Inpatient Facility Coding & Compliance Alert

 Question: Our surgery department sometimes gets medical device packages for promotional purposes (such as "buy one/get one free" offers on packs of orthopedic screws). If the hospital purchases one pack and the other is free, how do we handle the billing? I want to understand how everything is accounted for from a reimbursement standpoint.

Connecticut Subscriber

Answer: In general, adjusting pricing, that is, using the standard markup formulas, for these free or discounted items would be preferable. When hospitals receive routine quantity discounts (for supplies such as catheters and IV solutions), the reduced costs are factored into the pricing. If the free or discounted items are special but limited promotions, it might not be feasible for the chargemaster coordinators keep track of free or discounted items relative to pricing. For the Medicare program, the critical element is the generation of cost-to-charge ratios (CCRs). Even if the pricing is not adjusted for these limited items, the CCR will change to account for the relative decrease in costs.

There is a great deal of difference between relatively inexpensive supply items and expensive implantable devices such as pacemakers. Typically there are very different markups for these two general categories. Because both inexpensive and expensive items are considered within the same CCR category, a problem called charge compression takes place in which the CCR is skewed relative to various types of supplies. CMS is currently in the final stages of changing the cost reporting process to better accommodate correct CCRs for expensive implantable devices.

Result: Hospitals are faced with the desire to properly adjust pricing for free or discounted items but the reality is that those adjustments might not be operationally feasible. While the Medicare program protects itself with the use of the CCRs to translate charges into costs, other third-party payers (and particularly self-pay patients) may require special attention in terms of pricing particularly expensive items that are free or discounted. Thus the whole issue requires the development of a policy and procedure on how hospitals decide to handle these free or discounted items. Such policies may treat relatively inexpensive items quite differently from expensive implantable devices.

Bonus tip: Note also that this situation is somewhat similar to replacement items that require the use of several modifiers, namely "-FB" and "-FC.".