NUR5113 Module 1 reimbursement and payer mix analysis example

Paid by the Day, Denied by the Day: Reimbursement and Payer Mix on a 20-Bed Adult Behavioral Health Unit and What They Ask of Its Nurses

Student Name

American College of Education

NUR5113: Management of Financial Resources in Nursing

Module 1 Assignment

Instructor Name

May 4, 2027

The Unit

The unit analyzed in this paper and the rest of this course is a composite 20-bed adult inpatient behavioral health unit in a 310-bed general hospital. It admits adults with acute psychiatric illness, most often severe depression with suicidal thinking, psychosis and mania, about 85% of them through the hospital's emergency department. Last year it had 6,424 patient days, an average daily census of 17.6 and an average length of stay of 8.1 days. It is staffed by registered nurses, mental health technicians and a small team of psychiatrists, social workers and therapists. Like most psychiatric units in general hospitals, it is a distinct part of the hospital for Medicare payment purposes, which means it is paid under different rules from the medical and surgical floors around it.

The unit has lost money in three of the past four years, and the hospital's finance committee has asked the nursing director to explain why before it considers any request for new resources. That question cannot be answered without understanding how the unit is paid.

How Each Payer Pays

Medicare pays for psychiatric stays differently from medical stays. When prospective payment by diagnosis-related group was introduced for hospitals in the 1980s, psychiatric units were exempted because diagnosis predicted the cost of a psychiatric stay poorly, and for two decades they were paid on a cost basis (Lave, 2003). Since 2005 Medicare has paid inpatient psychiatric facilities, including distinct-part units like this one, through a separate prospective system that pays a fixed amount for each day rather than for each stay. The daily rate is adjusted for the patient's diagnosis group, age and certain comorbidities, for the facility's wage index and teaching status and for the presence of an emergency department, and it is higher in the first days of a stay and lower as the stay lengthens (Centers for Medicare & Medicaid Services, 2024). Because the unit is paid by the day, a longer stay brings more revenue, but at a declining rate, and only if each day is medically necessary and documented as such.

Medicaid patients on this unit are almost all enrolled in the state's managed care plans, which pay a negotiated per diem but require prior authorization for admission and concurrent review, usually every two or three days, to approve further days. Commercial insurers work the same way, with higher per diem rates and stricter review, often conducted by a behavioral health management company acting for the insurer. A day that a reviewer does not approve is a denied day: the patient is still on the unit, still receiving care and still costing the hospital money, but no payment follows. Self-pay patients, most of them uninsured, pay little; the hospital's financial counselors help about half of them apply for Medicaid during or after the stay.

The Payer Mix and What It Yields

Payer mix is the share of patient days paid by each type of payer. Penner (2017) explains that the same volume of care can produce very different revenue depending on that mix, which is why nurse leaders need to know it as well as they know the census. Last year the unit's patient days were 41% Medicaid managed care, 28% Medicare, 22% commercial and 9% self-pay or uninsured.

The hospital's finance department estimates average net revenue per paid day at $780 for Medicaid managed care, $1,050 for Medicare, $1,240 for commercial insurers and $90 for self-pay. Weighting each figure by its share of days gives a blended revenue of about $895 per patient day: 0.41 times $780, plus 0.28 times $1,050, plus 0.22 times $1,240, plus 0.09 times $90. The unit's cost per patient day, including nursing, physicians employed by the hospital, supplies and its share of overhead, was $968. On an average day, before a single day is denied, the unit loses about $73 for every patient it serves.

Denied days widen that gap. Last year 312 days were denied, 214 of them by commercial reviewers and 98 by Medicaid plans, about 5% of all patient days. At the average cost per day, those days cost roughly $302,000 with no revenue attached.

The mix is also fragile. If 5% of patient days shifted from commercial insurance to Medicaid managed care, which is what happened in the year a large local employer closed, the blended revenue would fall by 0.05 times the $460 difference between the two rates, or $23 per day. Across 6,424 patient days that is almost $148,000 a year, with no change in the care delivered or the nurses delivering it. The unit's finances can therefore worsen or improve for reasons entirely outside its control, and a budget that ignores payer mix will be wrong before the year begins. For the nursing director, the practical lesson is to present the unit's results to the finance committee separated into what the unit controls, such as cost per day and documentation that prevents denials, and what it does not, such as the mix of patients who arrive through the emergency department.

What Reimbursement Asks of Nurses

Every one of these payment rules reaches the nursing staff. Concurrent reviewers approve days on the basis of documentation: evidence that the patient remains a danger to self or others, cannot care for basic needs or needs a level of treatment only an inpatient unit can provide. When nursing notes say a patient was calm and cooperative, attended groups and slept well, a reviewer reads a patient ready for discharge, even when the same patient told the nurse at 0200 that he still plans to die. The unit's review of 40 denied days found that in 27 of them, the nursing documentation for the day under review did not describe the symptoms that justified continued stay, although other notes showed those symptoms were present.

The payment rules also shape staffing decisions. Constant one-to-one observation for patients at high risk of suicide or violence is not paid separately by any payer; its cost falls entirely on the unit. Last year the unit used 9,860 hours of one-to-one observation, the largest single source of its overtime. Discharge timing matters as well: because Medicare pays less per day as a stay lengthens and commercial payers deny days once criteria are no longer met, a discharge delayed by a missing outpatient appointment is a day of cost with falling or no revenue.

The analysis points to three areas for the rest of this course. The unit needs a budget that plans for observation hours instead of absorbing them as overtime. It needs nursing documentation that describes risk and function in the terms reviewers use, which is also better clinical documentation. And it needs its leaders to understand that the loss the finance committee sees is shaped as much by the payer mix and denials as by nursing costs.

References

Centers for Medicare & Medicaid Services. (2024). Inpatient psychiatric facility prospective payment system. https://www.cms.gov/medicare/payment/prospective-payment-systems/inpatient-psychiatric-facility

Lave, J. R. (2003). Developing a Medicare prospective payment system for inpatient psychiatric care. Health Affairs, 22(5), 97-109. https://doi.org/10.1377/hlthaff.22.5.97

Penner, S. J. (2017). Economics and financial management for nurses and nurse leaders (3rd ed.). Springer Publishing.