Health Information Management

Hospitals must absorb costs from outsourced companies

APCs Insider, May 25, 2007

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QUESTION: How do you "pass on" the cost of doing business with an outsourced company? An example is an outsourced company that provides capital equipment (e.g., a phaco machine) and the disposables involved in a cataract extraction. A second example is a laser company that provides lasers on a per-case cost basis, and also the disposable fibers which are included in the per-case cost.

ANSWER: By "pass on" we assume you mean recover your costs. When CMS determines the reimbursement amount for a procedure like cataract surgery, it takes into account the charge amounts which providers assign to this procedure. CMS does this by analyzing the gross charges on procedure claims providers submit.

These gross charges are then reduced by applying a "gross to charge" ratio based upon the charge department and your facility. This "gross to charge" ratio is a direct reflection of your costs (taken from your annual cost report) and charges for this procedure.

To answer your question, there is no direct way to "pass on" the third party charge from a contract service. But you must report these costs on your cost report, and they in turn become part of your cost to charge ratio. This in turn becomes part of the national database for costs for that procedure and could influence the amount you are reimbursed in future years.

In the short term, if your contract costs are higher than other facilities that do not use a third party contractor, you will simply be less profitable for those procedures.

There are exceptions to this scenario such as rural health clinics, ambulatory surgery centers, and critical access facilities. The above example is for a traditional acute-care hospital facility.

Finally, note that you should bill any applicable procedure codes just as if the equipment were owned by your hospital. For example, 66830 (Removal of secondary membranous cataract with corneo-scleral section, with or without iridectomy).

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