Hospital Operating Costs and Performance Benchmarks Report — Report components

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Your customized Milliman Hospital Operating Costs and Performance Benchmarks report provides immediate value in the following areas:

Hospital operating costs

Gain insight into the reasons behind the differences in commercial reimbursement

Commercial reimbursement is affected by provider operating costs. We provide average hospital operating costs calculated using data from Medicare cost reports and publicly released Medicare claim files, along with Milliman’s RBRVS for Hospitals™.

See Table 1 and Exhibits 1A and 1B of the sample report for illustrative results.

Determine the relative cost efficiency of your facilities

By adjusting hospital operating cost benchmarks for case-mix complexity in both inpatient and outpatient operations from present publicly available databases, we provide executives with an appropriate apples-to-apples comparison of cost efficiencies between hospitals, and help them avoid erroneous conclusions that may be drawn from reviewing unadjusted metrics. These metrics also help identify areas of competitive cost advantage and areas in need of improvement by comparing relative costs between facilities and benchmarking against statewide and national averages.

Hospital margins

Gain insight in Medicare subsidization

Medicare payment is insufficient to cover hospital costs for Medicare patients in many parts of the United States. As a result, those losses are often covered through higher payment from commercial payers. We provide a summary of all-payer total margins and Medicare operating margins (using Medicare cost report data) to show the degree of Medicare subsidization, which may explain some of the differences in commercial reimbursement.

See Tables 2A, 2B, and 2C and Exhibit 2 of the sample report for illustrative results.

Understand trends in hospital margins

Our reports illustrate trends in margins by providing revenue, expenditure, income, and margin detail for the most current year available, as well as historical margins for the last three most recent years of data available.

Case-mix and patient severity-adjusted billed charges

Benchmark billed charges

We apply RBRVS for Hospitals RVUs to Medicare inpatient and outpatient claims data for every hospital, and divide total billed charges by total RVUs to create case-mix and patient severity-adjusted billed charges. Given that chargemasters are the same for all lines of business, we can use Medicare data to benchmark billed charges. We are able to drill this report down to the service category level, e.g., medical, surgical, mental health, emergency department, etc.

See Table 3 as well as Exhibits 3A and 3B of the sample report for illustrative results.

Understand how your chargemaster stands up to your peer group in the negotiation process

This is especially important for hospital reimbursement contracts that are based on a percentage of billed charges. This report will immediately place you in a strategic, data-driven, negotiating position and can help inform you of the appropriateness of your contracting levels.

RVU-weighted length-of-stay relativities

Identify potential areas for improving profitability

To supplement the unit cost comparisons among hospitals, we provide average LOS relativities to demonstrate the relative length-of-stay (LOS) efficiency among hospitals and regions, given the case-mix and patient severity levels reported in the data. The adjusted average LOS is presented along with the Well Managed and Loosely Managed benchmark for each hospital. These reports are available for both Medicare and commercial populations.

See Table 4 as well as Exhibit 4 of the sample report for illustrative results.