RECEIVABLEREVENUE

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Understanding Costs Getting Beyond Expenses
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SESSION GOALS

• UNDERSTAND YOUR COSTS
• Understand the difference between expenses and
  cost
• The importance of analyzing unit costs
• MANAGE USING BUDGETS
• Review the budgeting process in health centers

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WHAT IS COST?

• Cost Expenses
• Volume

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EXPENSES

• 70 Personnel
• 10 Facility
• 20 Other Than Personal Services
• It is difficult to reduce cost by decreasing
  expenses
• Cost can be decreased by increasing volume

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The key to cost effectiveness
Volume
Volume
Volume
Volume
Volume
Volume
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Volume Productivity

• Productivity is not a provider problem, it is an
  organizational problem!

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Key to managing productivity is organizational
accountability!
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EXPENSES
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Step One Identify All Sites and All Programs by
Site
It is recommended that a health center prepare a
budget by building from the program/departments
up. Health Center Site Department Program
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Health Center Projected Visit Report by Site
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Patient Services Revenue Projections - Overall
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Projected Grant and Contracts Revenue
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Budgeting of Expenditures
Projecting the expenditures for the following
expense categories will be based on different
variables. Salaries Staffing
Plan (FTEs) from the Salary List Fringe
benefits Percent of Salaries and
Wages Supplies Based on Visits Ancillary
Cost Based on Visits by Site and
Department Facility Based on Current
Leases Interest Based on Current Loan
Payments
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Direct Expenses - Salaries
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Overall Expenses
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Total Budget
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HOW SHOULD WE LOOK AT COST?

• Per Visit
• Per Service
• Per Site
• Per Payer

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DETERMINE AVERAGE COST PER VISIT

• Determine average cost per visit for medical
  services

Total Costs 4,600,000 Minus Dental
(Inc. Overhead) (800,000)
Minus Pharmacy (Inc. Overhead) (900,000)
Outside Contracted Lab for Self Pay Patients
(300,000) Total Covered Costs
2,600,000 Billable Visits 26,000
2,600,000 Cost per visit
26,000
100/visit
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Average Cost/Visit by Service Category
Medical S/B by specialty Should also be
determined by Site
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SAMPLE COMPARATIVE COST PER VISIT ANALYSIS
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SAMPLE PRIMARY CARE ASSOCIATIONCOMPARATIVE COST
PER VISIT ANALYSIS
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COST PER VISIT

• Costs can be evaluated on a per visit basis and
  compared to national averages. This allows the
  health center to identify cost drivers. Nearly
  all cost areas can be evaluated on a per visit
  basis (e.g. provider, overhead, ancillary etc.).
  This analysis can extend to all areas.

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Comparison of Revenue/Visit to Cost/Visit by
Payer
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HOW DO WE DETERMINE COST PER SERVICE?

• This uses standard relative value units (RVU)
  methodologies to calculate the cost of each
  service. A charge schedule based on costs
  calculates this
• Example Example
• 99213 (Established Patient Office Visit)
  86701 (HIV-1)
• Health Center Cost 76
  Health Center Cost 16
• Medicare Standard Cost 47
  Medicare Standard Cost 10
• Usual Customary Fee 58 Usual
  Customary Fee 8
• This assumes a cost per RVU of 58.92 from TBS
  proprietary National Ambulatory Care Database.
• This assumes that Medicare pays approximately
  36 per RVU.

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WHAT IS AN RVU?

• The Medicare program took a major step to reform
  physician payments by implementing the Medicare
  Fee Schedule (MFS) on January 1, 1992.
• The Resource Based Relative Value Scale (RBRVS)
  used in the MFS includes three components
• (1) total physician work - measures the provider
  skill and effort required to complete the
  service
• (2) practice expenses - measures the practice
  expense/overhead resources required to complete
  the service
• (3) malpractice expenses - measures the
  malpractice risk associated with the particular
  procedure
• Each component is measured in terms of relative
  value units (RVUs).
• Total RVU for a 99213 .67.69.03 1.39

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WHAT IS AN RVU?

• An RVU or a Relative Value Unit measures the
  intensity of the service provided.
• An RVU scale assigns numerical values to the
  intensity of procedures.
• For example, a basic office visit for an existing
  patient (CPT code 99211) has an RVU of .56,
  which indicates a low intensity of the procedure.
  A surgical procedure such as a laparoscopic
  cholecystectomy (CPT code 47562) has an RVU of
  17.23, indicating the high intensity of the
  service. This suggests that the laparoscopy
  requires approximately 31 times more effort in
  terms of time, skill and resources than a basic
  office visit.
• 2003 Resource Based Relative Value Scale (RBRVS)

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EXAMPLE OF RVUS

• CPT Code Description RVU
• 99211 Est. Pt. Office Visit -Minimal 0.56
• 99212 Est. Pt. Office Visit -Brief 0.99
• 99213 Est. Pt. Office Visit -Average 1.39
• 99214 Est. Pt. Office Visit -Extended 2.17
• 99215 Est. Pt. Office Visit -Comprehensive 3.18
• The RVU represents the skill level, time
  effort, and malpractice risk necessary for a
  procedure.
• The more complex the procedure, the higher the
  RVU value.

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DETERMINE AVERAGE RVU PER VISIT
Step 2 Automated Approach from MIS -- Using a
relative value scale (RBRVS, HealthCare
Consultants of America, other) determine the
relative intensity of average visit (any
period). CPT Occurrences Relative
Value Weighted Code in Period Unit
(RVU) RVUs 99211 320 x .56
179.20 99212 1,600 x .99
1,584.00 99213 4,616 x 1.39
6,416.24 Total RVU 19,400 99214
1,200 x 2.17 2,604.00 Billable
Visits 10,000 .. . 16010
80 x .71 56.80 1.94 average
17003 70 x 2.13 149.10
RVU per visit 93000 100 x .28
28.00 19,400.00 2003 RBRVS
Scale
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DETERMINE AVERAGE COST PER RVU
Step 3 Determine average cost per relative
value unit Average cost per visit 100
Average RVU 1.94
51.55 cost per RVU
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DETERMINE AVERAGE COST PER PROCEDURE
Step 4 Apply unit cost to services provided
CPT Avg. cost/
Code RVU RVU
Charge



New Patient
99202 99203 99204 99205 99212 99213 99214 99215
16010 17003 93000
1.70 2.52 3.59 4.58 .99 1.39 2.17 3.18 2.13
.28 .71
51.55 51.55 51.55 51.55 51.55 51.55 51.55 51.55
51.55 51.55 51.55
x x x x x x x x x x x
87.64 129.91 185.06 236.10 51.03 71.65 111.86 163
.93 109.80 14.43 36.60
Established Patient Other
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Benchmarking RVU Indicators
Data extracted from TBS proprietary National
Ambulatory Care Database.