Background

Determining the cost of providing treatment to drug-exposed infants is perhaps as complicated as the treatment itself. With an infinite variety of clinical, financial, and data collection issues involved, it would be futile to attempt to attach monetary values to the many services, procedures, and tests necessary to provide care to this ever-increasing segment of the population. Prior attempts by various researchers to estimate costs, both on the national and patient levels, are only rough estimates. Consequently, the following discussion focuses on the issues involved in making cost estimates, mainly by recognizing that provider charges, or pricing, bear a direct relationship to cost.

Specifically, the most intensive component of the cost of treatment is the inpatient setting. It is this treatment phase for drug-exposed infants that is emphasized here. The purpose of this information is to provide guidance to State alcohol and drug abuse directors, treatment program directors, facility financial personnel, and neonatal intensive care unit (NICU) department chiefs for developing procedures dealing with pricing, cost finding, and budgeting. Included is the following information:

• An overview of factors influencing provider pricing;
• Strategies in evaluating provider charges and costs for the treatment of drug-exposed infants;
• A listing of the most frequent services, procedures, and tests utilized in providing neonatal treatment to drug-exposed infants; and
• Sample ranges of charges obtained from hospitals that provide Level II and III NICU treatment for drug-exposed infants.

An in-depth analysis of the medical management of the drug-exposed infant, as prescribed by the consensus panel, has resulted in a breakdown of treatment into three areas:

• Evaluation and management services
• Clinical procedures
• Pathology and laboratory tests.

These areas of treatment are further delineated into individual services, procedures, and tests as defined by the American Medical Association's Current Procedural Terminology (CPT). For each item, CPT-4 codes are supplied to assist with planning for the utilization, frequency, and accurate billing of treatment. Due to changes and updates in CPT coding from 1992 to 1993, both years' CPT-4 codes are provided.

Because of dynamic changes in treatment for drug-exposed infants, and the enormity of the costs of care - both immediate and long-term - a tremendous burden is carried by provider facilities to manage costs and pricing. The rapid growth in the numbers of drug-exposed infants, coupled with the current uncertainty of health care reform, will require difficult decision-making by providers, third-party payors, and Federal and State governments. Ultimately, success in treating drug-exposed infants will be determined by these sectors of the health care industry.

Factors Influencing Provider Pricing

When examining the various services, procedures, and tests in the TIP from a pricing perspective, it is evident that a wide variety of factors influence provider charges. Understanding these factors is crucial in attempting to identify costs, or to evaluate pricing for a particular treatment program for drug-exposed infants.

Several major factors influence provider pricing:

Clinical Intensity - Pricing is influenced by the type of patient (severity), the type of NICU (such as, Level II or III), and the patient's diagnosis and prognosis.

Volume of Services - Hospitals develop pricing for specific units or departments with an assumption about the volume of services that each department will generate. Accordingly, departments that project low utilization often have high average charges. Conversely, departments with longer lengths of stay and projections of higher volumes may have low average charges.

Charge Development Methodologies - Many hospitals use charge development methodologies that are designed to achieve a wide variety of facility-specific financial objectives. For example, facilities may want to subsidize losses in one department with profits from another, or subsidize bad debt and charity care with revenues from other payors. Competition within the hospital market, based on price or the degree of managed care penetration, can also influence prices. Additionally, a third-party payor mix will also impact pricing of provider services.

Input Costs - Providers have wide differences in the level of their input costs which, in turn, affect their prices. The costs of labor and supplies can be substantially different, even among hospitals that are in the same area.

Organizational Structure - Many hospital providers have developed into complex entities that consist of multiple related facilities integrated into a network. Accordingly, charges may be influenced by multiple market areas or entities. Specific charges may include an administrative or a technical fee. Additionally, the frequency of charges from a variety of provider entities is to be considered. Moreover, some organizations use an all-inclusive rate concept that may cause room rates to be artificially high when compared to an organization that has an "unbundled" fee structure.

Cost Data - There is a wide variation in the quality of hospital cost information that supports price setting. Some providers have sophisticated cost finding and charge development systems, while others have very basic systems. Additionally, there are a wide variety of methodologies available within the more complex systems.

Some or all of the above factors may affect a provider's charges. It is important to identify the factors that may affect any charges being evaluated in order to make informed judgements regarding the pricing of services, procedures, and tests involved in the treatment of drug-exposed infants.

Strategies in Evaluating Provider Pricing and Costs for Treatment of Drug-Exposed Infants

Previously, several major factors that influence provider charges were identified. Below are considerations and strategies for evaluating prices and costs of treatment.

When evaluating provider prices, it is necessary to understand the degree of competition in the particular market area, prices as well as the degree of inclusiveness of the prices obtained. Do prices include room rates, professional care, or ancillary tests? Are ancillary tests charged separately? By whom? Do tests and procedures include a professional physician component? If not, how are they charged? If so charged, how much is included in the price for that component? These are just a few of the questions that should be asked to help understand pricing.

With regard to evaluating costs in order to provide care to drug-exposed infants within a hospital department, it is practical to apply a "cost-to-charge" ratio to the average daily room rate for these infants. Most facilities are able to estimate average daily NICU room rates, which are then multiplied by the hospital or department cost-to-charge ratio. Cost-to-charge ratio represents the relationship of the facility's total costs to total charges.

Example
Average Daily Room Rate#151;$1,800
Cost-to-Charge Ratio - 70%
Estimated Daily Room Cost - $1,260

Due to the inherent complexities in estimating the specific costs of providing care to drug-exposed infants within a given program, this crude calculation, coupled with similar estimates for ancillary treatment, is a starting point for program evaluation. Unquestionably, the multitude of factors affecting provider pricing will further influence such calculations in many ways. An advantage of this exercise is the insight gained by comparing prices and cost-to-charge ratios for similar facilities within a given market.

Setting charges for new programs and revising existing program charges will require market comparisons. As may be expected, cost-to-charge ratios fluctuate dramatically among facilities and markets, but ratios in the 65 to 80 percent range are not uncommon. This information is available in most areas of the country through various public databanks. Specific provider data may be obtained through the Federal Medicare program.

Due to the general lack of information regarding costs and charges for the treatment of drug-exposed infants, the evaluation process for treatment programs requires a thorough understanding of many quantitative and nonquantitative factors. In view of the intensive costs - in relation to potential reimbursement - for drug-exposed infants, both existing and start-up treatment programs should emphasize the comprehensive evaluation of both pricing and costs.

Neonatal Services, Procedures, and Tests for Drug-Exposed Infants

The treatment of a drug-exposed infant encompasses a broad continuum of comprehensive services that begin during neonatal care, through the infant and toddler stages, to aftercare during the pre-school years, and possibly during later developmental phases of childhood. The purpose of Tables A, B, and C is to delineate only the evaluation and management services, clinical procedures, and pathology and laboratory tests that may be used to treat drug-exposed infants through 18 months of age. Infants will require services, procedures, or tests only as necessitated by the individual diagnoses and case complexities. The services, procedures, and tests contained in the exhibit are directly linked to the treatment of these infants (not the mother), particularly the medical management of the drug-exposed infant.

Table

Table A: Evaluation and Management Services.

Table

Table B: Procedures.

Associated 1992 and 1993 CPT-4 codes have been provided for program directors, hospital and physician managers, and billing personnel to help project utilization, revenues, and reimbursement. Sample ranges of charges have been provided for procedures and tests, in order to illustrate the extreme variations between facilities. Ranges of charges for evaluation and management services are not listed, due to the incongruity between professional and facility fees, which depend upon the organizational structure of each individual facility.

Tables A, B, and C are intended to be used as planning tools to evaluate the variables that are involved in providing treatment to drug-exposed infants. The services, procedures, and tests listed are derived from the TIP but are not intended to be complete. The dynamic changes in diagnoses, assessment, and treatment will require individualized considerations in each case.

Ultimately, the costs of treatment for drug-exposed infants will be comprised of an aggregation of services, procedures, and tests, many of which are contained in Tables A, B, and C.