We've been misled by Mr. McRoy and the WDN on "reimbursement rates" | Eastern North Carolina Now

     Publisher's Note: We've been a bit short of staff this week, so we here at BCN do very much appreciate this excellent submission from the staff of the Beaufort Observer. This the second part of a multi-part series.

    In Sunday's (12-5-10) Washington Daily News County Commissioner Jay McRoy stated: "There's no doubt I'd have to support UHS because the problem with the local health care system is the reimbursement." The WDN then proceeded to treat us to an article in which they spotlight the "reimbursement issue" and quote a public information officer at UHS on their "percent of reimbursement." Both of these reports illustrate a woeful ignorance of what they are pretending to present authoritatively. Let us explain.

    First, the summary, then the detailed backup.

    It is not valid according to numerous experts in health care management with who we have talked, including Jeff Horton, the Chief Operating Officer of Regulatory matters with the N. C. Department of Health and Human Services' Health Services Regulatory Division, and four different people with the Centers for Medicare and Medicaid Services (CMS) to "compare reimbursement rates between hospitals" as a measure of their fiscal efficiency or viability (what McRoy is saying). The reason for this can be simply stated even if it is complicated to understand: The reimbursement rate does not account for the actual true cost of operations. It may bear little relationship to the actual cost of doing business, either fixed or marginal costs. As one expert told us: "It's like arguing that Fords get better gas mileage than Chevrolets do. Once you've said it, you haven't said anything."

    Now the details.

    Here's an example we were given: Hospital A admits a patient with a specific diagnosis. They treat that patient, bill Medicare under the fee schedule and get paid. Hospital B admits the same patient, treats them and gets paid and in this example assume both A and B get paid the same thing for the two patients. However, the actual true costs of providing those two patients' treatments may vary significantly. For example, assume the "reimbursement" was $1000 for each patient. But assume also that Hospital A actually spent $900 (both fixed and marginal costs) while Hospital B actually spent $1100. Obviously comparing "reimbursement rates" is not valid in predicting which hospital will survive.

    A second example is comparing the "reimbursement rates" as the WDN did by using a ratio of actual reimbursement to "billed charges." This is where we often hear that "Medicare (or Medicaid) reimburses only X%" as the quote in the WDN article used. Hospitals may bill different amounts. But CMS is going to pay what their fee schedule (PPS) dictates, regardless of what the hospital (or doctor) actually billed. So reimbursement as a percent of billed costs is irrelevant, at least to the "bottom line."

    In fact, we learned, some hospitals and doctors charge (bill) higher amounts in order to increase revenues from insurance and private payers above and beyond what Medicare or Medicaid pay. In essence they shift the costs from Medicare patients to other patients.

    Thus, simply stated, you can't compare hospital operations by using "reimbursement rates." At least not if you want to do so legitimately.

    Moreover, we were told that Mr. McRoy's attempt to compare two hospitals using "reimbursement rates" is bogus because while the PPS fees are standardized, the actual total reimbursement in relation to actual costs is greatly dependent on "coding." That is, the fee schedule may be the same but one hospital may log the codes for services rendered (in clinics, practices etc.) more "advantageously" than another. So the difference in revenue generated is not caused by Mr. McRoy and the WDN's "reimbursement rates" but rather by the efficiency in the coding procedures.

    In fact, there is an entire industry that has grown up that deals with billing and coding as this website illustrates. Here's another example. You can take a webinar for $325 for an hour and a half of learning how to maximize your "profit" via coding.

    And we learned that often there is a "give and take" with CMS about reimbursement and having skilled staff to know how to "appeal denials" sometimes makes more difference than the rates. One expert told us that this phenomenon of "knowing how to deal with CMS (and private insurance companies) in billing, coding and reimbursements is probably the leading cause many private physician practices have gone belly up. They just didn't have the staff to manage it correctly."

    The previous Beaufort Hospital administration and board apparently ignored this issue and just accepted whatever reimbursements CMS sent. The current administration and board, under the leadership of the "Cost Containment Committee" and now Finance Committee, has contracted with outside experts to review the billing and coding and teach the local staff how to maximize revenue from Medicare, Medicaid and private insurers (and we'll save the private insurance issue for a future article). And we're talking big bucks. Possibly hundreds of thousands, if not millions, of dollars.

    At the risk of putting too fine a point on this issue of differences in reimbursements, we will add that we learned that Pitt Memorial likely gets supplemental reimbursements because it is a "teaching hospital." The theory here, we were told, is that teaching hospitals have added costs because of the teaching function. But while that might make some believe UHS has a better deal we were told that may or may not be the actual case. The question goes back to that original issue of ratio of reimbursements to actual costs.

    On this point we were treated to a hour long discussion of the significance of "clinics" at UHS (yes, we understand it is not that simple organizationally). Apparently this is a real sensitive area deserving of much more investigation if Beaufort chooses to join with UHS, but the essence of what we learned was that the Brody clinics are the "cash cow" for UHS and that is so because they are staffed (in terms of direct patient/provider contact) with residents who are paid much less than a board certified doctor but who generate essentially the same reimbursement as an experienced (more highly paid) doctor.

    Actually, that is a superfluous issue. But it does illustrate the point that it is not legitimate to compare "reimbursement rates" between two hospitals.

    Having said all that we come down to this: Mr. McRoy is out in left field in saying he favors UHS over BRHS remaining independent because even if BRHS merged with UHS the reimbursement system for BRHS remains with the "institution" according to Mr. Horton.

    Now just for the purists in this issue, we would acknowledge that "reimbursement rates" are somewhat localized as this document explains. But notice the maps on Pages iv - vii and it is obvious that Beaufort and Pitt are in the same categories.

    One significant thing we learned about reimbursement rates from Medicare and Medicaid (CMS) is that they are based on a very sophisticated statistical model which boils down to "average costs." So when you boil it all down it is not valid to conclude that a small or rural hospital (like BRMC) cannot operate effectively under the CMS system. This is true simply because the counter argument can be made that if a hospital operates more efficiently than the "average" it can indeed compete, or should be able to if managed well.

    Conclusion

    We admit that "reimbursement rates" are way too complex for an adequate treatment here. But for those that want to really get into it the links in this article will no doubt give you more than you ever want to know about "reimbursement rates."

    The point of this article is simple: Mr. McRoy and the WDN are, in our opinion, being deliberately deceitful or woefully ignorant in pretending to compare UHS to BRHS by saying that UHS has higher reimbursement rates. That is simply bogus.

    What we concluded after all this research is that the whole thing boils down to management. Efficient and effective management, specifically in billing and coding but also in cost management, makes much more of a difference than who "owns" the real estate or operations.

    What is obvious is that BRHS has been poorly managed in terms of billing, coding and cost management. They do not have even a minimally adequate accounting and data system to know which doctors' practices were losing money and which departments operate in the black.

    Mr. McRoy gave a "Glenn Beck" presentation at the November County Commissioner meeting in which he contended that you cannot determine which providers are financial liabilities or assets. And that is true...in Beaufort County. But in saying that, as the county commission representative on the hospital board for many years, he is simply admitting that they failed to construct an adequate system of tracking costs. But those systems exist. One such system we found is operated by none other than Community Health Systems. But that's for another article. But in relation to this article/issue, CHS is also said to have one of the most effective coding and billing systems in the industry. One source suggests that efficient management more than accounts for the profits CHS makes.

    Mr. McRoy has, in stating his support for UHS, clearly exposed either his bias or ignorance because basing his vote on "reimbursement rates" is obviously bogus. And to the WDN we would suggest the issue of reimbursement rates deserves and requires more than an interview with a PR person in Greenville.
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In response to the WDN's freakin out Beaufort Observer, Editorials Political Cycle of Shame

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