Teaming with finance to maximize top-line results

In best-practice supply chain operations there is a concerted effort to work closely with finance to assure that the organization is realizing all the revenue that it is entitled to. Conversely, it is important that resources are not wasted on activities whose goal is to generate revenue when little or no revenue is actually generated. So this month’s best practice is supply chain and finance teaming for revenue optimization.

The reimbursement system is incredibly complex. In most institutions the largest single payer is Medicare. For Medicare patients the primary method of reimbursement is a single payment based on Diagnosis Related Group (DRG). This is (for the most part) a flat fee. But there are some carve-outs where additional revenue can be generated if the cost is correctly documented.

Commercial payers are usually the next largest revenue source. The reimbursement method here can vary greatly. Each insurer has its own method. Some are similar to Medicare with DRG type payments. Others may use a per diem or procedure based reimbursement. Still others pay based on a percent of charges. And for all of these, reimbursement for outpatient services may be different. Each hospital has to take into account their individual mix of payers and reimbursement methods to determine the best way to maximize revenue.

The need for supply chain and finance collaboration became apparent in the early 2000s. Beginning April 1, 2001, Medicare began to use a system of product-specific HCPCS codes called "C" codes to reimburse or pass-through the cost of implantable devices under the Outpatient Prospective Payment System (OPPS). For those hospitals that responded to this change, the additional revenue could be in the millions. But many did not.

The successful hospitals were often those where there was already good collaboration between finance and supply chain. In these cases the two departments worked together to assure that all C code items were identified, that systems were put in place to assure that the charges were processed, and that the charges were accurate based on the actual cost of the items.

Since then the number and value of C code items has diminished. But the need for supply chain and finance to work together has continued. Working together the two departments can have a substantial effect on total revenue. Some of the things to concentrate on are:

• Assuring that the charge master has charges consistent with the current price of the items. Many organizations are accomplishing this by linking the item and charge masters, which is a best practice in itself. If this is not possible, there should still be efforts to keep this part of the charge master up to date. Finance and supply chain should work out a process to update important charges as they change and review all charges on a periodic basis.

• Having a clear determination of what will and what will not be considered a patient chargeable item. For some reason this seems to be a harder task than one would expect. In many organizations the distinction is ambiguous, and you find similar items that are both chargeable and non-chargeable. Organizations often use a cost threshold as a guide, e.g., items costing over $10 will be chargeable. If used, this threshold should be used as a guide and not an absolute. When one item is $9.50 and a similar item is $10.50 either both should be chargeable or both not.

• Assuring that chargeable items – particularly those that are carve out reimbursable – are put into the charge master before they are used. There should be a process in place for review of all new items. Those approved items that need charge master numbers would get them before the item is purchased.

• Periodically reviewing the charging strategy. Changes in reimbursements and payer mix can make your current charging strategy less than optimal.

• Looking for more effective and efficient ways to charge for supply items. A surprising number of organizations still use patient charge stickers or similar systems to account for supply charges. Reducing reliance on stickers (another best practice) is both possible and advisable. Because individual supply charges now have minimal revenue value in most organizations, it can be relatively easy to find alternate ways to generate the "lost" revenue without stickers and save considerable labor.

These are just some of the ways that finance and supply chain teaming can be effective in maximizing revenue. Once the teaming has started, the combined intellectual capital will often drive even greater accomplishments.