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Revenue Cycle Optimization/Revenue Cycle Enhancement in Pharmacy

By Fred Pane, Director, Pharmacy Services, Capstone Health Alliance 

Revenue Cycle Optimization (RCO) or Revenue Cycle Enhancement (RCE) plays an important role in running any business, especially in Healthcare, for Hospitals, Health-systems, and Physician Offices.   Payment is not immediate based on a service provided and if you bill a dollar, you don’t normally get reimbursed a dollar.  Most, if not all, inpatient/acute care is reimbursed at a fixed rate or capitated for a DRG (Diagnosis Related Group), no matter the charge.  Outpatient/non-acute care may be reimbursed as a Percent of Charges.

The benefits of RCO/RCE are not only keeping days in A/R down, decreasing bad debt and write offs, along with improving Cash-on-hand (CAH), which could impact Bond Ratings, but it is also a “Compliance Issue” with Centers for Medicare and Medicaid (CMS) and other payers.   RCO/RCE needs to be constant and led by the Chief Financial Officer (CFO) and a multi-disciplinary team of experts, including department heads, who understand the billing process and payment terms, from all the various payers that a hospital has contracts with.   RCO/RCE is unique in healthcare, because of the payer contractual arrangements, including actual payment, payment terms and reimbursement, that impact both inpatient (acute care) and outpatient (non-acute care).  There may also be “Carve Outs” that impact payments and incentive payments based on “Quality/Outcome Metrics”.  As healthcare moves away from Fee-for-service to Value Based Care reimbursement, Hospital at Home grows, and Patient Site of Care continues to move away from acute care,  there will be more challenges surrounding  RCO/RCE based on payor models.

One of the largest department specific focuses for RCO/RCE in a hospital needs to be the pharmacy.  The need for correct billing is becoming more important as CMS continues to add new billing codes and dosage billing increments, for expensive “separately billable” drugs/specialty drug treatments in oncology, rheumatology, dermatology, urology, gastroenterology, and neurology along with the biosimilars which the FDA is approving.   Many of these separately billable drug treatments can be thousands of dollars a dose.  Also, CMS has been approving specific generic drug company brand billing codes called HCPCS (Healthcare Common Procedure Coding System), effective January 1, 2023.  The Charge Description Master (CDM) needs to be reviewed quarterly in pharmacy, when CMS publishes their quarterly ASP (Average Sale Price) OPPS (Outpatient Prospective Payment System) which highlights new HCPCS additions and deletions, along with any ASP reimbursement changes.  When billing separately billable drugs, it is not only necessary to bill the total dose a patient receives using the appropriate billing increments established by CMS, but it is also necessary to use the appropriate administration CPT (Current Procedural Terminology) code, to assure correct billing to a payer and decrease payment rejection, a resubmission, and Days in A/R.

Another CDM focus on pharmacy, needs to be around correctly creating a CDM Code for billing NTAP (New Technology Add-on Payment), when one of the drugs identified and approved by CMS, can generate extra payment on top of a MS-DRG, when used in the acute care setting.   Normally drugs used on the inpatient/acute care are reimbursed as part of the overall DRG Payment.   Appropriate Revenue Codes may need to be assigned to any additions to the Pharmacy CDM.  A policy and procedure needs to be established around Pharmacy CDM management and identify the various staff/departments involved with making changes and who is tracking CMS Published notices on changes that will impact the CDM, to keep it updated.  A Best Practice Model approach that I implemented and recommend, includes creating one CDM for inpatient and one smaller CDM for outpatient drug treatments, to better track specific drugs billed to various payers the health-system is contracted with, to determine payment per dose of Separately Billable Drugs and which also allows tracking drug expenses by individual cost center, by specific payer.  With Pharmacy Drug budgets increasing, mainly on the non-acute care side, and in some hospitals, becoming a greater percent of the total hospital operating budget, it may be necessary to break the total drug budget down into separate Cost Centers.

If the hospital has an Infusion Pharmacy, Retail Pharmacy, or Specialty Pharmacy, there will be payer contracts for each entity and RCO/RCE needs to be implemented and followed.  Best practice hospitals may have their own dedicated Billing and Accounts Payable staff assigned to these business lines, who are involved in contract negotiations and tracking payments according to established payment rates and payment terms.  There may be financial penalties built into contracts also, based on payment terms.  There needs to be accountability in RCO/RCE when you are dealing with tens/hundreds of millions of dollars involved with Pharmacy Operations.

The same process applied to the Pharmacy Department, can be applied to Radiology, Lab, and even physician offices, which have high outpatient utilization and are also impacted by CMS Billing Codes, which are utilized by all payers.

The financial viability of any organization depends on a strong foundation in Revenue Cycle Enhancement/Revenue Cycle Optimization.   You need to bill correctly, to know your operating costs per procedure in a hospital, health-system, or physician office, to negotiate contracts with payers effectively and assure Compliance.  There continue to be changes in Patient Site of Care driven by payers, new patient care delivery models, etc. and it is necessary to understand the revenue cycle process associated with these changes and the challenges that are coming to have an effective RCO/RCE and meet the mission of the organization.

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