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Efficiency, Meet Margin

Philip Betbeze, for HealthLeaders Magazine, October 13, 2008
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In an era of declining reimbursement, healthcare is getting better at collecting more cheaply.

Healthcare stinks at efficiency. At least it has until now. According to multiple sources and surveys, as much as 30% of the healthcare dollar is spent on administration—far from the single-digit administrative efficiency of many other industries. Of course, those industries don't have to deal with third-party payers that pay different amounts based on innumerable niggling little codes, as healthcare does. Still, many look at the majority of the labor costs associated with collecting money owed as wasted—a quirk of the overly complicated payment administration system. The "revenue cycle," a fancy term that means getting paid what you're owed for services rendered, accounts for much of this cost.

The mere fact that healthcare alone has a term for the process of getting paid what's owed suggests unnecessary complication. To some extent, there is little that individual hospitals and physician practices can do about the complex nature of billing for healthcare services, especially when government payers like Medicare and Medicaid are involved. It simply takes a lot of labor, technology, and skill to navigate the landmines. With the consumer's portion of the bill growing thanks to high-deductible health plans, collecting quickly and efficiently has gotten even tougher. That's why increasing automation and retraining staff are the best ways to increase—or to maintain—margin.

Train and automate
Historically, most of the healthcare revenue cycle has been based on a business-to-business wholesale model where most of the work has taken place after services were rendered between the hospital and the payer, with little involvement from the patient. Copays, after all, were a very small piece of the revenue pie.

But because of growing patient responsibility for payment, hospitals that rely on back-end, lowest-paid staff to collect payment after the fact are going to be increasingly marginalized in an era when more of the patient's bill will be borne by the patient, says David Mier, vice president and chief revenue officer at 142-staffed-bed Children's Hospital in Omaha, NE. Mier has spent a lot of time lately training his front office staff to deal with the reality that patients (in his case, patient guarantors such as parents) are footing more of the bill. That requires a wholesale shift not only in the mind-set of his employees, but a shift in priority for his labor force.

"It all starts with scheduling and registration. We have put a significant amount of emphasis on the front end," he says, adding that correct registration and demographic info for patients is the first step in almost every segment of the revenue cycle.

The holy grail is clinical and financial integration, facilitating those in supervisory positions like Mier's to get a picture, or dashboard, of how the process is being handled by the staff. Such dashboards allow Mier to target minor shortcomings before they can hold up bill payment. He says an increasing focus by vendors on developing software that ties together coders, registration personnel, financial assistance counselors, and billing staff is knocking down walls.

An example of the clinical integration Mier seeks lies in the controversy over credit scoring—a hot trend that many hospitals are using as an indicator of patient payment probability, but which Mier feels is an expensive and highly imperfect tool. Many hospitals insist credit scoring isn't used to deny care, but rather to direct patients to financial assistance that may be available. Mier doesn't use it because he feels it's a poor tool for forecasting whether a patient will pay his or her portion of the bill.

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