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ED Operations . Follow the Money. The Big Question. Can we provide care for our patients (treatment and service) and receive reimbursement that will cover our costs ?. Healthcare is a Business. Like it or not, healthcare is a business

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ed operations

ED Operations

Follow the Money

the big question
The Big Question
  • Can we provide care for our patients (treatment and service) and receive reimbursement that will cover our costs ?
healthcare is a business
Healthcare is a Business
  • Like it or not, healthcare is a business
  • An efficient ED can be a source of revenue for a hospital, or it can be a cost center
  • In many hospitals, the ED is the main source of admitted patients
healthcare is a business cont
Healthcare is a Business, cont.
  • Compare an ED to an assembly line:
    • Units produced must be of high quality
    • Must be produced in a timely fashion
    • Fluctuations in demand must be met
    • Cost of production cannot exceed payment received
  • One key to the success for any ED is being efficient enough to provide the level of service needed in a cost effective manner.

Does standard work exist for:

    • Patient process flow
    • Documentation
    • Ancillary tests
    • Data flow
    • Supply levels
    • Quality Assurance
    • Exception processing
  • Is communication strong ?
  • What is the mix of payer sources ?

ED Revenue Cycle

Money in Bank

WHAT could go wrong ?

Professional Bill

Facility Bill

what could go wrong
What Could Go Wrong ?
  • Using and billing for items or services that are not reimbursable
    • Assuming they are
  • Billing on incorrect form or using incorrect codes
  • Using supply items that cost more than the reimbursement amount
  • Poor documentation prevents appropriate billing codes being assigned
what could go wrong1
What Could Go Wrong ?
  • Overstaffing drives costs up with no reimbursement benefit
  • Paperwork gets lost
  • Lack of standard work creates waste in motion, supplies, inventory, human capacity
  • Business office does not maximize collections – leaves $$$$ on the table
simplified example
Simplified Example


Charges = Total of $850

$ 250 for E&M level 2

$ 200 for lab tests

$ 400 for EKG


Costs = Total of $85

$70 for staff

$5 for labs

$10 for EKG

Patient Pay Source = Medicare

Reimbursement = $ 87.25

Profit margins in healthcare are razor thin


Given the previous example, imagine how many Medicare patients it would take to offset losses/expenses incurred due to:

  • Billing opportunity lost due to poor documentation or misplaced chart
  • Patients without insurance
  • Overuse/waste of supplies or drugs
  • Equipment downtime
  • Staff overtime due to sick calls
  • Rework costs due to errors in patient information or billing issues
not to mention
Not to mention……………..
  • Transport costs (getting sample to Lab)
  • Facility overhead (rent, utilities, maintenance)
  • Technical costs (lab staff, lab supplies)
  • IT costs (phones, PC’s, support)
  • Administrative costs (coders, QA, billing office, payroll, etc)
what can you charge for
What Can You Charge For?
  • Facility
    • Evaluation & Management (E&M) services and procedures
    • Non-routine supplies
    • Drugs
  • Physician
    • E&M services
    • Procedures and treatment
    • Other services (possibly)
facility e m charge
Facility E&M Charge
  • Facility E&M charge typically includes:
    • Overhead costs
      • building maintenance, housekeeping, utilities, depreciation costs, equipment, administrative costs, personnel costs
  • All of these costs should be analyzed on a per patient basis prior to establishing each facility E&M charge
charges beyond the e m
Charges Beyond the E&M

In a busy ED, there are many opportunities for revenue beyond the E&M charge

  • Laceration repair
  • Casting
  • IV infusion therapy
  • Catherization
  • Transfusion
  • CPR
  • Intubation
  • Immunizations
  • Injections
  • Fracture treatment
professional charges
Professional Charges
  • Professional charges (Pro-fees) are intended to charge for:
    • Physician training and knowledge
    • Physician procedural skill set
    • Physician medical decision making
  • The method used to set charges for professional services is often determined by a Board of Directors or other governing body
  • With both facility and pro-fee charging, it is critical to understand how reimbursement is calculated
  • Charges do not equal CASH
  • Proper documentation, along with skilled coders (both facility and pro-fee), and an aggressive billing department will result in appropriate reimbursement
2 nd example of medicare reimbursement
2nd Example of Medicare Reimbursement
  • E&M Level three = cpt 99283

“Emergency department visit for the evaluation and management of a patient, which requires these three key components: an expanded problem focused history, an expanded problem focused examination; and medical decision making of moderate complexity….. Usually, the presenting problem is of moderate severity.”

Reimbursement = $ 139.14

know your payer mix
Know Your Payer Mix
  • Payer Mix is the % of each type of payment source across your patient population
  • You can’t always pick your payer mix but you can maximize it:
    • Measure and track the quality of patient registration information
    • Develop a strong discharge process
    • Collaborate with other areas of hospital to share info
    • Build rapport with the billing office
    • Monitor up front collections of patient co-pays
know your ed
Know Your ED
  • What are the demographics of your ED ?
    • How many beds?
    • What is the bed turn-over rate?
    • Do you have a flow problem?
  • What % of patients are > 65 or < 15?
  • What different types of treatment do these disparate age groups require ?
    • How does that contribute to your expenses ?

What is the most frequently provided treatment in your ED ?

    • How much does it cost to provide?
    • Are you minimizing the cost ?
  • How are resources (RN’s, MD’s, techs) used in your ED ?
    • Are resources used to their level of training ?
      • Nurses transporting non-monitored patients
know how coding is assigned
Know How Coding is Assigned
  • Regardless of the use of an Electronic Medical Record (EMR) or paper records, it is important to know how procedure codes are assigned
  • All coding is based on documented services
  • Follow the old axiom – “if it isn’t written down (or in the computer) – it didn’t happen”
facility vs pro fee
Facility vs Pro-fee
  • Facility coding and pro-fee coding are very different
    • Each should have a dedicated, specially trained staff
    • A feedback loop to educate clinicians on documentation improvement is critical
  • In a hospital setting, RN documentation supports the facility charges, MD documentation supports the pro-fee charges
charges and cash
Charges and Cash
  • If you can’t charge for it, you sure won’t get paid for it !
  • At the end of the day – your cash has to exceed your expenses
  • Remember:
    • Charges are not cash
    • Net income is not cash
expanding your comfort zone
Expanding Your Comfort Zone
  • More and more physicians are “business savvy”
    • Not unusual to see MD followed by MBA
  • This is almost a necessity in today’s competitive healthcare market
  • Health providers should understand basic business concepts
  • Inflows must exceed outflows
    • No different than your household budget
  • The bottom line:

+ Charges

- Less Contractual Adjustments

- Less Bad Debt (non-payers)

- Less other expenses(direct and indirect)

Equals Net Income


Net Income is only a term that describes the mathematical difference between charges, contractuals, and expenses

  • Net Income does not equal Cash
  • A percentage of net income (based on historical cash collections from charges) is typically used to project actual cash
contractual adjustments
Contractual Adjustments
  • Most hospitals have a variety of contractual arrangements with insurance carriers (eg: Blue Cross, Aetna)
  • Services are provided at the hospital standard price to all payers
  • Government payers (Medicare, Medicaid) establish their own payment rates
  • Contracts for payment from insurance carriers are established at either a % of billed charges or a flat rate
contractual arrangements cont
Contractual Arrangements, cont.
  • The gross charge amount is reduced by the contractual (netted) prior to the subtraction of expenses.
  • Example:
    • Charges = $850 – payer is Blue Cross
    • Blue Cross has a flat rate agreement to pay $200 per ED visit
    • Charges are netted to $200, then expenses are subtracted to arrive at Net Income
bad debt
Bad Debt
  • Bad Debt is an (indirect) expense created when amounts owed to an organization are not paid
  • Bad Debt expense is usually due to patient non-payment, but can be due to insurance non-payment
  • Minimizing bad debt through strong billing and collection practices is essential
other expenses
Other Expenses
  • “Other” expenses can vary from hospital to hospital, but usually include:
    • External resources (eg: consultants, contracted billing companies)
    • Allocated overhead amounts (eg: maintenance, equipment, utilities, information technology)
    • Travel, education, subscription fees
net income
Net Income
  • Continuing the example – from your “Net” charge of $200:
  • Subtract your direct expense:
    • Expense for RN’s = $40
    • Expense for MD’s = $75
    • Supply Expense = $ 10
  • Your net income becomes $ 75

Subtract your indirect expense:

    • Overhead = $50
    • Bad Debt = $15
  • Your net income is now $ 10
finance speak
Finance Speak
  • Don’t confuse “net income” with Cash
  • Net Income is the difference of charges less ALL expense
  • Some organizations use the term “revenue” to indicate charges, and “net revenue” to indicate charges less contractuals
  • “Overhead” is typically an allocated expense that combines all indirect costs
  • Some organizations use actual bad debt and an estimate of overhead as reductions to charges
tracking reporting
Tracking & Reporting
  • All organizations (non-profits included) carefully track all information related to net income (charges & expenses)
  • Departmental annual budgets are based upon the anticipated volume of patients and related charges
  • Departments where expenses exceed expectations can expect to answer some tough questions
asking for new equipment
Asking for New Equipment ?
  • Today’s medical professionals must have a good understanding of profit and loss issues
  • Be prepared to discuss revenue (charges), cash, bad debts, and other expenses if asking for an investment by your organization
  • Demonstrate your knowledge of business concepts by submitting a business plan to justify an expenditure request
business plans
Business Plans
  • Don’t have to be complex – keep it simple
  • Describe:
    • What you want
    • Why you want it
    • What will it cost
    • How quickly can the cost be recovered (through increased patient volumes and/or reimbursement)

Remember – charges do not equal cash

Few organizations are in a position to acquire new technology or equipment based on improved patient care alone

Budgets are tight, and expenditures must demonstrate a Return on Investment (ROI)

basic business plan format
Basic Business Plan Format

Vision statement

  • Why this is good for the organization, and for patients

The people involved – stakeholders, management, customers

  • Who will directly benefit and who is committed

Business profile

  • The volumes anticipated, day to day operational facts and figures

Economic assessment (money making opportunity)

  • Bottom line = what cash will this bring ?
  • New Ultrasound Machine
    • Cost $100,000
    • If used 20 times per day for one year, each use has an expense of $13.69 (equipment only)
    • Facility Charge for US is $125.00
    • Average reimbursement for US is $20.00
anticipate questions like
Anticipate Questions Like
  • What payer mix was used to calculate the average reimbursement
  • How long will it take to pay for the initial cost of this equipment
  • What is the useful life of the equipment
  • What staffing is needed to operate this
  • Is special training involved
    • What are those costs
  • Are there 20 patients per day that need an US
  • What are the warranty costs
  • How long is the warranty
  • What about maintenance expense after the warranty
  • What hours would this service be offered
  • Are those hours when demand exists
  • Is there a related professional fee charge
  • What is the reimbursement

And those are just a few !


Work with your Finance Department or Business Office Manager to confirm assumptions and calculations

  • Develop a “best case” and “worst case” scenario
  • And a back up plan
  • Medicine is a business
  • Be business savvy
  • You can get what you need
    • But is does take preparation
  • Emotional arguments only get you so far