court rulings invalidated using FAQs in lieu of the federal regulatory process.

• CMS withdrew the FAQs and its appeals as of December 31, 2018.

• CMS will accept revised DSH audits that cover hospitals services furnished before June 2, 2017.

• CMS expects states to comply with 42 C.F.R. §433.312(a), and expects that any overpayments identified in the audits will either be redistributed to other DSH-eligible hospitals in accordance with the applicable state plan or that the federal portion will be refunded to CMS in accordance with the regulation.

• CMS does not intend to provide additional guidance regarding whether individual states should submit revised DSH audits.


Hot topics future considerations


Preparing for the future of price transparency

The requirements and recommendations below provide a roadmap for meeting federally-mandated price transparency requirements and improving the overall experience of health care customers

Compliance options Facility mindset and effort

Minimally Compliant

Posting charges with minimal information for consumers to interpret

• Facility has limited resources to assist with transparency and not currently providing a wealth of information to patients either

• Report all facility charges using patient-friendly terminology and industry standard encounter-level codes – ambulatory payment classifications (APC) for outpatient and diagnosis-related group (DRG) for inpatient; alternatively, report facility charges at the Chargemaster level

Progressively Compliant

Defining how charges are created, explaining differences between costs/charges and how insurance (or lack thereof) engages with hospitals to adjust patient responsibilities

• Facility has resources and/or committee established to tackle pricing transparency and will meet monthly to achieve facility goals

• Develop a standard system webpage optimized for customer research; enabling search functionality based on consumer friendly terms

• Make educational material regarding health care pricing and your system pricing philosophy (i.e., value equation) available alongside the charge data

• Prepare a media statement and share with marketing /communications and with patient-facing resources in the case of media inquiries

Aggressively Compliant

Create a pricing tool that helps patients view charges and patient responsibilities after insurance, in addition to other tools and access to information surrounding costs/charges (quality, cost data, comparative date, etc.)

• Facilities are focused on making transparency a high priority, ability to push resources/tools/technology/costs into this effort to be a market leader in defining pricing transparency

• Create a pricing tool that incorporate all insurance plans and contract terms, that allows patients to view both charges and patient responsibilities quickly

• Pair standard charge data with quality metrics that speak to facility ratings, highlight patient experiences, and demonstrate the value of care

• Accompany standard charge data with peer market data to illustrate price fairness


What can likely be expected for the future of 340B Program in 2019

Program transparency is likely to continue to be

an important theme within legislative hearings as

the scrutiny remains on the 340B Program

With the emphasis on transparency, more CEs

may begin tracking their 340B expenditures

and savings generated to capture and

communicate the community benefits provided

through the program

CEs are encouraged to follow the development

of the online access for drug price ceiling

website, which may present opportunities to

capture additional 340B savings

While the US District Court’s block on the Medicare

340B cuts may signal that things are looking up

for the Program, uncertainty looms large as

Court was left unresolved on the question of

how to effectuate the ruling


Note: Continue to identify Medicaid-eligible days for 340B qualification and empirical DSH

Focus areas for DSH and UCC

Cost-to-charge ratio:

• Billed charges compared to general ledger charges

• Charge structure for patients that are uninsured

• Charge structure with a focus on specific contract/billing arrangements and services that have reduced charges or significantly differentmark-ups

• Allowable costs determination

Bad debts:

• Denials from managed care companies

• Transaction codes – manual contractual allowances

• Record at gross charges

• Direct write-off vs. reserve methodology

• Bad debt reserves in contractual allowances

Charity:

• Review charity care policies, including presumptive eligibility for charity

• Evaluate charity write-off codes for completeness and accuracy of charges (gross charges versus coinsurance/deductibles)

• Self-pay discounts not based upon charity criteria or FAP (FY18 IPPS FAQs)

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Hot Topics for Financial Strength · 1/1/2019 · Introduction –Deloitte Risk and Financial Advisory Andy Hollinden Manager Deloitte & Touche LLP Indianapolis [email protected]