April 1, 2009 Pricing Transparency The Role of Supply Chain Leadership

“Don’t bother me, can’t you see we’ve got a battle to fight?”

Supply Chain Leadership is Essential to Successfully Achieving Pricing Transparency

1.Defining the Current Environment 2.Sharing Our Experiences 3.Your Leadership Our Topics

Defining the Current Environment -How did we get here? -Legislation Sharing Our Experiences -Chargemaster – Strategic Importance -CMS Cost Reporting -Debunking Common Myths -Cost Transparency Your Leadership -Be at the Strategy Table -Understanding Your Role -Improving the Bottom Line – OR Revenue Maximization

Defining the Current Environment -How did we get here?

The Problem Surveys show consumers can come within 1% or $300 for the Price of a new Honda Accord But a 4 Day Hospital Stay Price? Incorrect by 56% or $8,100 Harris Interactive Poll for Great-West Healthcare July 2005

Survey: Estimate Surgical Procedure Cost Hip Replacement WSJ Health Care Poll, “Public Perceptions of Costs for Health Care Products and Services Differ Widely”, July 2004

Survey Results WSJ Health Care Poll, “Public Perceptions of Costs for Health Care Products and Services Differ Widely”, July 2004 Accurate Response Rate: 14%

WSJ Survey: Most Important Issue 44% Believe it’s Costs Translated: The Price They Pay

What is Price Transparency?

Price Transparency Goals Increase Competition among Providers Help Patients Make Informed Decisions Reduce Charge Disparities for Same Care

The Goal: Publish Procedure Price List Procedure Patient Price Implant Charge Open Heart Bypass$19,524Possible Thoracotomy - Minor$10,819No Pacemaker Insertion$4,207Yes Open Heart Valve Replacement$19,200Yes Carotid Endarterectomy$9,088Possible Removal of Pacemaker$2,114Possible

For Hospitals: Price Transparency Requires Cost Transparency

Defining the Current Environment -How did we get here? -Legislation

Bush Administration Openly Supported Transparency Initiatives  Executive Order August 2006  Health IT Research – Strategies Funded  Health Savings Accounts – Incentive HHS Secretary Leavitt Pushed for State Involvement Federal Legislation

Transparency legislation in place No current legislation in place Pending legislation Source: National Conference of State Legislatures, December 2008www.ncsl.org

National Conference of State Legislatures Pending and Enacted Transparency Legislation by State Where to Find State Legislation

Obama Administration – “American Recovery and Reinvestment Act of 2009”  Health IT Grants – EMR Rollout Proposed Federal Budget Plan 2009  Reduce Medicare payments to Control Costs Americans Speak on Health Reform: Report on Health Care Community Discussions  Need to Understand Prices New Federal Legislation

Defining the Current Environment -How did we get here? -Legislation Sharing Our Experiences -Chargemaster – Strategic Importance

Chargemaster Problems Arise When Patient Price Actual Costs

How does this happen?

Limited System Integration Software Application Accurate Item Cost Patient Price Patient FinanceNOYES Operating RoomNO PurchasingYESNO Decision SupportNOYES

Yearly Price Ramp Up Example: Item Description: ½” Drain Tube 1995 Item Cost: $3.34 Markup: 150% 1995 Patient Price: $5.00 Separation of Costs from Prices

1995 Patient Price: $ Patient Price: $10.78 (8% Yearly Ramp Up)

Problem: Patient Charge Data Used to Understand Costs Patient Finance System Decision Support Data

Procedure Costs Analysis – Actual Costs vs. Decision Support Result: Limited Visibility to Actual Costs

Procedure Costs Analysis – Actual Costs vs. Decision Support Result: Limited Visibility to Actual Costs } Inaccurate Costing

Defining the Current Environment -How did we get here? -Legislation Sharing Our Experiences -Chargemaster – Strategic Importance -CMS Cost Reporting

Centers for Medicare & Medicaid Services (CMS) Annual Data Provided by Hospitals Used to Determine Cost to Charge Ratios Directly Affects Federal & State Reimbursement Rates CMS Cost Reporting

CMS Set New Goal of Setting More Accurate Hospital Payments Return to Fixed Fee Reimbursement System No Longer Looks at Gross Charges Now it Looks at Costs

Defensible Cost Reporting Requires Actual Costs Patient Price

Defining the Current Environment -How did we get here? -Legislation Sharing Our Experiences -Chargemaster – Strategic Importance -CMS Cost Reporting -Debunking Common Myths

Are All Supplies Chargeable? Operating Room / Cath Lab YES

Many Hospitals Do Not Charge for Every Supply Used in the OR Our Experience Why?

Our Experience Most Common Reason Given: “Routine, or Commonly Used Supplies” Are Not Chargeable According to CMS Myth

Medicare Provider Reimbursement Manual Section (2203.2) “They should be direct identifiable items and services provided to individual patients; furnished under the direction of a physician because of specific medical needs; and not reusable or represent a cost for each preparation.” Myth: This refers to SNFs not Hospitals

Are Instrument Trays Individually Chargeable? Operating Room / Cath Lab YES

Many Hospitals Do Not Charge Individually for Instrument Trays Used in Every Case Our Experience Why?

Our Experience Most Common Reason Given: Reusable Instrument Trays are Considered Routine and Not Billable Separately Myth

What this Means: Charge for All Supply & Implants Used Charge for All Equipment & Instrument Trays Used

What this Does: Makes Patient Charges Defensible Aligns All Actual Costs Per Case with Charges Enhances CMS Cost Report Enables Cost Transparency

Defining the Current Environment -How did we get here? -Legislation Sharing Our Experiences -Chargemaster – Strategic Importance -CMS Cost Reporting -Debunking Common Myths -Achieving Cost Transparency in Surgery

OR Time Charges Surgeon Time OR Room Time Anesthesiologist Time Equipment Charges Instrument Tray Charges Supply Detail Charge Implant Detail Charge Operating Room Charges

Costs Driving Price Transparency Surgeon Surgeon Time Charge Dr. A$12,000 Dr. B$8,000 Achieving Cost Transparency

Surgeon Surgeon Time Charge OR Time Charge Dr. A$12,000$9,200 Dr. B$8,000$6,100 Achieving Cost Transparency Costs Driving Price Transparency

Surgeon Surgeon Time Charge OR Time Charge Supply Charge Dr. A$12,000$9,200$3,300 Dr. B$8,000$6,100$1,200 Achieving Cost Transparency Costs Driving Price Transparency

Surgeon Surgeon Time Charge OR Time Charge Supply Charge Implant Charge Dr. A$12,000$9,200$3,300$7,800 Dr. B$8,000$6,100$1,200$8,200 Achieving Cost Transparency Costs Driving Price Transparency

Surgeon Surgeon Time Charge OR Time Charge Supply Charge Implant Charge Total Dr. A$12,000$9,200$3,300$7,800$32,300 Dr. B$8,000$6,100$1,200$8,200$23,500 Achieving Cost Transparency Costs Driving Price Transparency

Costs Driving Charges Achieving Cost Transparency Acquisition Cost (Supply / Implant) Markup (Range 150% - 279%) X = Patient Price

Chargemaster Design – One to One 15,000 OR Items in Item Master = 15,000 Items in Chargemaster

Costs Driving Charges Surgeon Surgeon Time Charge OR Time Charge Supply Charge Implant Charge Total Dr. A$12,000$9,200$3,300$7,800$32,300 Dr. B$8,000$6,100$1,200$8,200$23,500 Achieving Cost Transparency

Costs Driving Charges Achieving Cost Transparency Indirect + Direct Instrument Tray Costs Markup (Range 150% - 279%) X = Patient Price

Improve System Integration Software Application Accurate Item Cost Patient Price Patient Finance NOYES Operating Room YES Purchasing YESNO Decision Support YES

Improve System Integration Software Application Accurate Item Cost Patient Price Patient Finance YES Operating Room YES Purchasing YESNO Decision Support YES

Defining the Current Environment -How did we get here? -Legislation Sharing Our Experiences -Chargemaster – Strategic Importance -CMS Cost Reporting -Debunking Common Myths -Cost Transparency Your Leadership -Be at the Strategy Table -Understanding the Need for Your Role -Improving the Bottom Line – OR Revenue Maximization

Strategy Design PATIENT FINANCE OR LEADERSHIP CFO SUPPLY CHAIN LEADERSHIP INFORMATION TECHNOLOGY

The Item File is the Master – Its Your Data Standardize Descriptions Ensure Costs are Lowest Unit of Measure Ensure Catalog Numbers Match Products

Drive the Integration Process Interfaces to the ORIS must: Handle Price Changes Transmit Lowest Unit of Measure Transmit the Chargemaster Number Manage Obsolete Items