Pricing Physician Services

Experience the Eide Bailly Difference

A Method to the Madness

Pricing Physician Services

www.eidebai l ly.com


• David Manning, CPA,

CMPE

• Manager in Health Care

Consulting, Eide Bailly LLP

• 20+ years in health care

• Former manager of several

clinics, both hospital owned

and private practice

• T. 701-476-8334

• [email protected]



Madness?

Method?

What is it about pricing

physician services that is

so frustrating?



Gross Charge



Only 15,471 Rows!

Medicare Physician Fee Schedule



Madness? We get caught up in the complexities of

providing services:

• Eligibility and prior authorizations

• Copayment collection

• Appeals and denials

• Bonus payments and penalties

• Reimbursement calculations

At the end of the day, it can be exhausting!



Make money the old

fashioned way –

We smile and look

cute until someone

has pity on us!

Lemonade Stand



Price? – What the market will bear!

But what if the girls

down the street setup

a competing stand?

Lemonade Stand



And what if they’re really cute?

Lemonade Stand



Price?

– Time to slash prices!

But how low can you go?

Lemonade Stand

X 15¢



What about your costs?

Costs? I thought Mom bought the

lemonade?

OK: Lemonade Mix 8¢ /glass

Lemon slice 7¢ /glass

Labor…..(Dad, I’m 12!) 0¢ /glass

Total operating costs 15¢ /glass

Lemonade Stand



Let’s see…

If we sell for 15¢…

And our costs are 15¢

We going to

need a

Bigger Truck!

Lemonade Stand



“All I Really Needed to Know I Learned In

Kindergarten”

- Robert Fulghum

Really? Sometimes I wonder.



The Four

Fundamentals

1. Cover Your Costs

2. Leave Nothing Behind

3. Know Your Market

4. Play Fair

Method:



1. Cover Your Costs • Provider labor

• Clinical staff

• Front office, business office &

administration

• Supplies

• Equipment

• Facilities & overhead



1. Cover Your Costs • Detailed cost reporting system?

• Can your practice track costs

to the procedure level?

• Overhead to a daily total?



The Resource-Based Relative Value Scale (RBRVS) was researched at Harvard University in the 1980’s. RVU’s have been in use by CMS since 1992.

RVS Update Committee (RUC)



1. Cover Your Costs Medicare Relative Value System (RVUs)

(3 Components)

o Work RVUs (WRVUs)

o Practice Expense RVUs (PE RVUs)

- Non-Facility PE RVUs

- Facility PE RVUs

o Malpractice RVUs (MP RVUs)

Professional Liability Insurance (PLI)



1. Cover Your Costs Medicare Relative Value System (RVUs)

Provider Work RVUs

Practice Expense

RVUs

Malpractice Expense

RVUs

Total RVUs

+ + =



1. Cover Your Costs Total RVU’s are then multiplied by a

dollar value conversion factor to arrive

at a payment for the procedure.

Total RVUs

$ Conversion Factor

Medicare Payment

x =



1. Cover Your Costs

But, the costs of delivering medical care vary across the country.

To adjust for cost differences from region to region, CMS calculates and applies Geographic Practice Cost Indices (GPCIs):

• Work GPCI

• Practice Expense GPCI

• Malpractice GPCI



Medicare Physician Fee Schedule payments are calculated:

RVU – Relative Value Unit

GPCI – Geographic Practice Cost Index

Medicare Payment

=

Work RVU

X Work GPCI

Practice Expense

RVU X

Practice Expense

GPCI

Malpractice Expense RVU X

Malpractice Expense

GPCI

+ + X

Payment Conversion Factor ($)



Medicare Physician Fee Schedule payments for each CPT code:

Work RVU

X Work GPCI

Practice Expense

RVU X

Practice Expense

GPCI

Malpractice Expense RVU X

Malpractice Expense

GPCI

+ + =

Locality Adjusted Total RVUs



Locality Adjusted Total

RVUs

$ Conversion Factor

RVU Based Payment

x =

Medicare Physician Fee Schedule payments are calculated:



Total Locality Adjusted

RVUs

Cost Allocation Factor

Total Operating Costs = ÷

1. Cover Your Costs

• But what about costs?

• Let’s rework the formula:

Units of Production Cost per Unit

Operating Costs

= ÷



1. Cover Your Costs

• The Cost Allocation Factor used

in conjunction with Locality

Adjusted RVU’s for each CPT

code can be used as a proxy

cost accounting system.

• Allows for cost allocation at the

CPT code level



1. Cover Your Costs

• $38.24 (Cost Allocation Factor)

Medicare currently pays $34.04

per RVU

Total Operating Costs 342,592$

Total RVUs (Annual) 8,958

Total Op Cost per RVU 38.24$



1. Cover Your Costs

• On average, you’ll need to be

paid more than $38.24 per RVU

in order to stay solvent

• Can this knowledge inform your

pricing and contract

negotiations?



1. Cover Your Costs

• You’ll need to average $54.54

- just to break even

Cover Your Costs!

Facility

CPT Code WRVUs PE RVUs MP RVUs Total RVUs

99213 0.97 0.42 0.07 1.4600

GPCI Factors 1.000 1.000 0.517

Locality Adj

Total RVUs 0.97 0.42 0.03619 1.4262

Cost Allocation Factor 38.24$

Break Even Point for 99213 54.54$




• We’re not talking about

“Leave no man behind”




• We’re talking about

“Leave no money behind!”




• Medicare PFS, Lab, Drugs, DME

• Medicaid, Lab, DME

• Commercial Fee Schedules

All Pay on a contracted Fee Schedule




All Pay on a contracted Fee Schedule

But, they will pay:

“The lesser of billed charges or the

negotiated fee schedule amount”

Your Charge Allowable




• Commercial % of Charge

• Self Pay Patients

Granted, these payers/patients pay

based on whatever is charged.




• Inventive: Set charge at least

above the highest maximum

allowable amount

• Or receive lesser amount when

additional reimbursement could

have been received




• Line up fee schedule maximum

allowable amounts and compare

to identify the largest allowable

amount

• This is the threshold below which

you have left dollars on the table




Locality Adj Facility Conversion

CPT Code Total RVUs Payment Factor

99213 1.4262

46.78$ 32.80$

42.81$ 30.02$

71.00$ 49.78$

71.41$ 50.07$

Medicare

Medicaid

Big Commercial

Smaller Commercial




• We’ve identified the maximum of

the Maximum Allowable Amounts

• This is a virtual floor below which

you likely will not go



3. Know Your Market



3. Know Your Market

• How far does your market

stretch?

• What other providers are in your

market?

• What are you core services?

• Where are you in the health care

marketplace?

• Market knowledge?



3. Know Your Market

How far does your market stretch?

• Unless you’re a regional tertiary

provider, your market likely matches

local or regional retail markets

• Amazon.com, Walmart?

• Abuse your local marketplace and

make big profits, and you’ll invite in big

box competition



3. Know Your Market

What other providers are in your

market?

• How far will your patients travel for

services with competitors?

• Retail travel patterns

• Compete or collaborate?

(But do not conspire)



3. Know Your Market



3. Know Your Market

• Everybody guesses 1st

• Top group compete for 2nd

(top group could be within 25c or top10)

• Top two compete for 3rd price

• Farmer’s Cost is tie-breaker

• Prize is Cookies & Milk



3. Know Your Market

A Gallon of Milk Price

Supermarket ?

Big Box Market ?

Gas Station ?

Tie Breaker

Farmer’s Costs $3.15



3. Know Your Market

Where are you in the health care

marketplace?

• Price leader / volume dependent

• Convenience store

• Boutique



3. Know Your Market

Sources of Market Knowledge

• Patients (employees)

• Mystery shopper

• Associations & publications

• Government reports

• Commercial databases (e.g. Ingenix

Custom Fee Analyzer)



3. Know Your Market


Ingenix Custom Fee Analyzer Sample:

For a provider specific GeoZIP area

Area Area Area Area Area Area Area

CPT 50th 60th 75th 80th 85th 90th 95th

99211 59 61 66 66 68 72 81

99212 83 85 92 94 96 101 114

99213 106 109 117 119 123 129 146

99214 152 156 169 172 177 186 210

99215 242 249 270 273 282 296 335

Description

Office/outpatient visit est L1







3. Know Your Market


Our Cost Allocation Factor for 99213 is $54.54

• Remember there is cost shifting going on

Locality Adj Area Conversion

CPT Total RVUs 75th Factor

99211 0.2652 66.00$ 248.90$

99212 0.7207 92.00$ 127.66$

99213 1.4262 117.00$ 82.04$

99214 2.1917 169.00$ 77.11$

99215 3.0824 270.00$ 87.59$


Locality Maximum Max Allow Ingenix Ingenix

Adjusted Allowable Conversion Area Conversion

CPT Total RVUs Fee Schedule Factor 75th Factor

99211 0.2652 17.93$ 70.17$ 66.00$ 248.90$

99212 0.7207 36.25$ 52.28$ 92.00$ 127.66$

99213 1.4262 71.41$ 51.95$ 117.00$ 82.04$

99214 2.1917 109.83$ 51.97$ 169.00$ 77.11$

99215 3.0824 154.03$ 51.82$ 270.00$ 87.59$

Average 55.64$ 124.66$


3. Know Your Market Calculating RVU Based Reimbursement


Locality Current Proposed Proposed Proposed

Adjusted Clinic RVU BASED Increase Percentage

CPT Total RVUs Fee Schedule Fee (Decrease) Change

E&M Conversion Factor 98.00$

99211 0.2652 103.00$ 26.00$ (77.00)$ -75%

99212 0.7207 113.00$ 70.60$ (42.40)$ -38%

99213 1.4262 139.00$ 139.80$ 0.80$ 1%

99214 2.1917 205.00$ 214.80$ 9.80$ 5%

99215 3.0824 275.00$ 302.10$ 27.10$ 10%


3. Know Your Market Calculating RVU Based Reimbursement



4. Play Fair


Locality Current Proposed Proposed Proposed

Adjusted Clinic RVU BASED Increase Percentage

CPT Total RVUs Fee Schedule Fee (Decrease) Change

E&M Conversion Factor 98.00$

99211 0.2652 103.00$ 26.00$ (77.00)$ -75%

99212 0.7207 113.00$ 70.60$ (42.40)$ -38%

99213 1.4262 139.00$ 139.80$ 0.80$ 1%

99214 2.1917 205.00$ 214.80$ 9.80$ 5%

99215 3.0824 275.00$ 302.10$ 27.10$ 10%


4. Play Fair Calculating RVU Based Reimbursement

Is a 75% decrease or 10% increase OK?



4. Play Fair Calculating RVU Based Reimbursement

Is a fee of more than 11 times the market fee appropriate? Fair?

Locality Maximum Ingenix Proposed

Adjusted Allowable Area RVU BASED

CPT Total RVUs Fee Schedule 75th Fee

65205 1.1636 120.56$ 18.00$ 203.63$



4. Play Fair Management must apply local market

information and business judgment to the

process of setting and evaluating fees.

Being 11 times higher than market may

have a reasonable explanation.



4. Play Fair The majority of providers generate 80 to

90 percent of their revenue on 25 or fewer

procedure codes.

A significant impact

can be made by

focusing on these

top codes.



4. Play Fair Many existing fees are significantly

different from RVU based fees.

The clinic may justify a minimum charge

amount regardless of RVU value. For

instance a minimum $50 charge for a

provider visit regardless of the RVU value

top cover the basic costs of being seen.



4. Play Fair The clinic may establish a ceiling amount

above which they will not charge, even if

the market is above this level (e.g. 7 times

Medicare, etc.).



4. Play Fair A phased approach to arriving at RVU

based fees can mitigate the impact of

large price variances.



How to handle new fees

• Do we have RVUs?

• Do we have payer fee schedules?

• Do we know the costs?

• Is there a substantially similar

procedure that we have data for?



How do we handle laboratory,

drugs, vaccines, DME and

other items without RVUs? • Not paid on RVUs

• Reimbursement based

on retail or other benchmarks

• Use times government ratio to set

rational fees or other reference (such as

cost)



Provider-based billing? • Provider-based billing splits professional

and technical components

• We recommend first establishing a global

fee for all non-governmental payers

• Then, set 80% of the global as the

professional fee.

• Evaluate professional fee to leave nothing

behind



Provider-based billing? • Technical fee is balance of global fee

• Because technical fee is paid on

retrospective settlement of costs, price is

relevant only for copayment amount.

• Patients pay copayment amount on both

professional and technical components



The Four

Fundamentals

1. Cover Your Costs


3. Know Your Market

4. Play Fair

Review:


Compelling Clinic Metrics

David Manning, CPA, CMPE

Manager in Health Care Consulting,

Eide Bailly, LLP

T. 701-476-8334

[email protected]

Thank you for your kind attention.


Compelling Clinic Metrics

Who Has the First

Question?

Health & Medicine

Pricing Physician Services