Don't Leave Money for New Technologies on the Table

CMS has raised the payment level for new technology in 2020. Now, here's what you need to know.

This article appears in the January/February 2020 edition of HealthLeaders magazine.

Editor's note: This article has been adapted from the HCPro Revenue Cycle Advisor's "Note from the instructor—New Technology and Price Transparency."

Are you getting all the CMS payment you can get for new technologies? Experience underscores that the answer is likely no. So, what are hospitals to do?

First, you must check if you furnish any of the 18 technologies that qualify in FY 2020 for add-on payments and understand the potential for payment beyond the fully adjusted MS-DRG. Achieving any add-on payment is first and foremost contingent on using the correct ICD-10-PCS code on the claim. It is important to build a process to ensure correct codes.

Achieving the maximum add-on payment available is dependent on the hospital's pricing policy for the technology. CMS updated the formula for FY 2020 by upping the maximum available from 50% of the cost of the technology to 65%. For certain antimicrobial-resistant drugs, the maximum is 75% of the cost of the technology. 

Let's assume a patient case groups to MS-DRG 913 for Traumatic Injury with MCC with a national unadjusted payment of $9,082 and that the hospital's charges, including the blood thinner reversal agent AndexXa® with a usual drug markup of 110%, total $67,012. CMS will multiply the total charges of $67,012 by the example hospital's overall cost-to-charge ratio (CCR) of 0.25 to calculate an estimated cost of $16,753. CMS will then subtract the MS-DRG payment of $9,082 and pay up to 65% of the residual cost, up to the maximum of $18,281.

The add-on payment in this example would be $4,986—well below the published maximum. If the hospital had marked up the technology based on their CCR, the total charges would be $109,198 times 0.25 less the MS-DRG times 65% for an add-on payment of $18,218—just shy of the cap of $18,281. 

It is reasonable for hospitals to adjust their markup policies while items have CMS' new technology or outpatient OPPS pass-through payment status, which lasts three years. Once expired, the markup can revert back to the usual practice. CMS states in the 2006 OPPS final rule (70 Federal Register 68654):

We believe that hospitals have the ability to set charges for items properly so that charges converted to costs can appropriately account fully for their acquisition and overhead costs …

In the Provider Reimbursement Manual Part 1, Section 2202.4, Charges, CMS defines charges by writing:

Charges refer to the rates established by the provider for services rendered. Charges should be related consistently to the costs of the services and uniformly applied to all patients whether inpatients or outpatients. All patients' charges used in the development of apportionment ratios should be recorded at the gross value: i.e., charges before the application of allowances and discounts deductions.

CMS acknowledges paying hospitals much less than anticipated for such technologies over the last two decades. In today's environment of price transparency, hospitals may be afraid of receiving bad press if their prices for high-cost new technologies are perceived as distorted. Hospitals should price new technologies using their acquisition cost divided by their overall CCR.

Hospitals can make a discount prior to billing commercial insurances pursuant to the Section 2202.4 citation above, so negotiated payer contract pricing is not an excuse to price the technology less than necessary for appropriate payment.

The rationale for a CCR-based price is that it comports with CMS' formula and prevents cost shifting from Medicare to other payers, especially since Medicare will not even pay for the acquisition cost of the technologies. So, hospitals should investigate their pricing policies for new technologies to ensure they aren't leaving money on the table!