Baker Tilly negotiates new base rates to add $9 million of inpatient revenue for a hospital system

Our client’s need

A six hospital system was approaching the termination date for a contract with a health plan and requested assistance with negotiating rates to increase revenue, as well as reconfigure the inpatient reimbursement methodology from per diems and case rates to a Diagnosis Related Group (DRG) base rate payment structure. The hospital wanted to change the reimbursement structure to avoid denials of days on individual cases, which can result in increased administrative costs and reduced revenue and also wanted an overall increase in revenue.

Baker Tilly solution

To convert the payment structure and ensure the revenue target was met, Baker Tilly first obtained claim data for each of the six facilities. We calculated the expected payments based on the current reimbursement rates and then calculated the expected payments based on Center for Medicaid & Medicare Services (CMS) DRG payment methodology. The total expected based on each approach was compared and a revenue neutral DRG base rate was calculated for each hospital based on the historical data. The base rate was then increased based on the revenue target set by the hospital for negotiations with the health plan. An appropriate trim day threshold was also calculated for each DRG for each hospital to protect the hospitals in cases where there was an excessive length of stay.

Results achieved

Baker Tilly modeled 6,500 inpatient cases equating to $93M in revenue across the six hospitals. We were able to gain agreement from the health plan on the change to DRG payment methodology and also negotiated base rates that exceeded the client’s 6 percent revenue target, adding 10 percent or $9 million of inpatient revenue in the first year after the agreement and 10 percent or $10 million in the second year.

For more information on this topic, or to learn how Baker Tilly healthcare specialists can help, contact our team.