The revenue cycle encompasses numerous

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1 The revenue cycle: What it is, how it works, and how to enhance it CONTINUING EDUCATION PROGRAM. Marilyn Hart Niedzwiecki, RN, CNOR, CPC, CPC-H, CPA UNDERSTANDING THE REVENUE CYCLE PROCESS helps perioperative personnel and managers improve health care charging practices and enables them to make informed policy decisions. INTEGRATING KNOWLEDGE of the revenue cycle processes throughout an organization can improve reimbursement, improve compliance with reporting requirements, reduce payer denials, and decrease rework by staff members. THIS ARTICLE provides information to develop a basic understanding of the revenue cycle and makes suggestions on how to improve this process in health care organizations. AORN J (October ) -. AORN, Inc,. The revenue cycle encompasses numerous processes relating to the billing function of a health care facility. It begins with patient registration, includes a number of actions during a patient s hospital stay, and ends when the bill is paid in full or the account is closed (ie, the balance is written off to a contractual allowance or the balance is sent to bad debt). The billing process involves many departments, and because of its complexity, the possibility exists for problems to occur. The focus of this article is to explore the relationship between OR charges and reimbursement and to suggest some strategies to enhance an organization s billing processes to maximize reimbursement. REGISTRATION The entire billing process begins with a patient s registration. At this point, it is essential to collect correct demographic and insurance information. Eligibility can be adversely affected by having incorrect information on an account. A study by the Health Insurance Association of America reported that % of all health-related claims are denied and % of these denials are related to eligibility. Other reasons for denials include billing errors, noncovered benefits, and a lack of medical necessity for a procedure. At times, nurses may be asked to assist in the information-gathering process as a convenience to the patient. It is essential, therefore, that the perioperative team collect and verify any patient information requested by the department in charge of this process. If perioperative staff members in an organization are assisting with the informationgathering process, regular meetings with the patient financial services department could provide valuable information to improve the patient registration process. REIMBURSEMENT Health care billing is becoming more complicated because of frequently changing regulations, so organizations are becoming more proactive in reviewing their current charging practices. Charging practices also are being scrutinized more closely by consumers, government agencies, and insurers. Price transparency is encouraged by consumers and is mandatory in California. Health care facilities receive compensation by many different methods. For example, a hospital may have identical bills for the same surgical procedure performed on patients. If each patient has insurance coverage with a different insurance company, the hospital most likely will be reimbursed different amounts. This is one of the many complexities and challenges in the health care system today. To better understand the reimbursement process, it is essential to understand the reimbursement terms and methods that commonly are used (Table ). Diagnosis-related groups (DRGs). The DRGs initially were developed in by the Health Care Financing Administration (HCFA), now the Centers for Medicare and Medicaid Services (CMS), VOL, S, OR PRODUCT DIRECTORY AORN JOURNAL S

2 VOL, S, OR PRODUCT DIRECTORY Niedzwiecki Table Reimbursement Terminology Ambulatory payment classification A categorization of ambulatory services developed by the Centers for Medicare and Medicaid Services based on procedural time, service type, physical system involved, and costs of performing a service. Capitation A method of reimbursement that places a limit on what will be reimbursed. Carve-outs Items that will be paid above the normal reimbursement method. These frequently are used in contracts that are based on capitation or per diem reimbursement. Contractual adjustment The difference between the billed charges and the amount of the actual reimbursement. Current Procedural Terminology (CPT) codes Alphanumeric codes that represent the services that are provided during an outpatient encounter. These provide information about the services received and are used by Medicare and other payers for outpatient reimbursement. Discounts Reimbursement based on a percentage of billed charges. Diagnosis-related groups (DRGs) A classification system used to group similar inpatient stays. Medicare reimburses based on DRGs. Healthcare Common Procedural Coding System Codes that represent supplies, implants, medications, and durable medical equipment. Outpatient prospective payment system The method of reimbursement used by Medicare for outpatient reimbursement, which is based on CPT codes. Per diem Reimbursement based on a set amount per day during an inpatient stay. Revenue code The uniform billing (UB) code, referred to as UB- Revenue Code, used to classify charges and CPT codes. Rules associated with the use of these codes are developed and published by the National Uniform Billing Committee. Stop-loss A contractual provision for unusual or complex cases that pays additional reimbursement on inpatient procedures when billed charges exceed a specified amount. and they were intended to describe all types of patients in acute care hospital settings. This system is used to classify into groups all medical procedures expected to use similar resources. The DRG groupings represent common diagnoses, procedures, age, gender, complications, and comorbidities. A DRG is assigned by health information management personnel after a thorough review of the patient s record. Complete and accurate documentation is necessary to ensure that the assigned DRG accurately reflects the encounter. Physician documentation often is essential to the assignment of the DRG, and inadequate documentation can have a detrimental effect on reimbursement. An example of this would be if a patient developed urinary retention after surgery and needed repeated catheterizations. This complication can change a patient s DRG to one that is reimbursed by an insurer at a higher rate. Without the proper documentation from the physician, however, this diagnosis code cannot be assigned by health information management personnel. Medicare uses DRGs to reimburse inpatient stays. Medicare payment rates are calculated on several core elements (Table ). The customary DRG payment system is not applicable to Maryland hospitals, critical access hospitals, or children s hospitals. Reimbursement to these health care systems is based on actual costs. The DRG method of reimbursement was instituted so that health care facilities would receive a fixed payment based on a diagnosis and not on the facility s charges. This places the burden of reducing costs on health care facilities and requires them to become more efficient in their delivery of care. Critical evaluation of vendors and products, therefore, is essential to ensure that a health care facility can make some profit on a patient admission. If a facility spends $, more on an implant than it is reimbursed, it actually may lose money on procedures in which the implant is used. Commercial payers (ie, insurance companies) also may use DRGs to varying degrees as defined in their contracts S AORN JOURNAL

3 Niedzwiecki VOL, S, OR PRODUCT DIRECTORY with health care facilities. To accommodate the varying needs of commercial payers and to provide a more sophisticated classification system, there are now many different DRG systems in use (Table ). Some commercial payers may reimburse expenses based on these other DRGs. DISCOUNTS. Most insurance companies negotiate with health care facilities and develop contracts that are used in reimbursement pricing. Contracts are negotiated and managed by the managed care department, which often is located in the finance department. Many commercial contracts are negotiated so that the insurer pays a specific percentage of the facility s charges. This is referred to as a straight discount. Billed charges include the facility s markups. Commonly, the contracted discount is based on actual facility costs with the understanding that it is necessary for a health care provider to make a profit to and Discounts most commonly are contracted for outpatient procedures; however, they still may be used to reimburse inpatient accounts. As an example, an insurance company may contract with a hospital to pay for all outpatient visits at % of billed charges. If the services provided cost $,, the hospital will be reimbursed $ by the insurance company. Contract negotiations are very complex, and the contracted rate may be based on factors such as quality, volume of services, and location. This complex subject is not the focus of this article; this overview is included to explain that this negotiation process does take place. CAPITATION. Capitation is employed in one of two ways. One method of capitation is a contract that reimburses a health care facility on a per member/per month basis. This amount is paid regardless of how much care actually is provided. When this method of reimbursement is used, the health care facility is paid up front to provide care for the insurer s patients. This method can add some risk to the health care provider if an unusually large number of patients are seen or if there is an increase in the severity of patient illnesses or the complexity of the procedures that are performed, then the facility actually may lose money. A more common method of capitation frequently is employed in outpatient surgical procedures. With this method, the health care facility is reimbursed a fixed rate for all outpatient procedures, regardless of the actual charges. For example, an insurer may contract to pay $, for all outpatient surgical procedures. The same contract may stipulate a higher payment (eg, $,) if the patient is admitted for overnight observation. Capitation contracts are negotiated by the managed care department with some built-in flexibility. This may include Table Elements of a Medicare Diagnosis-Related Group (DRG) Payment Element Add-on payment Add-on payment for teaching Additional payments for outliers DRG relative weights Wage index Description Medicare will reimburse hospitals an for disproportionate additional amount if they have a high share proportion of low-income patients. These hospitals must meet the definition of the disproportionate share status. An add-on payment is given to hospitals that incur indirect costs for medical education. This amount varies and is based on the ratio of residents to beds. Outliers are cases that are unusually costly to a hospital. This provision protects hospitals from large financial losses. Weights are assigned based on resources used in the DRG. The wage index accounts for differences in hospital labor costs. Table Diagnosis-Related Group (DRG) Systems Type Medicare DRGs Refined DRGs All patient DRGs Severity DRGs All patient refined DRGs International refined DRGs Abbreviation DRG RDRG APDRG SDRG APRDRG IRDRG a provision for some expensive items that an insurance company will reimburse additionally. These items, called carve-outs, are identified by the CMS by certain Uniform Billing (UB) revenue codes. Two carve-outs that are commonly negotiated are implants or special devices and expensive medications. Reim bursement for these items varies in each contract and thus is payer-specific. For example, it is common for a patient who presents to a hospital for a pacemaker placement to be admitted as an outpatient with an overnight observation stay. Based on the capitation reimbursement discussed above, the hospital AORN JOURNAL S

4 VOL, S, OR PRODUCT DIRECTORY Niedzwiecki would be reimbursed $, for the outpatient surgery. The contract with the insurance company may include an additional carve-out to reimburse % of the billed charges for the pacemaker, based on the UB revenue code (ie, medical/surgical supplies: other implants). If the hospital Capitation can add some risk to a health care provider if an unusually large number of patients are seen or if there is an increase in the severity of patient illnesses. paid $, for the pacemaker, its charge for the device may be $,, based on the hospital s mark-up schedule. The insurance company then would reimburse an additional amount of $, for a total amount of $,. Carveouts are designed to reimburse health care facilities for significantly expensive items. In addition to implants, some contracts will provide carve-outs for expensive medications. It is important, therefore, to be aware of what carve-outs are stipulated in a contract and to ensure that all procedures are appropriately coded and billed. THE OUTPATIENT PROSPECTIVE PAYMENT SYSTEM (OPPS). The OPPS was implemented by the CMS in. It is a hospital reimbursement system based on predetermined rates associated with Current Procedural Terminology (CPT) and Healthcare Com mon Procedural Coding System (HCPCS) codes, which reflect the procedures and supplies used during a patient s stay. The fee schedule varies by geographical location throughout the United States and is determined using a local geographic wage index. Payment rates are evaluated on a yearly basis, and the CMS publishes this information in Addendum B as part of the OPPS. This resource is available on the CMS web site. This information is used by the CMS to reimburse hospitals for outpatient procedures based on the services a patient receives. As an example, if a patient comes in for an inguinal hernia repair, the hospital will receive approximately $,. This is based on a national average, which additionally is adjusted by geographic location. This amount is independent of what the actual charges are. GROUPER CONTRACTS. A grouper contract is a method of reimbursement that is relatively new in the managed care market and is used to reimburse outpatient procedures. Grouper contracts are negotiated by commercial payers, and they are set up to pay specific amounts for individual procedures in a health care facility. For example, a payer may contract to pay up to $ per day for radiological procedures under the revenue code (ie, radiology diagnostic). If a patient has six x-rays during his or her outpatient visit and has charges of $,, under the grouper contract, the hospital only would be reimbursed a maximum of $. This is because the contract is set up to reimburse a certain amount per day for a specific revenue code, regardless of the actual charges. If, however, the patient had two x-rays with total charge of $, the hospital would not receive reimbursement in excess of the actual charges. The actual reimbursement amounts will vary, depending on the stipulations in the contract. There also could be a contractual provision stipulating payment of only a percentage of charges. This would correspondingly decrease the amount reimbursed. The grouper contract can become quite complex, listing a hierarchy of reimbursement and the associated percentages of payments. A common method of reimbursement in a grouper contract is to pay a specified amount for each surgical procedure on the bill. Each procedure is represented by a CPT code, which most commonly is assigned by the health information management department. In the contract, each CPT code is assigned a negotiated dollar value. The contract may stipulate that a payer will pay % of the contracted rate for the most expensive service coded on the bill and % for the second most expensive. Typically, payment is capped at this point, and the payer usually will not pay anything else on the bill unless there are carve-outs. This hierarchy of payment is established in the contract. Generally, a contract will be written so that there will be a specific reimbursement for each procedure done in the OR. This may include payment reductions for each procedure, because it is less expensive to perform a second procedure while the patient is in the OR. In the previous example of the patient who had six x-rays during a single surgical procedure, the facility most likely would not receive additional reimbursement for the x-rays, as the hierarchy only would include the surgical procedures. It is essential, however, to fully understand the language of the contract, as verbiage varies by organization and insurance company. PER DIEM. Many insurance companies will reimburse inpatient stays based on a per diem or daily rate. This rate is negotiated by the managed care department, and the rates may vary by department (eg, intensive care unit [ICU], general medical-surgical units). There also may be a provision for additional reimbursement for carve-outs or for an unusually large or complex admission where S AORN JOURNAL

5 Niedzwiecki VOL, S, OR PRODUCT DIRECTORY charges are covered by a stop-loss provision in the contract. Stop-loss provisions offer additional payments to a health care facility for expensive stays and often are based on a percentage of the billed charges that exceed a defined amount. These stop-loss figures are negotiated between the managed care department and the insurance company and are part of the contract. To illustrate a per diem reimbursement, a hospital s contract with an insurance company might have a stipulated payment of $, per day for a routine admission for a common surgical procedure. The insurance company will pay this amount until the bill exceeds a predetermined figure (eg, $,). If a patient has a normal surgical procedure and remains in the hospital for three days, the hospital would receive $,, according to the contract. The hospital, however, may have actual billed charges of $,. The difference between the billed charges and the payment allowed by the contract is called the contractual allowance. Contractual allowances are not the patient s responsibility. If, however, the patient has a major complication that requires a prolonged stay in the ICU, expensive testing, and additional surgical procedures, the patient s total stay in the hospital might be nine days with billed charges of $,. Without the stop-loss provision, the hospital only will receive a total payment of $, (ie, nine days at $, per day). With a stop-loss provision of an additional amount of % of all charges above $,, the hospital also would receive $, more for total reimbursement of $,. A stop-loss provision serves as protection for a health care facility for unusual or expensive stays. PAY-FOR-PERFORMANCE SYSTEM. The pay-for-performance system is a newer payment method developed to reward health care facilities that have high-quality indicators. This performance-based reimbursement system is set up to compensate health care providers according to their compliance with best practices. This method of reimbursement also is becoming a common part of the negotiation process with commercial payers. The Chargemaster The complexity of reimbursement requires that all health care charges be accurate and follow standard guidelines. To facilitate this, all charges are set up in a facility s chargemaster. The chargemaster is a large computer file composed of all patient charge items (eg, room and bed, x-rays, supplies). Chargemasters may vary in size from one institution to another, but usually each one comprises many thousands of line items. A detailed explanation of items in the chargemaster is required to understand how a medical facility bills for health care services. REVENUE CODE. Revenue codes are used by payers to categorize the items used and charges incurred during a patient s stay with a health care provider, and they also are used to assist in generating the annual cost report that each facility s finance department submits to the CMS. All items on a patient s bill must be assigned a revenue code for payers to process a bill. The code is used by payers to Descriptions in the chargemaster should be clear because they are used to generate the itemized statements that are sent to patients. identify where a service was performed. For example, when a procedure occurs in the OR, the UB- revenue code is used. If, however, a procedure is conducted in a clinic, the UB- revenue code is used; and if a procedure is done in the emergency department, the UB- revenue code is used. The revenue code also helps an insurance company identify other charges on a bill. For example, surgery time (ie, the level charge) almost always is listed under the revenue code. Operating room services, supplies, and implanted items used during a procedure may be indicated by any of the revenue codes,, or. These charges usually originate from someone actually entering the charge code in the chargemaster (ie, a direct charge entry). Medications are placed under another code and so on. A surgical procedure is identified on a bill both by a CPT code and a corresponding revenue code. The CPT code is typically assigned by health information management personnel during their review of the record; however organizations may vary on this by having CPT codes assigned in the chargemaster. All CPT codes must be linked to a revenue code for reimbursement. A list of CPT codes and related revenue codes titled The Revenue Code to Cost Center Crosswalk is published by the CMS. This information provides guidelines for health care organizations regarding how the charges on a claim are recorded for cost-reporting purposes. Each health care facility must file an annual cost report with the CMS. This is a complex document that is prepared by finance department personnel, and these reports assist the CMS as it establishes reimbursement rates. This explains why accurate billing is essential to the future of health care reimbursement. DESCRIPTION. The description field provides a detailed explanation of the individual item being charged. This is used to create the itemized statements that are sent AORN JOURNAL S

6 VOL, S, OR PRODUCT DIRECTORY Niedzwiecki Accurate coding is essential because reimbursement is based on and affected by correct coding, and future reimbursement rates are based on annual reimbursement data submitted by payers. to patients, so accuracy and clarity of the description is important and should be understandable to a layperson. HEALTHCARE COMMON PROCEDURAL CODING SYSTEM/CURRENT PROCEDURAL TERMINOLOGY CODE. The HCPCS/CPT field in the chargemaster file is used to identify certain supplies and implants that are used and procedures that are performed on a patient during his or her stay in a health care facility. Some chargemaster items may not require an HCPCS/CPT code. A current list of HCPCS and CPT codes can be found on the CMS web site under Addendum B to the hospital outpatient overview prospective payment system (PPS). The HCPCS codes usually are found in the chargemaster. These codes are differentiated from the CPT codes in that they start with an alphabetical character and frequently represent supplies and medications. Many devices and new additions to the chargemaster typically are identified with a C-code. A C-code is a temporary HCPCS assignment used by Medicare to identify devices, new medications, and some procedures until a permanent code is assigned. For certain specified procedures, the CMS currently requires the reporting of appropriate C-codes (ie, some implants devices). The CPT codes generally refer to procedures, such as radiological or surgical procedures. Radi ological procedures usually have a CPT code in the chargemaster that identifies the procedure being performed (eg, a chest x-ray, single view, is CPT code ). Surgical levels would not have a CPT code attached in the chargemaster, as these are best assigned when health information management personnel review the surgical record. Health information management personnel have specialized training in the complex rules related to coding. Accuracy is essential not only because reimbursement is based on and affected by correct coding but also because future reimbursement rates are based on annual reimbursement data submitted by payers. PRICE. The price listed in the chargemaster represents the charge allocated for each service or item. The price reflects the facility s mark-up. REVENUE CENTER. The coding for the revenue center identifies what department will be credited when a charge is reimbursed. It also is used in the organization s budgeting process. Charging and reimbursement can be quite complex. It is important that health care facilities submit accurate bills, not only with the correct HCPCS/CPT codes on them but also using the correct revenue codes. Billing correctly will improve reimbursement by reviews and establishes new reimbursement rates for procedures. Perioperative Implications Perioperative RNs have an excellent background to assist financial personnel with the chargemaster. A review of the chargemaster is essential to a health care facility s financial success. One way to do this is to form a team including personnel from the perioperative area, patient financial services, health information management, and contract management, and the chargemaster coordinator. This team s tasks should include associated charge, IDENTIFYING AND CODING IMPLANTS. The chargemaster review team should identify and define what is considered an implant by the organization. The national Uniform Billing Committee defines an implant as That which is implanted, such as a piece of tissue, a tooth, a pellet of medicine, or a tube or needle containing radioactive substance, a graft, or an insert. Also included are liquid and solid plastic materials used to augment tissues or to fill in areas traumatically or surgically removed. An object or material partially or totally inserted or grafted into the body for prosthetic, therapeutic, diagnostic purposes. (p) Examples of implants reported under this revenue code include stents, artificial joints, shunts, grafts, pins, plates, screws, anchors, and radioactive seeds. After implants have been defined, appropriate revenue codes must be selected. As an example, the chargemaster review team must consider when implants are used as carve-outs. According to the CMS, pacemakers and defibrillators should be identified with revenue code (ie, medical/surgical supplies: pacemaker). Some managed S AORN JOURNAL

7 Niedzwiecki VOL, S, OR PRODUCT DIRECTORY care contracts, however, may not recognize items with this code as a carve-out. These contracts may identify the more commonly used revenue code (ie, medical/ surgical supplies: other implants) as a carve-out. It is essential in the chargemaster, therefore, to have implants coded according to payer requirements to maximize reimbursement. Edits to the chargemaster to accommodate different payer requirements may be set up directly in the chargemaster or in the billing system with the assistance of patient financial services personnel. An evaluation of payer requirements also is important to determine if an item should be coded with the revenue code corresponding to implant or whether this designation will delay payment of the claim because a payer requires that a facility provide an invoice for the implant. For example, the chargemaster may list myringotomy tubes as an implant with an associated charge of $. Bills for this item may be denied because the payer requires an invoice for this item from the health care facility. It may be difficult for the facility to obtain an invoice for an item bought in bulk, and even if one is found and submitted, it may not result in any additional reimbursement. A chargemaster item like this can create a burden for billing staff members and may result in an insubstantial reimbursement. It might be wiser to change the revenue code for this item to a general supply revenue code (eg, medical/surgical supplies). Decisions such as these should be discussed by the chargemaster review team in an effort to determine the reimbursement implications. This team also must develop policies regarding how to charge for an implant that is used but not implanted (eg, a temporary screw used in an orthopedic procedure). If the surgeon uses screws but only leaves six in the patient, it is important to determine in advance whether to charge the patient for the other six screws. One possible solution would be to document the six screws as used, but not implanted and charge the patient for them. It also is important to identify those implants that have temporary C-codes attached to them. The CMS requires health care facilities to report C-codes for implants and other devices used in specific procedures. For instance, if a patient has a totally implantable venous access system surgically inserted, the CMS expects to see the device identified by the code C (ie, port, indwelling, implant) in addition to the surgical procedure, which is coded by health information management staff members. Most likely, the coding for this device already has been entered in the chargemaster because bills missing this information would be sent back to the organization. A periodic review of these device codes, however, may be beneficial to ensure that they are accurate. Updated C-codes are published on a quarterly basis by the CMS. DEVELOPING POLICIES REGARDING CHARGE ENTRIES. It is essential that charges be recorded on accounts in as timely a manner as A chargemaster review team should discuss coding decisions to determine reimbursement implications. possible. All charges must be entered and the medical record coded by health information management personnel before the bill is generated. Bills usually are sent out electronically and are programmed to be sent automatically based on each organization s preferences. The chargemaster is set up in such a way that if a bill is not coded it is prevented from being sent automatically. Typically, health care facility bills are created and sent (ie, dropped ) a set number of days after a patient s discharge from the facility (ie, usually between three and five days). This timing may vary by organization. When a charge on an account is not entered in a timely manner, it causes rework for billing staff members and can create insurance denials because of fragmented information or based on timely filing agreements set forth in the contract. CLASSIFYING ITEMS THAT SHOULD AND SHOULD NOT HAVE AN ASSOCIATED CHARGE. The chargemaster review team needs to determine which items or services should or should not incur a charge. This is a complex subject, and no guidelines are universally applicable. Generally, the OR charge (ie, the level charge) should cover the use of all equipment, instruments, and routine supplies. Routine supplies include gloves, gowns, dressings, masks, marking pens, and processing fees for reusable instruments. There are many guidelines available regarding routine supply charges, such as the Hospital Chargemaster Guide. REVIEWING REVENUE CODE USE. The chargemaster review team also should conduct a general review of the revenue codes and all facility charges. This may reveal mistakes or inappropriate coding and may increase the reimbursement opportunities for the organization. For example, because of a communication breakdown between the chargemaster coordinator and OR staff members, expensive implants currently may be coded with a generic or open charge code that is assigned a UB code of (ie, medical/surgical supplies) instead of (ie, medical/surgical supplies: other implants). This coding would cause an organization to lose additional reimbursement if a contract has a carve-out for implants. Open charge codes are necessary to identify new supplies or special one-time implants that are used in the OR. If OR staff members do not have an adequate understanding of the implications of using a particular charge code, items may continue to be coded incorrectly, resulting in a loss of appropriate reimbursement. REVIEWING PAYER DENIALS. The chargemaster review team also may want to review some of the payer denials related AORN JOURNAL S

8 VOL, S, OR PRODUCT DIRECTORY Niedzwiecki It is essential to record charges on an account in a timely manner to avoid potential insurance denials. to the OR. These denials may identify chargemaster entries that should be corrected. This review process is a great opportunity for members of the chargemaster review team to learn from one another. All team members will benefit as they put the many pieces of the revenue cycle process together. OR Levels/Time Charges A question often asked is how a health care facility should charge for surgical procedures. As discussed previously, there are some general guidelines but no absolute rules. A level is assigned to each procedure so that an organization can appropriately charge for the service that was provided. Charges should be adequate to cover the facility s expenses as well as provide a margin to allow an organization to maintain standards and incorporate new technology. This can be accomplished in many ways, including, but not limited to, basing charges on staffing or using ambulatory payment classification (APC) groups. The APC groups were developed by the CMS, and they categorize ambulatory services based on time [it takes to provide the service], type of service, the body system involved, and the costs of performing the service. Each APC is grouped and assigned a relative weight. This weight is used to identify similar services and to a set reimbursement rate based on expected resource consumption. Each CPT code has a corresponding APC group and a weight assigned to it by the CMS. This assigned weight is found in Addendum B under the hospital OPPS. It is logical, therefore, for health care organizations and ambulatory surgery centers to group levels by CPT codes that have similar weights. For example, a simple excision of a skin lesion would have a very low weight, and a laparoscopic cholecystectomy would have a much higher weight. A health care organization would charge a higher amount for the cholecystectomy than it would for the simple excision. The CPT codes therefore can be used to reflect which procedures are assigned to each OR level. If a health care organization uses CPT code weights to designate OR levels it is important to note that implants are included in the weight. The implantation of an infusion pump, for example, might be assigned a relative weight of. on Addendum B. This assigned weight factors in the cost of the pump. If a health care organization bases its levels on weight, therefore, it would be important to place the infusion pump insertion procedure in a lower level that better represents the resources used, as the implant will be charged for separately using the appropriate UB revenue code. Another important consideration needs to be made for procedures that are considered inpatient-only by the CMS. These are represented by a status indicator of C on Addendum B. These typically are more complex procedures (eg, substantial vascular surgeries, involved spinal procedures). These cases would not have an assigned weight in Addendum B, and an evaluation of the necessary resources would demonstrate and support the necessity of a higher OR level and charge. It is common for organizations to discuss redefining levels. Patients and insurance companies are questioning charges, and health care facilities are being asked to have price transparency. In particular, patients who are paying higher deductibles are seeking information about a facility s exact charges. In California, health care facilities are required to post their chargemasters on a web site for the public to view, and similar legislation is being presented in other states. A facility can receive negative publicity when it posts excessive charges (eg, $ for a dose of acetaminophen, $ for a marking pen). Charges must cover all of a facility s costs, including personnel. This explains why a charge for an item is higher than the actual cost. Case Studies The following case studies describe the billing process and reimbursement for insertion of an intrathecal baclofen pump. The prices are fictional and not taken from any specific chargemaster. This example also does not purport to capture all possible charges for this procedure. It is intended for illustrative purposes only. CASE STUDY ONE. Patient A is a -year-old man covered by Medicare. The case cart for the patient s procedure, an insertion of an intrathecal baclofen pump, included: if the patient is not allergic to penicillin; Patient A s surgical procedure in the OR lasted hour and minutes. The patient s time in the postanesthesia care unit (PACU) was two hours, after which he was released to home. The chargemaster entries that relate to these items are shown in Figure. These charges may be recorded in the patient s record in many ways and by various hospital staff members. For example medications may be entered automatically when S AORN JOURNAL

9 Niedzwiecki VOL, S, OR PRODUCT DIRECTORY FIGURE Chargemaster Entries Charge code* Description Uniform billing- revenue code HCPCS/CPT** code Price Quantity OR class first minutes $, OR class additional minutes $, Custom pack pump $ Fluoroscopy unit drape $ Infusion pump programmable C $, Lead gloves $ Postanesthesia care unit (PACU) first minutes $ PACU additional minutes $ Fluoroscopy unit up to hour $ Cefazolin g J $ * Identifying numbers set up by a health care facility in its chargemaster ** Healthcare Common Procedural Coding System/Current Procedural Terminology charted, and programming will keep track of the appropriate units to receive credit when reimbursement is received. The description of the UB revenue codes are as follows: After these charges are entered into the patient s medical record, it is sent to the health information management department for coding. In most facilities, it is the responsibility of health information management personnel to code the record for any surgical procedure. Patient A underwent an outpatient procedure, so health information management would use CPT codes. Most hospitals have programming in place to ensure that a patient s bill will not be released (ie, dropped) unless coding has been completed. For inpatient procedures, it is typical for health information management personnel to use International Statistical Classification of Diseases and Related Health Problems (ie, ICD-) codes to describe the procedures that were performed. A list of these codes is periodically updated and published by the World Health Organization. After the coding is complete; the main section of the patient s bill (ie, form UB- ) would appear as shown in Figure. Programming used to generate the bill reports a generalized description of the revenue code that was assigned. The general description is based on the definition of the revenue code as defined by the Uniform National Billing Committee. This programming will vary depending on the needs and setup of the facility s billing system. For Patient A, the CPT codes that were added by health information management personnel are as follows. intrathecal or epidural drug transfusion; subcutaneous reservoir programmable pump, including preparation of pump with or without programming. catheter for long-term medication administration via an external pump or implantable reservoir/infusion pump without laminectomy. These codes will attach to UB code (ie, OR services) in the coding and billing process. The other codes came directly from programming in the chargemaster. The bill then is sent electronically to Medicare and is reimbursed based on Addendum B to the CMS hospital outpatient overview PPS. The codes used for this bill as listed in Addendum B are detailed in Figure. The status indicator relates to entries in Addendum B and how payment is made on bills that contain these codes. Items with a status indicator N will not be paid; however, it is acceptable to charge for these items. Inclusion of these items also is recommended for data quality and to help the AORN JOURNAL S

10 VOL, S, OR PRODUCT DIRECTORY Niedzwiecki FIGURE Uniform Bill Procedure-Related Entries Revenue code Description HCPCS/CPT* code Service date Service Units Total Charges Supplies // $ Implants C // $, Pharmacy J // $ Radiology // $ OR Services // $, OR Services // $, Postanesthesia Care Unit // $, Total Charges $, * Healthcare Common Procedural Coding System/Current Procedural Terminology FIGURE Entries from Addendum B to the Centers for Medicare and Medicaid Services Hospital Outpatient Overview Prospective Payment System HCPCS/ CPT* code Short descriptor Implant spine infusion pump Implant spinal canal catheter C Infusion pump, programmable J Cefazolin sodium injection up to g Fluoroscopic examination Status indicator APC** code Relative weight Payment rate National unadjusted copayment Minimum unadjusted copayment T#. $,. $,. T #. $,. $. N ## N ## X. $. $. $. * Healthcare Common Procedural Coding System/Current Procedural Terminology ** Ambulatory Payment Classification group # T: Services that will be paid by Medicare ## N: Services that will not be paid by Medicare X: Ancillary service paid by Medicare. Hospital outpatient PPS, Centers for Medicare and Medicaid Services, OutpatientPPS/ (accessed Aug ). CMS determine national reimbursement rates for resources expended. It is important to remember that these items will not be reimbursed by Medicare. An item with a status indicator of T represents a charge that will be paid by Medicare. If there is more than one item with this status indicator, however, reimbursement for the additional entries will be reduced. An item with a status indicator of X represents an ancillary service, which also is reimbursed based on Addendum B. This reimbursement additionally may be reduced if multiple ancillary services are provided. S AORN JOURNAL

11 Niedzwiecki VOL, S, OR PRODUCT DIRECTORY Figure Medicare Reimbursement for Patient A HCPCS/CPT* Code Amount $,. (ie, % of the highest paying code) $. (ie, % of the second highest paying code) $. (ie, % of ancillary service) Total payment $,. * Healthcare Common Procedural Coding System/Current Procedural Terminology Copayments are the responsibility of the patient covered by Medicare. Often these payments are covered by supplemental insurance or by Medicaid if the patient qualifies for this coverage. The copayments are part of the total reimbursement for the procedure, and are part of the payment rate that is listed. The total reimbursement for this patient s procedure would be calculated as shown in Figure. The actual payment may differ slightly based on a facility s location, as the payment rate is adjusted by wage index. CASE STUDY TWO. Patient B is a -year-old woman with commercial insurance who was admitted to a hospital and incurred the identical charges as Patient A. Her insurance company has contracted to pay the hospital % of all charges. For this patient, the hospital would receive reimbursement of $,. (Figure ). CASE STUDY THREE. Patient C is a -year-old man who also was admitted to a hospital and incurred the identical charges as Patient A. The insurance provider for this patient has a contractual agreement to pay % of billed charges, but there is a capitation rate of $, for any outpatient surgery and a carve-out for implants of % of charges. A detail of how the hospital will be reimbursed for this patient s bill is shown in Figure. It is important to note that the pump itself can be billed using either revenue code or. If this pump was incorrectly placed under the general supply revenue code (ie, revenue code ), the pump would not have been identified by the insurance company as a carve-out. The facility only would have been reimbursed $, for this bill. This is an example of how the expertise of the perioperative nurse can assist patient financial services staff members in reviewing the chargemaster for accuracy. It also is important to note that even if the cost of the implant increases, the reimbursement for a Medicare patient would stay the same. Figure Insurance Reimbursement for Patient B Covered Explanation Subtotal amount Total charges $,. Coverage of % of charges $,. Total payment $,. Figure Insurance Reimbursement for Patient C Covered Explanation Subtotal amount Total charges excluding implant $,. Coverage of % of charges $,. Capitation rate $,. Payment excluding implant: $,. Implant charge $,. Implant carve-out (ie, % of cost) $,. Total payment $,. Opportunities to Improve the Revenue Cycle A review of a health care facility s charges is essential and it requires the input of OR personnel and personnel from health information management, managed care, patient financial services, and accounting. Redefining levels in the OR should be accomplished in a manner that is revenue neutral meaning that if there were $, of charges in the previous charge structure there would be $, in charges after restructuring. This requires a detailed financial analysis. Gaining a basic understanding of the revenue cycle process and integrating it throughout the organization can Imparting knowledge of the revenue cycle to all facility staff members is vital to the viability of an organization. Having a basic understanding of the process also can help perioperative nurses as they make decisions regarding purchasing items such as implants and other supplies for their AORN JOURNAL S

12 VOL, S, OR PRODUCT DIRECTORY Niedzwiecki organization. Accurate charging is essential to maximize reimbursement, regardless of the method of reimbursement used. As staff members become better educated, they will understand the reason why accurate charging and resource conservation are continually reinforced. Surgeons also will benefit from this information because they may not be aware of the specifics or the complexity of health care reimbursement. An integration of the clinical and financial aspects of health care is crucial for any organization. Forming a team to initiate a review of perioperative charging practices may improve reimbursement and compliance. It also may provide opportunities to improve the revenue cycle process while providing an excellent learning opportunity for everyone. REFERENCES. P M Waymack, Looking reality straight in the eye: Five claim denial facts every CFO should know, Healthcare Financial Management (March, ) -.. Board brief: Ensuring transparency in Health Care, The Walker Co, Ensuring_transparency_in_health_care_.pdf (accessed Aug ).. Diagnosis-related group, Wikipedia, org/wiki/diagnosis-related_group (accessed Aug ).. Statistics from the HCUP- nationwide inpatient sample for : Diagnosis-related groups, Agency for Healthcare Research and Quality, htm (accessed Aug ).. Hospital outpatient PPS, Centers for Medicare and Medicaid Services, (accessed Aug ).. R Dolinar, S L Leininger, Pay for performance or compliance? A second opinion on Medicare reimbursement, The Heritage Foundation, bg.cfm (accessed Aug ).. Revenue code to cost center crosswalk, Centers for Medicare and Medicaid Services, hospitaloutpatientpps/_crosswalk.asp (accessed July ).. National Uniform Billing Committee, UB-: National Uniform Billing Data Element Specifications as Developed by the National Uniform Billing Committee (Chicago: American Hospital Association, ). Also available at carefirst.com/pages/mdmedicare/pdf/ub%manual% Nov%.pdf (accessed Aug ).. Hospital outpatient PPS: Overview, Centers for Medicare and Medicaid Services, hospitaloutpatientpps/_overview.asp? (accessed July ).. Hospital Chargemaster Guide (Salt Lake City: Ingenix, ).. D Millman, E Zimmerman, Bracing for new Medicare payment systems, Orthopedic Technology Review (July/ August ). Available at (Accessed July ).. J C Bauer, M Hagland, Consumer-directed health care: What to expect and what to do: Consumer-directed health care is here, and CFOs can be the change leaders for their organizations, Healthcare Financial Management (July, ) -.. International classification of diseases (ICD), World Health Organization, (accessed Aug ). Reprinted with permission from AORN J. ;(): -. Marilyn Hart Niedzwiecki, RN, CNOR, CPC, CPC-H, CPA, is a chargemaster coordinator at Childrens Memorial Hospital, Chicago. S AORN JOURNAL

13 Examination The revenue cycle: What it is, how it works, and how to enhance it CONTINUING EDUCATION PROGRAM. PURPOSE/GOAL To educate perioperative nurses about what the revenue cycle is and how perioperative nurses can positively affect it. BEHAVIORAL OBJECTIVES After reading and studying the article on the revenue cycle, nurses will be able to. identify reasons payers may deny health-related claims,. discuss different methods by which health care facilities receive compensation,. describe the components of the chargemaster, and. explain why team members from various departments should participate in the revenue cycle review process. QUESTIONS. According to a study, health-related claims are denied because of problems with. billing errors.. eligibility.. lack of medical necessity for a procedure.. noncovered benefits. a. and b. and c.,, and d.,,, and. Diagnosis-related groups (DRGs). are assigned by health information management personnel.. are assigned for both inpatient and outpatient procedures.. classify into groups all medical procedures expected to use similar resources.. provide a basis for Medicare reimbursement of inpatient stays.. represent common diagnoses, procedures, complications, and comorbidities. a. and b.,, and c.,,, and d.,,,, and. A Medicare DRG add-on or additional payment is allowed for. facilities that have a high proportion of lowincome patients.. facilities that incur indirect costs for medical education.. outlier cases that are unusually costly to a hospital.. implants with a C-code. a. and b. and c.,, and d.,,, and. A capitation amount that is contracted on a per patient/per month basis is paid regardless of how much care actually is provided. a. true b. false. Commonly negotiated carve-outs are a. fixed facility charges. b. implants or special devices and expensive medications. c. capital equipment. d. room and bed, x-rays, and all pharmacology products. VOL, S, OR PRODUCT DIRECTORY AORN JOURNAL S