Ghost Revenue, earned but unrealized dollars, slips through the cracks in documentation, status assignment, and fragmented clinical revenue cycle processes. Most hospital leaders are tracking the wrong indicator.
For years, CMI has been used as a key performance metric. But with today’s complex payor mix, shifting regulations, and increased scrutiny on reimbursement, the disconnect between CMI and financial reality is growing. It’s time to ask: Is your hospital relying on an incomplete metric and missing revenue?
What is Case Mix Index (CMI)?
Case mix index (CMI) is an imprecise measure used as a key performance indicator in healthcare for years. Although all payors do not use Medicare Severity Diagnostic Related Groups (MS-DRGs) for payment, most hospitals calculate their CMI for all payors as a benchmark.
CMI is the average relative weight associated with all inpatient MS-DRGs for a specified period. Hospital Chief Financial Officers (CFOs) often use CMI to:
- Measure potential revenue
- Monitor financial performance
- Budgeting and forecasting
- Track the Return on Investment (ROI) for Clinical Documentation Integrity (CDI) efforts
However, CMI is not the comprehensive measure it’s often assumed to be.
Why CMI Is an Incomplete Metric
Several variables beyond documentation and coding practices can impact it CMI, including:
- Volume of inpatient surgical cases
- Hospital service lines
- Inpatient ratio/Utilization Review gatekeeping activities
- Denials resulting in DRG downgrades
Historically, a higher CMI equals financial health; however, many hospitals with a high CMI also have a low or even negative operating margin. Although CMI is associated with concepts like severity of illness (SOI), it does not accurately represent the acuity of the patient population. CMI is based upon a reimbursement methodology that can only stratify similar patients into a maximum of three groups.
The Disconnect: MS-DRG Weight vs. Real-World Cost
MS-DRGs also include a geometric mean length of stay (GMLOS). When patients stay longer than the GMLOS, the hospital may lose money, especially if care extends beyond the intended payment range.
Yet CMI doesn’t capture that nuance. It reflects billed values, not whether those values were fully reimbursed or accurate representations of care delivered.
The Overlooked Impact of Observation Services
Observation status adds even more complexity. Many hospitals don’t factor in the financial implications of prolonged observation stays, which:
- Are outpatient services not reimbursed using MS-DRGs
- Are reimbursed based on a 24-hour benchmark—even if care extends to 48+ hours
- Are not reflected in CMI metrics
- Can result in significant ghost revenue when not properly tracked
Long observation stays frequently cost more than the associated reimbursement, but these losses go unnoticed without a tracking mechanism.
When CMI Gets It Wrong: Real Consequences
Inpatient and outpatient services are paid using different reimbursement methodologies, and time spent receiving care is tracked differently. This causes confusion when observation patients are subsequently admitted for inpatient care one or more days after the start of hospital services. Many electronic health records default to the date of admission, thereby distorting the actual amount of time the patient received hospital services. This can distort:
- CMI accuracy
- GMLOS calculations
- Resource-to-reimbursement alignment
What Hospital Leaders Need Instead
CMI offers a narrow view. Hospitals need comprehensive, real-time visibility into how care is delivered, documented, and reimbursed, especially for high-variability services like observation.
Leaders should invest in tools that:
- Integrate utilization management, documentation, and billing data
- Track patient journeys across all care settings
- Identify where reimbursement falls short of resource expenditure
- Support informed status assignments and reduce revenue leakage
Final Thoughts: Time to Move Beyond CMI
Hospitals need efficient, cohesive technology that supports clinical revenue cycle workflows and monitors their processes’ effectiveness. As CMIs continue to outpace operating margins, hospital leadership needs better ways to track how hospital resources are expended and when payments fail to reflect those services.
Ghost Revenue hides in the metrics hospitals trust the most. Let Brundage Group help you uncover the whole picture.
Our technology-enabled solutions go beyond CMI to show you where your revenue leaks and how to stop it.
