KPI’s, like acronyms, are a dime a dozen in health care. Knowing which metrics to track and how to use them to drive performance is one-way great health systems separate themselves from the good ones. One such metric is your systems reimbursement rate as a percentage of Medicare’s rate. With Medicare’s fee schedule being loosely tied to a hospital’s cost structure analyzing your commercial reimbursement rates as a percentage of Medicare allows hospitals to track margin accretion (or degradation). As part of ongoing analysis utilizing CMS data alongside Trilliant’s All Payor database we pulled together average commercial rates for each state and compared them to the average Medicare rate for several inpatient and outpatient codes.

We analyzed 14 DRG’s and 5 CPT codes across the United States from 2019 to benchmark average reimbursement rates for Medicare and Commercial Payers. We wanted to determine if there were any similarities or trends in higher commercial reimbursement rates.

Inpatient Key Takeaway’s:

  • Nationally, the average commercial reimbursement was 172% of Medicare.

  • Major Small and Large Bowel Procedures (MS-DRG 390) has the largest reimbursement difference with average commercial rates being 211% of Medicare. GI Obstruction (MS-DRG 331) and Lower Extremity and Humerus Procedures Except Hip, Foot and Femur (MS-DRG 494) were the next closest with average commercial rates being 201% and 185% of Medicare respectively. What do these three DRG’s all have in common? They involve surgical procedures, the specialists needed (General Surgery, Gastroenterology and Orthopedics) are some of the higher paid physicians within the hospital, and they have a high commercial patient demand. To put it in perspective, every commercial patient treated generates as much revenue as two Medicare patients (who typically have more comorbidities. In addition, all DRGs have a GMLOS of 3.5 or less (MS-DRG 390 and 494 are 2.4 and 2.7 respectively).

  • Simple Pneumonia and Pleurisy (MS-DRG 194) and Heart Failure and Shock (MS-DRG 291) have the smallest reimbursement difference with average commercial rates being 145% of Medicare. Septicemia or Severe Sepsis Without MV >96 Hours with MCC (MS-DRG 871) are both reimbursed at just 152% of Medicare. While these DRG’s make up significant volume within a hospital because they are treated with medicine (as opposed to surgery) and they have low commercial volume, hospitals and commercial payers alike have not prioritized these inpatient rates.

    • This disparity between medicine and surgery reimbursement is exactly why when hospitals had to shutter their ORs in April and May 2020, the industry experienced devastating losses.

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CPT Rates

Outpatient Key Takeaway’s

  • Nationally, New Patient Evaluation & Management codes (CPT 99302-99205) were commercially reimbursed 110% of Medicare. While Diagnostic Colonoscopy (CPT 45378) are reimbursed at 161% of Medicare.
  • 25 states have average commercial reimbursement below average Medicare rates.

Conclusion

Commercial patients are a key component to a health systems financial health. Attracting, engaging and retaining commercial patients is imperative for your health system to thrive. Unfortunately, the number of commercially insured patients inexorably decreases, with the ~10,000 citizens who become Medicare eligible every day being “replaced” by the 10,388 average daily births, the majority of which are financed by Medicaid.[1],[2],[3] Understanding the commercial patients in your market will give you an advantage during payer negotiations and patient outreach.


[1] https://www.kff.org/medicare/state-indicator/total-medicare-beneficiaries/?activeTab=graph&currentTimeframe=0&startTimeframe=8&selectedDistributions=total&selectedRows=%7B%22wrapups%22:%7B%22united-states%22:%7B%7D%7D%7D&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

[2] https://www.cdc.gov/nchs/fastats/births.htm

[3] https://www.kff.org/medicaid/state-indicator/births-financed-by-medicaid/?activeTab=map&currentTimeframe=0&selectedDistributions=percent-of-births-financed-by-medicaid&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D