Hospital pharmacies are facing new challenges to their revenue recovery management. The drug reimbursement process is becoming more complex as the intricacies of drug purchasing increase along with health plan drug reimbursement policies and payment terms.
At the same time, hospital pharmacies are under pressure to control costs and maximize revenue with new value-based reimbursement models.
McKesson asked Barbara Giacomelli, area vice president for McKesson RxO, to identify the growing list of challenges and explain how a data-driven approach to revenue recovery management gives hospital pharmacies the ability to prevent revenue gaps now and in the future.
How should a hospital pharmacy define “revenue gaps”?
Giacomelli: A revenue gap is the difference between the dollar amount that a hospital pharmacy billed a health plan for a drug and the amount that the health plan paid the hospital pharmacy for that drug. The gap occurs when drug reimbursement falls short of the contractual expected payment for a pharmacy drug claim. The gap is lost potential revenue for the hospital.
How much do revenue gaps cost hospital pharmacies?
Giacomelli: It can vary significantly by type of drug. It can be $10 or less for common medications. It can be $10,000 or more for high-cost specialty drugs. The average hospital pharmacy carries about 3,500 to 4,000 different types of medications with most of the drug expense in about 20% of these products. The combination of lots of small gaps and a few big gaps can add up to a substantial amount of lost revenue for a hospital that may be spending $20 million, $50 million, $100 million or more each year on medication.
What are the most common causes of revenue gaps?
Giacomelli: Drug reimbursement has become very complex. It’s not as straightforward as giving a patient a pill and billing a health plan for the cost plus overhead. The first challenge is knowing the cost of the drug. Hospital pharmacies purchase drugs through a number of distribution channels, contractual arrangements, in different quantities and at different price points over the course of a year. The second challenge is knowing what to charge for each drug based on its cost and negotiated reimbursement rate with each health plan. There are data challenges like assigning the wrong National Drug Code (NDC) to a specific medication, which could lead to an underpayment, or a missing drug administration code, which could result in no payment for administering the drug to a patient while they are in the hospital. Another common billing error is the unit of measure conversion which can also result in an underpayment or denial.
What role can technology play in eliminating the common causes of revenue gaps?
Giacomelli: When you look at the challenges that lead to revenue gaps at hospital pharmacies, you realize it’s really about managing data. The increasingly complex drug purchasing and billing process creates too many data points for a hospital pharmacy to manage effectively without technology. What hospital pharmacies need is a data-driven approach to revenue recovery management.
What capabilities can technology bring to revenue recovery management?
Giacomelli: Technology can track, monitor and report drug purchases, medications dispensed and reimbursement rates by individual health plan and medication. It can aggregate all that data and send an accurate and timely drug claim to a health plan for payment. It can also compare reimbursement received to the billed amount to ensure that the hospital was paid correctly, identifying and then eliminating any revenue gaps. If a problem was identified, the hospital pharmacy can modify the parameters in the technology to avoid the same issue in the future with similar pharmacy claims.
Are there other benefits to using technology to improve revenue recovery management?
Giacomelli: Yes. Technology enables a hospital pharmacy to integrate its pharmacy management system (PMS) with other clinical and financial systems at the hospital. In this case, it’s about integrating the PMS with the hospital billing and financial systems as part of an enterprise-wide approach to revenue cycle management. It’s important that all these systems communicate with each other to know how what’s happening in pharmacy is affecting overall hospital revenue and costs. That’s particularly important with the growth in value-based care models like bundled payment arrangements, where medication costs may be rolled into fixed payments per episode of care.
How can pharmacy work with finance to improve revenue recovery management?
Giacomelli: Integrating IT systems is just the start. The integrated systems generate pharmacy revenue cycle reports that can be used to facilitate regular meetings between the hospital pharmacy department and the finance department. At those meetings, the departments can discuss the revenue gaps uncovered, the root causes of the gaps and the changes needed to correct them. Pharmacy can alert finance to changes in drug formularies, supply and prices that can affect acquisition costs and reimbursement rates, reducing the risk of payment shortfalls in the future. Pharmacy can help inform finance’s decision whether to rebill a health plan for a drug claim after a revenue gap is uncovered.
What advice do you have for hospital pharmacies to optimize revenue recovery management?
Giacomelli: It requires a change in mindset. The traditional focus of the hospital pharmacy is getting the right drug to the right patient at the right time with a focus on quality care. That focus needs to be expanded to include maximizing revenue by making sure drugs are billed and reimbursed correctly. It’s no longer just the responsibility of the revenue cycle management department. The same is true for pharmacists and pharmacy staff. Their jobs aren’t just clinical anymore. The pharmacy team needs to recognize the business aspects of what it does and develop the skills and competencies needed to perform its clinical responsibilities in the most fiscally responsible way possible. That includes adopting a data-driven approach to revenue recovery management. It also includes the recognition that the approach isn’t a quarterly or annual exercise. It must be continuous in order to generate the desired clinical and financial benefits in an industry quickly transitioning to value-based care and reimbursement models.
Related: Learn more about McKesson’s revenue recovery management services for hospital pharmacies