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Hospital receipt sample for Public Relations

all right so my name is David buts I'll introduce myself a little bit more completely in a moment um what I'm being tasked with doing is talking about the basics of Hospital economics and purchases um I'll start out with a disclosure can you hold one second I'm having an echo can I I'm okay yeah okay so um I'm an adjunct uh faculty member at the raw School of Business I teach a class to mbas and graduate students around the university sort of a boot camp uh on the business of healthcare and you'll see my bio there my slides are a little bit loaded I'm hoping that you'll find Value in coming back to them later but that gives you a little sense of who I am most important information on this slide I think is my contact information and I have some ideas for folks on where they might uh get data on the industry on their particular market segments um if you email me uh with questions I might be able to to help you out so uh keep that in mind so we we have this uh business model canvas and it's a it's a great tool um I'm tasked with looking at the cost structure and the revenue streams associated with hospitals purchasing decisions and we have a bit of a problem to start out in that it it isn't very transparent what what healthc care costs and I'm going to take the first 10 minutes or so um and ask this question what does it cost to deliver healthare I'm going to try and disabuse you of a few Notions you may have about the cost of providing care and and provide a little more transparency to the issue uh one of the problems we face is is that the costs we are talking about are are all over the map there isn't one metric that we deal with when we talk about cost there may be many so the the highest reported cost is going to be the build charge that shows up on a patient's uh bill when they get it in the mail uh that's a list price uh very few uh patients or very few payers actually pay full Bill charges they discounts uh typically negotiated across the board um at the other extreme the lowest way to measure cost might be through an invoice cost so the the costs that we see for care are wildly different across the metrics that we may use to measure those costs and for the same metric uh you may have entirely different reported costs across hospitals uh for for no other reason then overhead is allocated differently at hospital a than it that it may be at hospital B so one one reason we have confusion over cost is we have all of these metrics kind of flying around at the same time um let me give you an example um there is a new drug out for Hepatitis C I'm sure you've many of you have read about it it's $84,000 for a full course of treatment um and the focus there that you would see in the New York Times or in various other venues is on the reimbursement what does it cost the health insurer uh to to reimburse the cost of that medication um in another context same idea of a medication um you have a really simple purchasing decision when you're talking about two drugs that are Ally identical and therapeutically equivalent if drug a is a branded medication and Drug B is a generic alternative they'll have different invoice prices but everything else about the drug will be more or less the same they'll have the same supply chain costs they'll have the same cost of dispensing the drug to the bedside and delivering it to the patient they may have the same overhead markups they may have the same uh efficacy um but of course uh because the invoice price of the generic is lower hospitals will typically Al choose uh the generic drug and so when you look at the costs of those um the build charge that shows up on the patient's bill in the mail maybe $40 different between the two medications um but when you look at the cost of the loading dock you know coming into the formul to the far the pharmacy uh the invoice cost may be only $4 difference now um again the bill charge isn't paid by anybody um and in this case um when you extract away from all of the um Superfluous stuff the overhead charges and so forth really the relevant difference in cost is $4 so we have costs uh measured in a variety of ways I want to reiterate that when you look at build charges in healthc care um especially on the hospital and health system charge side of things the markups are huge and they've been growing over time so this is a graphic taken from Medicare and um you know as recently as 2002 prices were marked up 139% on average average so $100 cost would turn into $239 on the patient bill you can see there by 2011 the markup was 229 per and it's grown significantly since then so so keep in mind when you see the bill um that's not really the cost nobody very very few people are actually paying the full price uh that's listed there so you know here's the Dilemma that we have when we're looking at uh hospitals and how they make their purchase decisions is nobody really knows what stuff costs um and it's it's not just the patient who doesn't see this transparently but it's often times the the individual provider as well and even adding a little bit of transparency uh can dramatically change the way decisions are made so just making Physicians aware of the cost of a blood test um can lower Hospital's daily bill by as much as 27% so um as we're looking at costs we need to appreciate and I'm sure many of you do uh that the costs aren't always um as obvious as they could be and I I I just want to make this point about Hospital charges one more time this graph and I won't go into it if you're interested you can look at it later looks at build charges for C-section deliveries and this is 2009 but the website is listed there you could go look at any procedure you wanted to you know the charges that are uh build to patients by hospitals that have at least 30 of these C-sections you know vary from less than $10,000 at five hospitals to more than 40,000 at eight hospitals and you in California and you see everything in between so the one takeaway that I that I hope you get from these first few slides is you know Bill charges mean almost nothing uh it's a list price uh very few people very few insurers actually pay that what I I want to direct your attention to is this just absolutely fabulous um website called hcupnet some of you may have heard of the national inpatient sample this is a query tool that allows you to look at the national inpatient sample and get some aggregate statistics so this is an all-payer database it covers all inpatient all emergency department care all hospital care it's just a terrific query tool and it Aggregates in Myriad different ways patient level data um so that you can get a sense of what things actually cost and let me direct your attention to this slide where you can get some aggregate level um insights into what what hospital care costs on an aggregate basis so in 2009 if you look at the top uh slide there Top Line in exhibit one there are about 39 million total hospital stays in 2009 if you go down to the red box and I'm just going to summarize here the mean charge for Hospital stay in the United States in 2009 was about $31,000 the actual cost of delivering the care was about nine and I think here in 2014 you can probably round that to 40,000 is the average bill that comes to a patient's home and 10,000 is the actual average cost of doing it and and so that's the number that you're working with if you're providing a therapy for inpatient care you know that's kind of the budget uh that that that folks are working with and um before I actually get into a particular example this H Cup net tool and if you just Google H Cup net it'll come come right up you can look um at a whole variety of things you can look by diagnosis you can look by procedure you can get statistics on all Hospital stage you can look at trend going back to 1993 you can rank uh the diagnoses or procedures you don't have to look at inpatient stage you can look at Ed visits you can look at readmission rates it's just a fabulous tool it's it's one of 10 databases that I would love to tell you about I you know talking listening to some of you earlier I have some ideas so if you want to talk about where you might go get data to due to do due diligence uh uh email me at that that contact so um you know let me talk about heart failure some somebody brought up heart failure um you can go into H Cup net and say well how many people are admitted with a principal diagnosis uh with of heart failure in the United States across all roughly 5,000 hospitals well there are about 876,00 admissions for heart failure so that's a quick way to find out what the size of the inpatient Market here is and you can just look down the length of stay is 5.2 days on average the median length of stay is four the mean charges for a u heart failure stay with with again that's the principal diagnosis are about 41,000 the mean costs are about 11,000 and so they'll they'll aggregate the cost for you this is just a great tool for you to get a sense of of what the market looks like um and let me now talk about the costs because again if you look at that previous slide um the average bill for a patient admitted with heart failure is their principal diagnosis is $41,000 the cost though is about a quarter of that it's about $11,000 and I think what you can assume in most cases is that the the actual costs that you can identify with a patient are about 40% of that so $4 out of every 10 that goes into inpatient care you can actually tag to a particular patient so the medication they received the nursing um you know particular test that they had about $6 out of every 10 is overhead right and and we call those um unit overhead or fixed direct cost and indirect overhead had which is you know the CEO's salary the billboard on I94 the subsidy to the cafeteria the information system so you know you get this impression when you think about inpatient care that oh my gosh we built for everything hospital care is you know exceedingly expensive and in fact it is um but the the budget that you're working with to actually care for a patient in this case is only about $4,000 so when you're thinking about what the value proposition is for your therapy you're not working with 41,000 and you can't just sort of build for it and expect to get reimbursed what you're really working with is is a number that's about a tenth of what would show up in the Bild charges and again you can go into H Cup net and and figure this out when I talk to my mbas I I say divide the bill by 10 that's you know as a rough rule of thumb that's basically the the direct cost of patient care that you're going to be able to work with so I I would say stay focused on variable direct costs when you look in hcup net you see the procedure or you see the particular diagnosis that you're looking at you know take the actual cost and take about 40% of that as being the variable direct cost that's you know for for for your needs that's probably a pretty good you know start to think about what hospital care costs and and your therapy's Financial impact is almost certainly going to be 100% on the variable direct cost because if you have a therapy it's being administered to a patient um that's that's where it's going to show up so um I'm going to steal this from the last Friday I I I hope that's okay um this workflow is is terrific um I think it's generic in the sense that I think it could generalize to a whole variety of settings I'm going to steal it and and basically say I'm going to take out the particulars there and just make it generic so you have an attending physician on behalf of a patient is placing an order through what's these days is called a cpoe or computerized physician order entry there may be a technician involved who actually does the test and the results of that test would go to a physician specialist what I want to point out here is that I've added I've embellished the previous slide a little bit there are typically two bills generated here two claims being generated here one is for the facility so the hospital will generate a bill right and that will go to the insurance company and the physician will generate a separate bill for the Professional Services so there's a facility fee and a professional fee in involved here and those are both noted on this graph so what you're seeing in hcup net and what you're seeing from the hospital's perspective is is typically the just the facility charge but the the physician also bills um I I want to point out here that coding is is how you get reimbursed so you need a procedural code and you need a diagnostic code um and insurance companies just won't reimburse you for putting down any diagnosis any procedure you have to demonstrate the medical necessity so every time you uh do a procedure or or um provide a medication or any kind of therapy the claim that you submit to the insurance company has to include both a diagnosis and a procedure and then there has to be in some sense a reasonable link between that um diagnosis and the procedure being done and it's also important to recognize here that the aim of coding isn't simply to get paid that's one element of what's going on here but coding is important for a whole variety of other reasons I'm I've just listed in there I'm not going to go through all of them but but but it's a very complex process to figure out for your therapy um how it is going to be registered and documented and deemed reasonable so um I won't go into coding I don't have enough time here but but again if I'm not an expert in coding but I have just enough knowledge of the field to be dangerous if you have sort of generic questions about this uh email me and I'd be happy to go through them with you um here's a little bit of background on diagnosis and procedure codes and and where they would show up I can give you a quick 10-minute primer over the phone on on this if you just contact me um but what's what one of the things that's important to recognize here is that getting your therapy approved and in use um requires all of these various parties to weigh in they're weighing in partly on the basis of the value proposition but a lot of what they're weighing in in on is just the logistics of getting this approved we Blue Cross you know accept this and reimburse it what do we have to do to get it reimbursed and um what I want to point out here I'm going to skip ahead for one second and then go back at a hospital the size of the University of Michigan they going to be 15,000 or more intermediate product codes and your therapy is going to be one of those 15,000 so the amount of uh attention uh that you're going to get or mind share that you're going to get from the University of Michigan is 115,000 uh of the total the resources that they have available for this so to get your therapy approved you know it needs to have a code associated with it it needs to have a diagnosis that goes behind it and justifies it it needs to go into the cost accounting system it needs to be Del called what's called an intermediate product code um the cost accountants need to figure out how much overhead to allocate to it um it needs to be introduced into the charge master so it can be built for and then there's a whole series of events that that have to occur it's called a revenue cycle before you actually get reimbursed so there's just a lot of of Hoops to to jump through here even if the value proposition is very uh very easily defined so um again there are a lot of details to work out there issues of governance who's responsible for this therapy um who's ordering inventorying these various things you know is it Pharmacy that's doing that is it the cardiologist that's doing it um so when you see people gathered around the table um and I'm going to skip forward here just a second H R I missed it me come back when you see people gathered around the table I had another thing yeah they're they're deliberating over value propositions but they're also exchanging information talking about logistics talking about accountability how are we going to track the use of this therapy um there's just a lot going on that has to be worked out and I think there's an expectation on the part of all these around the table that it's easier for you to work this out and have it adopted by 5,000 hospitals and there's 5,000 hospitals each to work it out and and and figure things out with Blue Cross Blue Shield on their own so um that's one of the big takeaways that I have for you here is it's it's not about the value proposition and I'm stating the obvious I know but um there there are a lot of details to work out and you can do it in their opinion more easily than they can do it themselves and there is something to be said for that so um keep all of that in mind I don't exactly know how much more time have but there are a thousand points of veto here that's one of my urw colleagues uh at the University of Michigan who's now moved on loves to talk about the thousand points of of veto as a surgeon at the University of Michigan Health System it just seems like everywhere you turn somebody can block any initiative want to take and often times it's because the the whole process of just getting reimbursed getting it stocked getting it dispensed involves so many different people the revenue cycle is so complicated there is a slide at the end here which talks about revenue cycle and you miss one Link in the revenue cycle and you don't get paid and there are dozens and dozens of links so um it's not unreasonable for the folks who are guarding those individual links to to sort of hold up the process and say wait you know wait a second my I only have leverage at this particular moment because I'm a guy who works in the Sub sub basement and if I don't speak up now I'll never get an opportunity to complain again and so um when you talk about procurement and purchasing you know a lot of people are going to wait in um so um all right um so it it is important to realize that these folks who are trying to help you are well-intentioned people you know my experience and I worked full-time in the hospital for quite some time is that they really are at the bedside they desperately want to do the right thing for the patient or they're working passionately behind the scenes they're they're not an adversary um but they do have legitimate concerns that they need to address their lives are just miserable for a lot of them they're dealing with bureaucracy and red tape um and and their lives are made Harder by just a whole lot of of nonsense the expertise that they have and the decision making that they're doing is often very siloed um you know I had an experience when I first went to work at the U ofm health system I moved over from the business school um was the cost accountants weren't talking to the people who made up the charge master and it just led to this multi-million dollar um loss for the University of Michigan health system because the people who were figuring out what to charge weren't charging enough given how much overhead was being allocated to the devices in question and you know all I did was close the loop and tell the cost accounts they had to talk to the people who were setting up the charge master and vice versa and um I paid my salary over like 10 times that year um so it's it's very complicated and and time is the ultimate scarcity for these folks I they're just overwhelmed with the tale and you you have to have a burning platform for them you have to sort of say this is not just something that's a good idea because if you have a good idea that's great just go get in line because there are a lot of people who have good ideas um they need to understand the urgency around your therapy as well um again I want to go back to H Cup net it's not just diagnosis that this provides information for so I have here um knee rep no cardiac pacemaker um so procedures are also covered in the H Cup net in the exact same way so the mean charges in 2012 for an inpatient stay that involved this particular procedure were basically $100,000 the mean cost including I'm sure the device was about $27,000 if the variable direct are are 40% of that you know you're talking about roughly $8 to $10,000 associated with the actual cost that you can identify with the patient you can look at Trends mortality hcup net is just a terrific tool for for you to to use so um I I'm I hope that's helpful um and I have think we have a few minutes left that I could take some questions and and moreover um I'm just going to say it again there's my contact information if you want some ideas about where you can go grab some data or just how you might look into the cost uh and the purchasing decision around your therapy I'd love to hear from I think that's great David I think that's great David thank you very much I had a question for you actually so you talked about these on you talked about these 15,000 different product codes exist in the hospital if you're developing a new therapy are you going to be one of these 15,000 product codes or you going to be lumped into a procedural code I've heard about these procedural codes that kind of Encompass all aspects of a given procedure including the drugs the devices the drapes is it an individual code for my product or am I going to be part of a a proced procedural code um in most cases um if it's sufficiently expensive you'll have your own intermediate product code so uh in the O if you're a device for example that costs $44,000 you will be an intermediate product code and you will show up in the charge master so the intermediate product code will identify say the invoice price this stocking cost and then it'll allocate some overhead and there'll be a markup and you'll be in the charge master um if it's a smaller procurement if it's gauze or saline um it may be lumped into a a bundle called surgical supplies for which there's a sort of a standard fee that the O would charge um you know for a base set of surgical supplies but to the extent that you can identify this to the extent that the hospital can be reimbursed for it um it would show up both as a intermediate product code and it'll be costed and it'll show up as well as a uh as a charge David this is Tim Cornell and I just have one quick question does the database you uh talked about have pediatric data uh yes so it it actually does have separate information just on children's hospitals I believe but it it will include data for all inpatient admissions in the United States so it's a 20% sample that they then extrapolate across to the entire uh us you can break it out rural versus Metropolitan you can break it out teaching hospitals versus non-teaching hospitals and I think you can no in fact I'm certain you can look by age demographic um and it's not just inpatient care it would be emergency department care and it would be psychiatric hospitals as well um so so if if you go to the site it'll give you a lot more detail on on what the data are that drive this and I'll say one other thing if uh you find these data useful uh they are data that are aggregated from patient level deidentified data and for I think $300 you can buy an entire Year's worth of data so you could buy 2012 which would have a 20% sample so roughly 8 million inpatient stays across the United States and that will have an extraordinary amount of detail to give you secondary diagnoses up to 24 of them it'll give you up to 24 uh procedure codes and you know if you are able to sort of manage 8 million lines of data um I think you might find even more insights by getting the patient level counterpart great thanks