Supply costs are a top expense category for hospitals.
According to a Definitive Healthcare article, which examined changes in hospital medical and surgical supply costs, analyzed U.S. hospitals spent on average $27.4 million annually on supplies, including pharmaceuticals, in 2018, with supply chain spending representing about 33% of a hospital’s total operating expenditures.
As hospital supply costs continue to rise and price transparency regulations increase consumers’ focus on charges, hospitals need to broaden their scope and perform regular reviews of both their chargemaster and their entire materials management system item master to improve revenue and reduce billing errors.
How the supply master and chargemaster relationship impacts compliance
Similar to pharmacy processes, hospitals must also manage the link between the supply master and the chargemaster to correctly code and bill medical supplies. The materials management item master contains all the supplies and goods purchased by the facility, and it has far more lines than the chargemaster. For example, a single charge line can be applied to multiple items in the item master. A comprehensive review is necessary to ensure compliance. The review must include the item master and confirm that the proper charge line (if appropriate) and HCPCS are assigned correctly to the supply item.
Establishing proper charging and reporting processes for supplies is a complex process. Many factors can impact the chargemaster, including physician preference, vendor changes, contract changes, and the daily influx of new medical supplies.
Additionally, there is only general guidance available to hospitals on whether a medical supply is billable or not. The Centers for Medicare & Medicaid Services (CMS) only provides broad guidelines on what constitutes a billable supply. CMS guidance for supplies is found in a variety of places and is not centralized. Therefore, it is very time-consuming to research what to charge and appropriately bill for supplies.
At the same time, supply databases are not readily available to help hospitals determine whether a supply item meets the guidance of billable vs. non-billable. Appropriate HCPCS, if applicable, often must be researched by contacting the vendor for each item. Despite this complexity, the provider will need to justify that the billed supply meets the proper requirements if an audit occurs.
Minimizing risk through automation
Hospitals that apply CMS guidelines incorrectly or inconsistently when reporting supply charges risk increased claim edits, denials, and audits, impacting revenue. The primary reporting goal is always to remain compliant. Common issues hospitals run into include reporting items considered routine per CMS guidelines, reporting an incorrect HCPCS, or reporting a HCPCS when one is not appropriate. Improper reporting, including poor charge capture processes, missing charge lines for all billable supplies, HCPCS assignment issues, and missing HCPCS, can result in lost revenue.
Reviewing the chargemaster itself is not enough to decrease these impacts and ensure compliance. Hospitals must also make sure the billable materials management item master line items are tied to the correct charge line and items considered non-billable do not have an associated charge line for proper reporting to occur.
Most hospitals, however, do not have the staff or resources to perform a line-by-line look at supply data. These files can contain 75,000 line items or more entered over many years by individuals with different viewpoints. Files of this size are difficult to audit and often are not maintained retroactively as regulations change. An automated solution is the most efficient way to review the full materials management system item master. A comprehensive tool also can help hospitals quickly determine whether a product meets the guidelines to be charged and billed and provide the appropriate HCPCS if applicable.
The path to success
It is vital that hospitals conduct an internal supply audit given the multi-disciplinary responsibilities spanning clinicians, buyers, coding, billing, and patient financial services. These internal audits allow hospitals to improve revenue and reduce the potential for billing errors. Complete and compliant medical supply billing requires communication and coordination between multiple departments as no single area has all the information for success. Ultimately, establishing regular maintenance for reviewing the supply charges to the item master supply lines will allow hospitals to keep charges accurate and compliant with ever-evolving supply inventory and regulation changes.
Debbie Emery is a senior product manager at Optum. She has expertise creating and maintaining hospital chargemasters, claims edit resolutions related to charge practices, and RAC and post payment defense audits. Previously serving as the director of revenue assurance for a 38-hospital system, she helped develop and implement a corporate standard CDM, standardized charge practices, conducted charge/medical necessity audits and provided system-wide education.