April 1, 2009

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

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

3. Supply Chain Leadership is Essential to Successfully Achieving Pricing Transparency

4. Our Topics Defining the Current Environment Sharing Our Experiences Your Leadership

5. 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

6. Defining the Current Environment • How did we get here?

7. 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

8. 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

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

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

11. What is Price Transparency?

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

13. The Goal: Publish Procedure Price List

14. For Hospitals: Price Transparency Requires Cost Transparency

15. Defining the Current Environment • How did we get here? • Legislation

16. Federal 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

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

18. Where to Find State Legislation • National Conference of State Legislatures • Pending and Enacted Transparency Legislation by State • http://www.ncsl.org/programs/health/Transparency.htm

19. New Federal 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

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

21. Chargemaster Problems Arise When Actual Costs Patient Price

22. How does this happen?

23. Limited System Integration

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

25. Separation of Costs from Prices 1995 Patient Price:$5.00 2005 Patient Price:$10.78 (8% Yearly Ramp Up)

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

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

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

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

30. 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

31. 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

32. Defensible Cost Reporting Requires Actual Costs Patient Price

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

34. Operating Room / Cath Lab Are All Supplies Chargeable? • YES

35. Our Experience Many Hospitals Do Not Charge for EverySupply Used in the OR Why?

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

37. 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

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

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

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

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

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

44. 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

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

46. Achieving Cost Transparency Costs Driving Price Transparency

47. Achieving Cost Transparency Costs Driving Price Transparency

48. Achieving Cost Transparency Costs Driving Price Transparency

49. Achieving Cost Transparency Costs Driving Price Transparency

50. Achieving Cost Transparency Costs Driving Price Transparency