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Amid COVID-19, It's Time to Rethink the Traditional Revenue Cycle

Analysis  |  By Alexandra Wilson Pecci  
   April 28, 2020

With hospital EBITDA margins falling 13 percentage points year-over-year in March, here's how cash-strapped hospitals can get paid.

Revenue cycle mechanisms don't often run smoothly, even in the best of times. But COVID-19 has thrown them into utter turmoil, shining an even brighter spotlight on major flaws in the traditional revenue cycle.

Take the already contentious issue of surprise, or "balance" billing, for instance. Pre-pandemic, many health systems may have considered it an unfortunate but necessary part of doing business, even as piecemeal legislation across different states sought to curb the practice.

But now, balance billing for COVID-19 is a no-go, full stop.

As a condition for receiving money from the CARES Act Provider Relief Fund, "providers are obligated to abstain from 'balance billing' any patient for COVID-related treatment," according to HHS guidance.

Combine that with canceling revenue-generating elective procedures and surges of COVID-19 patients, and you've got a recipe for financial disaster.

New data from Kaufman Hall shows that hospital EBITDA margins fell 13 percentage points year-over-year in March. In addition, systems like Beaumont Health have been forced to lay off or permanently eliminate thousands of workers as it faces a first quarter 2020 net income of -$278.4 million, down $407.5 million over Q1 2019.

While COVID-19 has shined a brighter light on the flaws in the traditional revenue cycle, they've been requiring a fix for a long time. The crisis has revealed an urgent new opportunity to rethink and reimagine what the revenue cycle of the future might look like.

A reimagined revenue cycle

Through partnerships with providers and payers like CommonSpirit Health and Blue Shield of California, tech startup OODA Health is already doing so.

"Top of mind for OODA Health is helping our partners like CommonSpirit realize strong collections," Seth Cohen, CEO and cofounder of OODA Health tells HealthLeaders. "Through OODAPay, healthcare providers have removed the financial uncertainty of collecting patient balances and lowered administrative costs."

OODA Health enables "a new type of revenue cycle arrangement" in which OODA pays the provider for the patient portion of the balance at the same time the payer sends its payment to the provider, according to Sophie Pinkard, co-founder and head of product at OODA Health.

"From the provider's perspective, they've been paid. There's no additional revenue cycle work," Pinkard told HealthLeaders in an interview last fall. "OODA aggregates those bills across providers and bills the patient under the payer's brand."

OODA in the time of COVID-19

Blue Shield of California said on April 21 that as part of its $200 million commitment to support healthcare providers and hospitals facing COVID-19–related financial pressures, it would work with OODA Health to expand its service offering "that pays Blue Shield members' liability to providers more quickly." 

Specifically, Blue Shield of California said providers can arrange for OODA to assume responsibility for member out-of-pocket costs for encounters in the future. 

Providers can also transfer certain existing Blue Shield member’s share receivables to OODA for collection. "Receivables will be transferred at a negotiated rate upfront, with the potential for additional payments based on actual collection rate and subject to final terms of agreement," according to the Blue Shield of California statement.

Moreover, hospitals, medical groups, IPAs, and independent physicians that are currently part of Blue Shield of California’s provider network are eligible to apply for the program.

The provider advantage

For providers, that means getting money in the door more quickly, which is especially crucial right now.

"The obvious benefit to the provider is that the claim is adjudicated faster," Steve Scharmann, CommonSpirit Health's system vice president of revenue cycle, told HealthLeaders last fall. "But that's never been our motivating factor."

Instead, CommonSpirit Health saw working with OODA as an opportunity to "think outside the box" and improve the patient financial experience. Scharmann noted that illness is usually why a patient engages with the health system. "We don’t want to contribute to that feeling through the billing," he said.

But during the pandemic, other OODA Health benefits for providers have come into focus.

  • Enabling predictable cash flow: "Providers are cash constrained, given the deferral of elective care and need to purchase new equipment," Cohen says. "For providers like CommonSpirit, the opportunity to receive immediate and predictable cash payments for patient collections is a huge relief." 
  • Lessening administrative burden: "Since OODAPay is staffing the collections effort on behalf of the payer, providers can shift staff that have historically focused on billing to more mission-critical areas of the business, such as pre-service needs like patient access and registration," Cohen says.
  • Providing infrastructure to streamline claims processing:  "[In early-April], we heard from our partners about prior authorization delays that have unnecessarily extended patients’ hospital stays, occupying crucial beds," says Cohen, and this will also be true post-pandemic. "Once elective care resumes, there will be a wave of clinical data sent to the payer, so technologies to streamline claims processing will be more critical."

"Does it make sense for every provider to essentially build their own collections agency? For the providers we spoke with, that's not what any of them got into the business of medicine to do," Pinkard said. "But the payer in many cases—in most cases—already has a financial relationship with the patient and seems like a much more natural choice to aggregate patient billing."

Alexandra Wilson Pecci is an editor for HealthLeaders.

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