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Materials, pharmacy managers strive to link both sides of balance sheet

For a group that historically has concentrated on overseeing and controlling components of the right side, which highlights expenses, current and future healthcare business and financial operations are telling them it’s no longer enough. Furthermore, within the last decade more are recognizing they can contribute to the revenue stream.

This has awakened a sleeping giant on the service and vendor side as more management and software firms catering to revenue cycle management emerge as hot properties, and the nation’s leading group purchasing organizations roll out their own programs.

The premise behind materials and pharmacy management’s newfound mission is simple: Link their product item masters (IM) to their facility’s chargemaster or charge description master (CDM) to close the fiscal loop between what they’re buying and what they’re billing payers and patients.

But the process to link the databases can be a bit more complex, hinging on a variety of factors. They include the number of facilities within an organization, the ability to recruit the key department heads to participate, the capabilities and flexibility of an organization’s information technology infrastructure and the accuracy and integrity of the data themselves within the item- and chargemasters.

John Gaida, senior vice president, supply chain management, Texas Health Resources, Arlington, TX, represents an organization probably furthest along in the process. Not only is his organization’s item master connected to the chargemaster for all 13 of its hospitals, but the item master is the charge master, he noted. Gaida emphasized four reasons why as a mantra for the industry: "Consistency, accuracy, simplicity, and just makes good sense!" he said.

Maricopa Integrated Health System, Phoenix, contracts with MedAssets Inc. to use the group’s CrossWalk application. "Data is mapped in a single application giving us access to both datasets," said Siobhan Mee, director, revenue cycle management. Mee praises the ability to conduct seamless data queries that may include elements from either or both datasets, as well as the formula overlays and automated error reporting mechanisms that proactively correct pricing. But she counters with one major challenge, which is the reason they outsourced the service to MedAssets. It requires extensive initial and ongoing mapping, according to Mee.

Where Texas Health created its system internally and Maricopa outsourced the service, the pharmacy department at Kingman (AZ) Regional Medical Center took a blended approach. Bruce Latimer, R.Ph., MBA, director, pharmacy services, classifies it as a "two-step process" with manual and automated segments for a "disparate system." Julian Southerland, R.Ph., informatics pharmacist, manually loads item entries into the chargemaster and an automated database of CDM information. Each formulary item is input into the drug master file of the pharmacy computer system, according to Latimer, and a unique CDM number is a data element of that file. "There is a process of evaluating each item and assigning it a CDM number," he said. "Multiple items [with National Drug Code or NDC numbers] can be tied to a specific CDM number."

Kingman Regional relies on Craneware Pharmacy ChargeLink software to serve as a single database for items, purchase history, CDM numbers and reimbursement data, Latimer indicated. They learned about Craneware through their GPO Amerinet Inc.

"We use the Craneware Pharmacy ChargeLink to assure we can effectively charge for items dispensed; provide appropriate pricing, accurate billing and best reimbursement," he said.

Latimer extols the software for providing them with consistent pricing with efficient methods of updating but laments the "considerable time" needed for the manual process to build and maintain their system. "The time it takes," he said, "that’s our real stumbling block, our pitfall right now."

Added Southerland: "We’re pretty far off from automating the whole process."

Kingman Regional started using the Craneware Pharmacy ChargeLink about a year ago as a test facility to manage pharmacy items and the revenue cycle. Latimer indicated that they supplied Craneware with the facility’s wholesaler historical spending records and volume reports, its chargemaster and its billing algorithms. "With their reference points they can build the item master on what you’ve purchased and not just your formulary," he said. Plus, the software provides an accessible dashboard to check on a routine basis. "Aggregate data is like a snowstorm," Latimer added.

Maricopa was in the process of determining how best to develop an application internally and complete accurate initial and ongoing mapping, according to Mee, when MedAssets contacted them. The ability to send data from the CDM, IM and closed receipts to an outside application service provider was too tempting not to choose.

At Texas Health Resources, the triumvirate of finance, supply chain and corporate compliance drove the initiative internally "to bring consistency to patient charging across all hospitals" about four years ago, according to Gaida.

"It was very painful and took a couple of years to fully complete," Gaida recalled. "Finance handled individual cost centers who charged patients — like radiology, respiratory, CV, etc. — and Supply Chain handled the big overall charges out of the OR and Central Supply. A time table was created – a work plan – and then the task of analysis. We needed to equalize pricing between entities while having a net effect of zero loss of revenue, as well as being sure the items we charged for were really reimbursable. It was a complicated process to arrive at a net effect of no change in revenue."

Every single supply item in Texas Health’s system carries a charge code, Gaida noted. "All have formulas linked to the item so the patient charge is based upon the current price paid," he added.

Kingman Regional does something
similar. "It’s cumbersome to start with but if you build it on the front end using Medicare’s exact descriptors then you
can immediately see your reference," Southerland said. "We have our database built like Medicare’s. We tried to make it as clear as possible. Once you get past this [initial work] it’s maintenance after that."

At Maricopa it’s a little different, according to Mee. "Many supply items in the item master are not patient chargeable," she said. "For the patient chargeable items the detail matches the expense. High dollar items, such as pacemakers and implants, have a 1-to-1 match. Low dollar like cost items, such as Foley catheters have 1 charge ‘Foley cath all’ to simplify charge entry."

What’s more, all three facilities can use their respective database and software systems to project fiscal effects from pricing changes. Markup simulations enable them to see effects on cost, gross and net proceeds, for example, using current costs, markups and usage.

For Gaida, it’s as simple as dumping data into a Microsoft Excel spreadsheet. For Latimer, it’s as simple as using the dashboard to generate reports that compare GPO contract pricing, chargemaster pricing and CMS reimbursements.

"The reports can aid in finding ways to decrease material cost, or perhaps not offer the item/service," Latimer said. "The reports may also indicate items that need to be evaluated for ‘packaging’ versus direct use of charging algorithms."

Simplifying matters at Texas Health, the IM and CDM use the same numbers. At Maricopa, the software does the heavy data lifting. "Crosswalk links the two codes," Mee said. "Additionally, we have created keys containing the other system number in available fields in both systems – CDM and Item Master – to assist in mapping. Kingman Regional’s system maintains a direct correlation between the two, according to Latimer. "The item will point to a specific CDM number," he said, "but multiple items [due to sporting multiple NDC numbers] may share the same CDM number. Our prime focus is for consistent and accurate billing and that’s what we end up with."

All three organizations maintain a common chargemaster and item master for all of their respective facilities and service offerings.

"We felt it extremely important for all of our hospitals to be billing at the same prices rather than different," Gaida said. "No one wanted to see an article in the newspaper stating we were charging patients different prices for the same thing at different hospitals only miles apart!"

Latimer emphasized the consistency and simplicity benefits. "We have chosen this model for maximum consistency in pricing," he said. "Reimbursements may vary, but pricing must be consistent across all patient populations and payers." But he admitted the challenge is the flexibility when it comes to tracking charges as patients move through the organization. "Our CDM is based on inpatient charging," he added. "Moving to outpatient activities can cause pricing problems."

It’s not hard to see how and why billing and pricing practices can be such a challenge. Typically, price setting involves complicated algorithms and formulae that rely on a complex stew of past charges, local and regional market prices – including competitor data, CMS and other reimbursement market data and other variables.

While any or all of these variables could serve as roadblocks on the way to connect the IM to the CDM, Gaida, Mee and Latimer indicated that their respective organizations addressed the red flags as they were raised.

"Various hospitals had different mixes that resulted in different reimbursements," Gaida said. "Standardizing meant juggling the ratios so we did not lose revenue while trying to standardize charges. It was fairly complicated running different scenarios, but all worked out in the end to compensate for variable reimbursements.

"If one hospital marked up an item 100 percent and another 200 percent it was not as simple to move to 150 percent – the volumes at each had to be taken into consideration," Gaida continued. "Now try doing that with 13 hospitals while going for the net effect of zero overall change in revenue! Then, we had to understand our contracts in Managed Care to be sure what we were doing did not have a negative impact there. With so many payers, each with a different contract, we had to run scenarios to be sure all worked out before implementing. It wasn’t perfect, but with lots of work by Finance, Supply Chain, Managed Care and Corp Compliance we were able to be pretty close when all the new pricing was turned on."

Maricopa recruited key clinician leaders within its ranks to gain initial buy-in for the process, according to Mee. In fact, they had to assure the clinical areas that "ordering from the item master and not special ordering would not be harder or delay care," she said. They also did not want the CDM to be used as an inventory system. "We still have outliers for special orders and we routinely track non-file purchases through the MedAssets system so Materials can intervene if inappropriate," she noted. "The CDM is an ongoing issue. Since Revenue Management retains the final approval we can control what goes into the CDM. Not allowing its use as an inventory system requires that we instruct departments as requests come in. In general, when they see how difficult it makes charge entry for them to have multiple charges for like items, they pretty quickly understand why it is not a good idea."

All three organizations reaped solid rewards from linking the IM to the CDM. For Gaida, simplicity was enough. Mee and Latimer cited revenue gains and supply savings.

"We saw almost immediate gross and net pickups," Mee said. "Naming conventions were adopted across the sys-tem. Better tracking of non file purchases, which in the first year saw a decrease from 89 percent non-file purchases to 11.25
percent."