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Supply chain managers must tango with revenue cycle partners

Technology decision-making processes in healthcare have grown up in silos as different specialties have adopted specialty technologies. Decisions about drugs and nutritional supplies fall under the watchful eye of the pharmacy, whereas, responsibility for supplies and capital decisions reside in the materials management arena. As such, different processes have evolved for the introduction and implementation of new products.

Regardless of the environment of evaluation, its focus has centered on clinical effectiveness, safety and cost, but only rarely revenue. In fact, most hospital
reimbursement departments have very little interaction with product evaluation and may not even know people in their supply chain or pharmacy departments. But this is beginning to change.

The most common forums for evaluating new supplies and equipment are value analysis and technology assessment committees. These committees typically provide proactive and comprehensive reviews of new product and technology requests. Product requests typically involve decisions about which model or manufacturer to purchase from; whereas, new technology requests relate to the evaluation of a new diagnostic or therapeutic approaches to patient care, such as a new implantable (e.g., artificial cervical disc) or a new piece of capital equipment (e.g., surgical robot). Questions about the efficacy, cost-effectiveness, safety, competing products/services and compliance with group purchasing contracts comprise many of the commonly reviewed criteria during assessment. The availability of reimbursement for the new product or technology also comes in to play, but not always as one might expect.

For a major academic medical center, a never ending tidal wave of new technology requests posed a very real dilemma as its numerous world-class researchers and physicians flooded administration and supply chain leaders with new technology requests. In response, the medical center established a technology assessment committee to evaluate new capital and supply-related technologies.

In order to focus its attention on requests that warranted a formal assessment, the medical center limited its assessments to new technologies that had a per-procedure cost of $2,500 per year or a start-up capital cost of more than $100,000. During the committee start-up, a representative from the reimbursement department was given a seat on the committee, which turned out to be a wonderful investment.

Early on, the technology assessment committee reviewed a new bariatric surgical procedure that used an implanted banding device to limit a patient’s food consumption. Research into the procedure indicated that local insurers were willing to provide reimbursement for a more generic gastric restrictive procedure, without gastric bypass, for morbidly obese patients, but they would not cover the consumable expense of the
implantable banding device that cost several thousand dollars. This meant that the medical center would have to absorb the cost of the implantable for each procedure.

After much deliberation, the technology assessment committee provided approval for the new procedure contingent upon the patient paying for the implantable device portion of the procedure. This decision prevented the medical center from being limited to DRG reimbursement for a surgical approach that was new and had not yet shown superior results to comparable bariatric surgical approaches.

Although a self-pay option worked in this case, hospitals typically avoid pursuing numerous incremental self-pay arrangements since they require significant manual billing and follow-up, and add complexity to an already complex process of coding and billing. As a result, new product costs are often absorbed since no additional reimbursement can be obtained.

Recognizing the rapid rate of technology proliferation, some hospital finance departments have negotiated new technology clauses into their contracts with insurers. Often these clauses provide additional reimbursement for new technology costs that exceed a predetermined deductible. Unfortunately, the existence of these types of clauses is not always relayed to certain departments, such as materials management, who are on the front-end of new product requests.

One particular medical center had negotiated a new technology clause with its largest payer, which it had never exercised since it had no process to clearly define new technology costs. This clause included a deductible of $75,000 annually for new technology costs. After the first year of performing technology assessments of products such as intracranial stents, bone morphogenic proteins, liver stent-grafts and kyphoplasty, the medical center identified almost $200,000 of annual new technology costs for which it was entitled to more than $100,000 of dollar-for-dollar reimbursement. If a reimbursement representative had not been on this medical center’s technology assessment committee, chances are that this revenue opportunity would not have been identified.

No simple panacea exists for gaining the upper hand on revenue related issues. Rather, hospitals need to cultivate processes and environments that nurture multidisciplinary cooperation to identify new opportunities. Several steps that can help include the following:

1. Have a proactive, structured process for technology decision making. Obtaining reimbursement after a procedure has already been performed is extremely difficult. Proactively evaluate new technologies using a structured and well-documented process (e.g., value analysis, technology assessment) to fully understand the opportunities and challenges proposed.

2. Understand reimbursement basics. The coding world of reimbursement contains a plethora of alphabet soup acronyms, including diagnosis-related group (DRG), current procedural terminology (CPT), ambulatory payment classification (APC) and more. Understand not only what these codes mean, but also the mechanisms surrounding their use. For example, understanding how a new technology could transition an existing inpatient procedure to an outpatient procedure would require knowledge that the reimbursement mechanism would shift from DRGs to APCs. This knowledge applies equally to supply and capital technology decisions.

3. Build bridges with reimbursement specialists. In the normal workday, opportunities for interaction between reimbursement specialists and supply chain decision-makers typically exist on a more ad hoc basis. Through increased interaction with reimbursement specialists, supply chain managers can more effectively link payer contracting strategies to front-line technology trends to align organizations to maximize reimbursement for new technologies.