Health Information Management

Tip of the Week: Examine your facility's drug pricing

APCs Insider, February 1, 2008

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Hospitals should examine how they are pricing drugs and other services. Examine the drug cost and determine whether your hospital has properly marked it up, even if it's a high-cost drug, because CMS uses charges from provider claims data to determine what it will pay in future years.

When hospitals use inappropriately low costs, no markups, or certain caps, this drives some of the lower-than-expected APC payment rates. Providers should spend some time reviewing this and possibly even removing some existing caps related to their markups.

CMS uses provider charge data and reduces it to cost, using the provider's cost-to-charge ratio from the cost report. CMS then sums this up across all providers who billed the drug. If the computed cost for a drug is below the $60 median cost drug packaging threshold, then CMS packages the drug (with a few exceptions). If it's above the threshold, then CMS generates a separate payment.

(The above tip was excerpted from the February issue of Briefings on APCs).



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