Sometimes when you take a look back, you can see just how far you’ve come. Other times, you can see just how little progress you’ve made. Unfortunately, the latter may be more true in the case of capital expense budgets, as healthcare leaders continue to hold fast to their dollars--putting their money into only the most necessary of initiatives.
Last January I took a pulse on healthcare’s attitude toward capital spending in HealthLeaders magazine. The picture was grim at the time, especially in terms of facility expansion. With few funds to be found through investments, and banks unwilling to provide many hospitals loans, new construction and large capital purchases came to a near halt for most hospitals and health systems.
In fact, for the first time in nearly two decades, most facilities stopped building, and they waited for the economy to stabilize and the requirements for healthcare reform to become more clear.
At the time, I interviewed John Winfrey, chief financial officer at the 583-licensed bed DCH Regional Medical Center in Tuscaloosa, AL. Prior to the recession, they were poised to build a gleaming 80- to 90-licensed bed tower to help offset crowding and eliminate some of the semiprivate rooms at the hospital.
But that vision was put on hold in 2008 after the organization took its first ever financial loss due to the recession. Now 2011, I spoke with Winfrey again, and the same tower remains in limbo. “It’s almost permanently postponed. Now we’re finding our [inpatient] volumes are dropping,” he says. “We’re really concerned with taking on any major projects because of the uncertainty with the economy. We are a lot more conservative as we look at our big projects.”
Robin LaBonte, CFO at the 79-bed York Hospital, in York, ME, is facing the same sort of reality. “Expanding your footprint costs more money, and right now it’s about being tight and using your space better--making what you have now look better and working with your existing space,” says LaBonte,.
When healthcare reform legislation was passed last March, a flurry of proposed and pending changes arrived with it. The Patient Protection and Affordable Care Act, with its “health insurance for all” axiom called for larger numbers of insured patients—thus more Medicaid admissions—which at first blush sounded like a positive and potentially profitable outcome of the law. Alas, along with the newly insured came an edict that select reimbursement rates would be cut, forcing hospitals to once again concentrate on increasing efficiency and reducing expenses.
Regardless of the need for efficiency and expense reduction, CFOs are putting some necessary projects back in their budgets—like technology and large equipment—but adding a building or a wing is still lower on the priority list. In a report released in February by L.E.K. Consulting, a moderate percentage of respondents planned to increase their purchasing in terms of facilities (38%), with the purchase of large medical devices running a close second at 37%, and small medical device purchases at 21%.
However, while healthcare financial leaders may not be pursuing these purchases in large numbers yet, the L.E.K. Consulting report also found that nearly 60% of hospital executives expected their budgets to increase this year and over the next five years, and more than 70% of hospital executives foresee expanded budgets.
“Budgets are tight, but we all know we still need to advance clinical technology and balance that with our EMR technology needs,” says LaBonte.
While the L.E.K. Consulting report may indicate a shift toward budgetary growth in the future, healthcare leaders’ collective feelings toward capital spending may stay on pause for a bit longer. In an upcoming HealthLeaders Media Intelligence Report on Capital Planning survey respondents indicated they anticipate more capital budget decreases ahead. Nearly 52% of large-size healthcare facilities (500-beds or more) and 46% of small facilities (those with 199 or fewer beds) have cited decreases to their capital budgets in the past year; though only 27% of mid-size hospitals or health systems (those with 200–499 beds) experienced decreases in the past year, and 48% reported their capital budgets have remained the same over the past year.
Declining or stagnant capital budgets aren’t just a 2011 issue, either; it’s been an ongoing situation for all healthcare facilities over the past three years. More than half (52%) of large-size healthcare providers report their budgets have been declining over that period, as did 46% of small-size providers. Additionally, 28% of their midsize peers reported capital budget declines and 30% reported their capital budgets stayed the same during that time.
Larger facilities saw the largest cuts to their capital budgets with more than 88% of large-size facilities reported budget cuts of 11% to 20%. Small and mid-size facilities fared a little better with 38% of smaller facilities and 18% of mid-size hospitals reporting cuts of 1%–10%.
Nevertheless, invariably after several years without large medical equipment purchases and capital build projects, many hospitals and health systems can no longer wait to move forward. Those that do decide proceed, however, won’t necessarily be doing so in the same vein as years past.
Bob Lavoie, who heads the New York office of L.E.K. Consulting and co-leads their MedTech Practice, says while hospital leaders are increasingly looking for more than a strong return on investment. He explains that healthcare leaders making large medical equipment purchases now will want more than a promise that the item will save time or improve processes or outcomes—they’ll want proof.
“[Healthcare leaders] will want the vendor to show them a similar 135-bed hospital that has achieved the same kind of value-based outcomes the product claims to achieve and they are hoping for,” he says. “More forward-thinking vendors will be working toward quantifying the impact in terms of hard- and soft-costs on their products. And more forward-thinking hospitals are going to expect some risk-sharing if a product that touts certain efficiencies doesn’t produce.”
Whether vendors step up to provide more than just promises remains to be seen. However, at least for now, both the HealthLeaders and L.E.K. Consulting reports seem to indicate that 2011 won’t be a big year for capital spending—which means I’ll be revisiting this topic again in 2012 to see what the future holds for hospitals.
Zero isn’t the best number to see if you’re taking a class, but when it comes to Medicare, seeing zero in lieu of red in terms of reimbursement versus expense is welcome. Medicare is rarely where hospitals and health systems expect to make money, but is it possible to break even? Could you, unlikely though it may seem, make a margin? It is possible. Let’s look at a couple of stats:
Stat #1: In the HealthLeaders Media Industry Survey 2010, 90.4% of CFOs rated Medicare reimbursement as having primary importance to their revenue stream in the next three years. Flash forward one year, and with all the proposed changes in Medicare reimbursement, not surprisingly in the HealthLeaders Media Industry Survey 2011, 78% of CFOs reported that Medicare/Medicaid would have a negative or strongly negative impact on their organization.
Stat #2: Medicare typically only reimburses 85% to 90% of costs, and it usually takes cost shifting—getting vastly better reimbursement from commercial payers—for a hospital to stay in the black. The equation looks like this: Positive margins from private payer business minus (usually) negative margins of Medicare and Medicaid and the balance (if any) is profit. Finding the breakeven point in that formula can have a significant financial impact for any hospital or health system. Once you’re no longer using your private payer profits to climb out of a Medicare hole, you’ll start to see a difference in your bottom line.
How can you make this happen? Bob Gift, director at Chadds Ford, PA-based IMA Consulting, offers a couple of suggestions about how healthcare leaders can position themselves better to make breakeven happen:
1. Adopt Process Efficiency. If you want to be profitable, you have no choice but to get a grip on your processes. Doing so goes beyond looking at your supply change and understanding expense management and Lean and Six Sigma process improvement programs.
“We find with hospitals that there’s a real desire to focus on supplies [to cut costs] because there’s always something there and it’s relatively easy pickings,” said Gift. “When you do expense management, you dig into labor, supplies, discretionary expenses, and everything else. You make incremental improvements on cost and cost structure by improving your labor and efficiency.”
While many organizations have added process improvement initiatives to select areas, for instance looking at their back office or nurse scheduling, for the most part Lean and Six Sigma remains confined to those areas.
The American Society for Quality conducted a study of 77 hospitals and found that 53% of hospitals have some type of Lean initiative and 42% are using Six Sigma. However, the same study reported that only 4% of hospitals have full deployment of Lean. A full-scale roll-out of this type of process improvement program may be in order, if you haven’t considered it.
Healthcare facilities that have successfully employed Lean and Six Sigma initiatives, such as Virginia Mason Medical Center and St. Vincent Mercy Medical Center, collectively agree that in order for process improvement initiatives to be fully effective they must be driven by a unified team mindset in all departments—everyone has to believe and act Lean. Unfortunately the study found that 30% of hospitals are still lacking leadership buy-in, while 59% are lacking resources to pursue such an effort. For a more in depth look at Lean and Six Sigma, watch for the April issue ofHealthLeaders Magazine.
There isn’t a quick fix on this, you’ll need to do a process evaluation, and that can take four to six months to gather all the data, Gift says.
If you’re not sure where to begin your full-scale roll-out of Lean or Six Sigma, consider looking at your imaging and testing levels, since reimbursement cuts are already in place for these services. And you may be surprised to learn how many of these tests are duplicated.
“Often tests are orders and the lab, or whoever, doesn’t get the results on the chart quickly enough. So another lab is ordered by the physician. Or a test only needs to be performed only once but it is not noted on the record and so it’s ordered and performed every day,” Gift explains. “It’s a system [communication] breakdown.”
2. Instruct on Decreased Utilization. Along the lines of out-with-the-old philosophy, and in with the new, you must train your staff to understand why they must decrease their utilization across the board.
“You have to change the mindset of the physician,” says Gift. “You can have all the data, but what you find is that physicians have been trained to practice a certain way and that’s the way they continue to practice.”
It’s unfortunate, but most people resist change and the hospital employee is no different. However, the time for hesitation has passed and your staff must embrace the new. Reform means healthcare professionals must innovate and improve processes or watch your bottom line get worse with every passing day.
“You have to do a solid analysis of your utilization, because inevitably when you start to present data to nurses and physicians, [they] will challenge it,” he says. “You have to engage these people and get them to understand what’s happening and how they can impact the process.”
Though we all wish that Medicare reimbursements would go up instead of down in the coming years, the fact is, it’s highly unlikely. So, your best efforts will be needed in the coming years to try to at least get your Medicare to a breakeven point.
For several years now, hospitals and health systems nationwide have been acquiring physician practices. It's a potential growth opportunity for hospitals and health systems, and a stabilizing move for small group practices which may be financially unable to absorb all the possible reimbursement losses due to the changes in Medicare and Medicaid.
In fact, in the coming year 32% of financial leaders say they expect to acquire another organization, and the service lines they'd most like to grow are geriatrics, cancer and oncology, and primary care, according to the HealthLeaders Media Industry Survey 2011. While growth is great, that doesn't mean it doesn't come without causing a few hiccups—especially in your back office.
In the fervor to grow, many have a tendency to look all the benefits (translation, money) that a new acquisition will bring. However, in the haste to reach for success, many also fail to look at the challenges that may result from these purchases—not only in terms of physician alignment with organizational goals, but in this case, in terms of back office processes.
The first step financial leaders should take is a full examination of whether or not the back office has the capacity to handle what's about to come its way. After all, once you've completed the acquisition process, the last thing you need is to discover that you aren't able to handle the new influx of new patient claims that come with your newly acquired physicians and your cash flow suddenly decreases up instead of increases.
It's a predicament to which Baptist Healthcare System in Louisville, KY, can relate. Baptist Health is comprised of Baptist Hospital East, Baptist Hospital Northeast, Baptist Medical Associates, three Baptist Urgent Care centers, four BaptistWorx® occupational medicine clinics and two outpatient centers in the Metro Louisville area. Baptist Health is a large, multispecialty, employed physician group and its goal the past thee years has been growth.
Elizabeth North, director of reimbursement for Baptist Health, says in order to focus on fostering relationships with its physicians, continuing to acquire additional practices and secure market share, their attention had shifted away from daily revenue cycle operations. With more than 24,000 claims to file monthly, however, —funds needed to continue the pursuit of growth—they couldn't afford the distraction.
Having gone through a reduction in force in this department in 2007, the team was already operating at capacity. Then, when their growth strategy took hold—adding numerous physicians—a backup on the back-end emerged. The acquisitions had rapidly outpaced the team's capacity and accounts receivable days hit an all-time high of 50.
"We are in a highly competitive market, so any delay on our part with our ability to onboard these new physicians might damage us from a competitive standpoint," North explains. "We had decided already that our main goal was to grow and to do that we had to have a stable income."
Given the challenge, some healthcare providers might have decided to slow down growth efforts, shuffle people around, or hire additional back office personnel. North, however, says the cost of hiring, training, and ramp-up dictated that it would not be financially prudent to keep this in house. North says Baptist Health lacked the internal infrastructure, the correct number of employees, and the expertise needed to stabilize and improve its core revenue cycle, including claims management, A/R follow-up and collections, for the practices they had already acquired and the ones they wanted to add as part of the strategic growth plan.
Though Baptist retained the responsibility for all its basic finances, such as charge capture and charge entry, it brought in McKesson to address the problem through outsourcing. As Baptist concentrated on growth, its vendor concentrated on stabilizing the revenue cycle and cash flow; in the process the average monthly charges increased 56.5%, and A/R days began dropping. North says Baptist Health actually just hit an all-time low in A/R days—29.2.
More important than its reinvigorated revenue cycle, however, are Baptist's growth results. Over the last three years the hospital has grown its employed physicians from 77 to 110 and it continues to pursue other group practices. The lesson that Baptist has learned is a good one for many healthcare leaders to keep in mind: If growth is in your future, understand how it will impact all facets of your operation before making the first acquisition.
It is Valentine's Day and I wouldn't miss the opportunity to remind you that there's a reason why you love being a CFO at a hospital or health system, moreover 2011 might just be the year you fall in love all over again.
Am I nuts? After all, this is slated to be one of the hardest years ever for many healthcare leaders. So challenging in fact, that many of you may even ponder leaving the industry altogether, but, here are three reasons why you shouldn't:
1.The Thrill of the Chase. Anything that comes too easy is, well, too easy. This year, as with the last few, CFOs will be slashing costs. However, what makes this year (as well as the next few) so thrilling is the prospect of finding new and innovative ways to reduce costs. Consider:
Launching Lean and Six Sigma. These two process efficiency models have already likely made their way into your hospital or health system in the form of small revenue cycle projects . You've seen the success, perhaps it's time to roll them out on a larger scale. (Learn more about this in the April edition of HealthLeaders Magazine.)
Doing a spend analysis. The use of business analytic tools can shift processes from the transactional to the transformative, helping healthcare organizations to not just discover financial savings, but strategic opportunities as well.
Enhancing quality. There are more than a few areas at any hospital that can stand some improvement and it's time to acknowledge all of them and strive to improve them. In nearly every instance, when you improve quality, you reduce your costs.
Lowering readmission rates. Patient readmission is a highly costly problem for healthcare, yet, surprisingly, an area which consistently stymies hospitals and healthcare systems nationwide—innovation is a must to tackle this problem so think outside the box.
Utilizing predictive modeling. This technology has come a long way from data trending and is now being used to actually help not only predict areas of business ripe for growth, or rife with loss, it can also help with patient care.
2.That Warm Fuzzy Feeling. Healthcare has the ability to affect people daily. Though uncompensated care, is certainly a challenge, the fact is you work for an organization where the main mission is to make people feel better. On the days in which your numbers just don't add up, remind yourself that it's about more than money. Walk the halls and talk to a physician or nurse about what they did that day. Then recognize that they can't do it without you.
Consider that while you may not be providing clinical care directly, financial folks are the backbones of these facilities. They ensure all the supplies and surgical equipment are there and they lead the charge when a new wing or new equipment is needed. And, although many of you have put your capital spend plans on hold (something you can learn more about in the March HealthLeaders Intelligence Report) your coffers will open up again soon.
3.The Future Looks Bright. According to the just released HealthLeaders Media 2011 Annual Survey, it seems that the national and local economies as well as the state and federal legislation are making financial forecasting challenging for most CFOs. However, in terms of the financial forecast for your hospital or health system, 49% feel strongly positive or positive, while only 14% felt negative.
Without question, the pairing of healthcare and finance has its challenging moments (i.e., the economic recession and healthcare reform). Moreover this relationship comes with a lot of responsibility, there are costs to contain, quality to improve, reimbursements to attain, patients to please, not to mention recruitment and retention to contend with.
Then again, what other job can give you that kind of riveting diversity? Yes, you may recall the thrill you felt when you first started in healthcare finance, when everything was new and exciting? Well, it seems that healthcare finance is going to give you that same rush of excitement this year and for many more to come.
Like a baseball team banking on a designated hitter, many healthcare organizations are looking to hospitalists to step up to the plate and come out swinging. As hospitalist continue to see steady increases in their compensation, hospital CFOs should assess how they compensate these players to ensure they are getting the best return on their investment.
In the last few years, the need for hospitalists has increased exponentially in both demand and popularity. Traditional internists are trying to manage a full-time office practices in addition to rounding on patients in the hospital, and what these doctors are finding is all that leaves them little time for much else. Many of these doctors are turning to their hospitals for a solution that allows them to stay in their offices to tend to those patients. This has resulted in a split role: the outpatient internist and the inpatient hospitalist.
There's little doubt that hospital medicine physicians offer welcome relief for internists interested in staying in their offices, but how do you determine how to compensate them appropriately to ensure they will continue to generate their worth in reimbursement and in stellar patient care and quality?
Alpesh Amin, MD, MBA, professor and chairman of the department of medicine and executive director of the hospitalist program at the University of California Irvine Medical Center in Irvine, CA offers his thoughts on three areas financial leaders must consider:
1. How to Employ and Pay—Hospitals predominantly opt for direct employment versus contract scenarios. When designing a compensation structure you must consider how your competitors are structuring their plans, not just the dollars that are being offered. In general, the independent private practice tends to use a fee-for-service model while those who are hospital-employed are most inclined to receive a base salary plus incentives that reward quality, participation, and project work.
"When you contract with someone, there isn't that ownership that you get from employment," he says. "Plus, they'll do the unassigned care, sit on committees and they'll serve as leaders in your institution. I see immense amount of value with people employing their own hospitalists."
Moreover, Amin says, when hospitals or health systems contract with a group, the physicians may not strive to improve the institution overall.
2. Compensation Trends—While the model you select is important, naturally the salary is also important. Be aware that salaries for these physicians are on the rise and your compensation structure needs to acknowledge that, else you risk losing these docs going to your competitors. The Medical Group Management Association's (MGMA) annual survey showed the median compensation for internal medicine hospitalists was on the upswing, landing at $215,000 per year not including benefits.
That salary was a whopping $32,000 increase over the median compensation these physicians earned just one year prior ($183,900) and a $44,000 bump from the median salary they earned just five years ago. Additionally family practice hospitalists received a median compensation of $218,066 and pediatric hospitalists reported compensation of $160,038 (note, the report also indicates compensation varies based on geographic location, teaching status and practice size).
When establishing a compensation model for hospitalists, Amin suggests hospital leaders look at more than work relative value units (wRVUs). "I don't think it's the best way to assess a hospitalist's performance, because they can't really control what comes in the door—some days they have 15 patients and other days it's 12," he says.
Amin suggests looking at the group as a whole and determining what the approximate number of patients is for the group. Then consider other responsibilities that you want them to tackle, such as teaching, committees or leadership.
"Put a package together that not only looks at wRVUs but also incentivizes them to do better coding and billing," he says.
3. Other Motivators. The longer and more established a hospitalist program is, the more inclined a hospital or system is to see their quality, service, length of stay and patient satisfaction metrics improve. That's even truer, when your compensation plans include the quality measures that you want these physicians to strive for. And that's something that should hold true, regardless of whether they are employed or contracted with your facility. These doctors should coordinate the care with a patient's other internal caregivers as well as reach out to the patients primary care docs.
"Quality, efficiency, and throughput need to be a priority, don't just look at how much they can generate," says Amin. "Consider that hospitalists also improve patient satisfaction and can open up a bed sooner and move a patient out sooner because they are at the hospital all the time, not just for rounds."
Unquestionably, hospitalists are a part of the future of every hospital and health system in the country. However, how you approach having them as part of your system and how much you pay them is up to healthcare leaders. With hospitalists stepping up to the plate to fill in where other physicians leave off, with a little compensation planning, hospitals and health systems may find that they get a triple play every time: improved quality, better patient satisfaction and at a minimal cost.
It shouldn’t come as any surprise to healthcare financial leaders that when the Patient Protection and Affordable Care Act passed last year, legislators managed to work in a few provisions about requirements for nonprofit healthcare providers as well as some changes to how charges to patients qualifying for financial assistance and debt collection should be calculated.
Section 9007 of the PPACA sets forth new requirements for nonprofit hospitals that must be followed to retain tax-exempt status. The new rules mandate such hospitals to administer community health needs assessments and to clarify and make known their financial assistance policies. A community health needs assessment entails nonprofit hospitals assessing the effectiveness of their efforts to meet the needs of the community they serve and to provide public access to the findings, and that holds true for the financial end of things too, in terms of how much financial assistance they provide.
It sounds like straightforward stuff, but as with most things mandated, there’s more to it, and by the way, failing to apply the regulations correctly can cost providers up to $50,000 in penalties as well as possible civil or criminal consequences.
To get a clearer picture of some of the details involved with these new IRS tax changes I asked Milton Cerny, attorney at McGuireWoods LLP in Washington, DC, two key questions. Cerny knows more than the average attorney about taxes; apart from representing a broad range of nonprofit organizations, he has actually worked in the lion’s den, having served at the National Office of the IRS in Washington, D.C.
1. What do nonprofit hospitals need to do to keep their tax exempt status?
“Historically the IRS code didn’t provide tax exemption specifically for hospitals or describe what it was, so it was left to the IRS to clarify through regulations and rulings. From those came the development of the nonprofit, charitable hospital—one that provides relief for the poor and provides a broad community benefit,” he says. “In the new statutory requirements for a tax exempt hospital the IRS uses the term ‘community benefit’ but they haven’t defined what that will mean.”
The IRS tax forms 990 and 990 Schedule H will be attempting to gather information about a hospital through the community needs assessment to determine if they really are operating for the community’s benefit. So the needs assessment for 2012, when these PPACA provisions take full effect, will be very important because [hospitals] will have to prove community benefit. Nonprofit hospitals need to do these community needs assessments every three years, too. If they don’t they are subject to a $50,000 penalty.
Next they need to write and publish for the public a financial assistance plan. It needs to include the eligibility criteria for financial assistance, as well as how the hospital calculates the patient charges and how the patient can apply for assistance.
Guidance on how nonprofit hospitals should calculate eligibility for financial assistance is still in a comment period. Once all the comments have been gathered, the IRS and Treasury will issue their final guidelines as to what is the acceptable calculation process—this guidance is anticipated to arrive sometime the middle of this year. When applied, if the new formula uncovers that a hospital isn’t providing enough charitable care, then it could affect a hospital’s nonprofit status.
Also, they want to know how the hospital is billing and collecting for the charges issued to patients. “In the past there may have been debt collection procedures at some hospitals where some people were being unnecessarily abused. So the thought process on this is the law should provide for a debt collection process that’s fair and reasonable,” Cerny says.
2. How will the IRS measure whether a nonprofit hospital is meeting the new criteria for their nonprofit status?
“That is the big question, and it’s what the IRS charged with defining for us,” says Cerny. “And where will the IRS take this?”
Cerny believes that most small, county, or public hospitals will likely be able to meet any criteria that the IRS might put forth—given the lower economic nature of the patient base in many of these area. However, that doesn’t negate the fact that these hospitals, like all other nonprofit hospitals, will have to do the needs assessment and publish their financial assistance criteria.
Larger hospitals and health systems, however, may have to strive even harder than in the past to show that they are meeting a real community need and providing enough charitable care to maintain their nonprofit status—something that may be increasingly difficult when we enter into 2014 and more people move onto health insurance plans as part of the PPACA.
“There’s a lot of uncertainty about what this regulation could do,” says Cerny. “Right now, nonprofit hospitals should be conducting a compliance audit of their activities and make sure they are ready to create these reports, and document everything for the IRS.”
Cerny adds that nonprofit hospitals need to analyze how they are providing a community benefit, and just as importantly, how their offering is different from another organization across town. “The IRS has a very strong interest in whether or not a hospital is truly providing the benefits that entitle them to tax-exempt status,” he says.
Financial leaders take heed, the IRS provisions as part of PPACA may seem simple, but the consequences for interpreting them incorrectly could be disastrous for a nonprofit hospital. If you want to keep your tax status intact, be sure to assign someone on your team (if you haven’t done so already) who can thoroughly complete the community needs assessment process and moreover, someone who can track and monitor the IRS’ progress on the guidelines they will use to assess your efforts to serve your community.
An Indian folktale: Once upon a time, there lived a Brahmin in a village on the outskirts of a jungle. A devotee of the Hindu God Shiva, he started his day by visiting Shiva’s temple which sat amidst the thick jungle. So challenging was it to get to, that few other devotees visited the site. Nevertheless, the Brahmin went there every day to pay homage and each day he left a silver coin for Shiva as part of his morning ritual. Unbeknownst to him, a thief would follow him every day to the temple and wait for him to depart and then steal the coin.
Both the Brahmin and the thief were steadfast in performing their daily ritual—both were consistent in their devotion; the Brahmin to leave a coin and the thief to steal it. One day there was a torrential rain that left the village nearly submerged, so the Brahmin could not visit the temple. The thief, however, thinking that the Brahmin would not miss his trip to the temple, decided he must go to the temple. When he arrived the temple was nearly sunk, but he nevertheless swam to the temple, bowed his head to the statue as he had done in the past, and searched for the silver coin. It is said that Shiva was so delighted by the thief’s steadfast consistency that the deity placed a silver coin for the thief to steal away.
The moral of the story: If you unfailingly follow a path, even against all odds, your consistency will bring your due.
Why do I share this tale? I’ve written more than my share of articles about cost cutting, and I’ve read a lot about it. But what I rarely write or see in print is about the role consistency plays in the process. Consistency really is the backbone of all things healthcare, but even more so in finance, because if you are inconsistent, especially with your payers, you’re likely to lose money.
This brings me to Christus Health in Irving, TX one of the largest Catholic Health Systems, which decided to prioritize consistency in the charge capture of its emergency department levels and injections/infusions and wound up recovering a whopping $29 million in net revenue.
The ability correctly and consistently do charge capture for the ED and with injections and infusions confounds everyone from physicians and nurses to billing staff at many hospitals, and Reggie Allen, MBA, RN, system director of quality and clinical operations at CHRISTUS, knew that was the case at his facility.
“We noticed we were inconsistent in our charges across the emergency department and when we looked the situation, we realized that all of our facilities were all using different paper based tools to do their EM coding and charging. When we plotted this out, we found that not only were many of them not charging for things they could, but they were selecting a lower level code to charge the patient,” Allen explains.
With more than $4.1 billion in assets—$3.1 billion in net revenue—and over 40 hospitals and other healthcare facilities in six U.S. states and Mexico, all those missed charges were adding up. This was also a compliance issue, Allen says, they needed to improve their documentation and consistently charge what was appropriate for the patients’ care or risk government and payer scrutiny.
“We thought we were possibly losing around $10 million,” Allen says, and that was only for the emergency department level charges—accounting for more than 577,550 visits a year. With 21 ED and outpatient clinic sites to track they knew these areas could offer them a swift return on investment, but would also be a good testing ground for whatever solution they selected. Now they just needed to figure out how to correct the problem. Allen began searching for a program that could help his staff consistently bill for infusions and injections.
Allen, who had worked in the emergency department earlier in his career, knew that the solution they needed had to account for the speed at which clinicians work in those departments. “Whatever we deployed had to be simplistic and couldn’t consume a lot of time. We needed something with a lot of intellectual knowledge, but with check marks for the staff,” he explained. After attending a conference, Allen narrowed his search to two products one by San Francisco-based McKesson and the other by Picis, from Wakefield, MA.
Allen brought both systems back and tested each with the ED staff. After hearing their feedback, they settled on Picis LYNX, taking the system live in October 2008.
“A year later, after we’d tracked all the results, we found we weren’t losing $10 million [in the ED], we were leaking $29 million. We were absolutely floored,” says Allen.
Their ability to consistently bill payers not only was gleaning greater revenue, but also was helping them document their files to defend against payers refusing to pay. “Some of our payers noticed right away that they were paying us more money than in the past and they wanted the documentation. The fact that we were able to send them the documentation they needed right away and that it was now so consistent helped us, It also has helped us go through three to four audits from other companies,” adds Allen. “Now we know we’re in compliance.”
For other hospitals thinking of launching this type of project, Allen offers this advice, “You need to coordinate this with your whole revenue cycle from admitting to the business office—you must be willing to change processes and you must have support from senior leadership. With any change there’s a lot of pain, so this buy-in is really important.”
The moral of the story: Consistency pays dividends (and no trip to a jungle temple required).
On the surface it may seem to hospital financial leaders that the medical loss ratio (MLR) regulation doesn’t really impact hospitals and health systems, however, as I noted in last week’s column, there’s more to this policy than meets the eye for providers.
MLR, which took effect Jan. 1 has broad implications for federal and state healthcare expenditures. This policy addresses the amount of premium dollars spent on a member care by payers and the ripple effect will affect providers.
Under the Patient Protection and Affordable Care Act there is now a mandated minimum threshold that insurers must comply with regarding spending on member care. For instance, the amount of the premium spent on member care would be 85 cents on the dollar for large groups and for smaller groups it would be 80 cents on the dollar. A large group would be an IBM or a General Electric vs. a smaller group would have approximately 20 members or less.
Three important questions are emerging from this policy:
Where will payers look to find ways to cut costs to compensate for the losses from MLR?
What are the broader implications of this policy for providers?
What can providers and payers do to comply with this regulation?
Brenda Snow, executive vice president of strategic planning, for the Kentucky-based Firstsource, a global provider of revenue cycle management services, works with both payers and providers and she offers her thoughts on these critical questions.
Where will payers look to find ways to cut costs to compensate for the losses from MLR? They’ll have to review areas where there are administrative functions that can be cut, as opposed to medical expenses. This could possibly be their call centers or their claims adjudications areas. Also, they’ll need to look at how they spend in those areas and determine if these are areas of core competency or can they improve them through automation, such as creating patient portals so patients can better manage their own care. Lastly, the payers are really going to need to make a paradigm shift regarding how they manage patient’s care—instead of managing chronic care, now they need to focus on wellness and preventative care.
What are the broader implications of this policy for providers? Payers are going to need people with different skill sets to work with patients on preventative care, such as life coaches and nutritionists. For insurers this hasn’t traditionally been something they offered as member care—but they’ll need to now. Also, payers are also going to have to work with patients and providers to improve the quality of care and try to prevent illnesses or disease.
The potential ripple effect of this for providers is if the payers are using more funds toward member care then ideally over the long-term it should result in members being healthier. That in turn would result in a loss of inpatient admissions … in theory hospitals should see a decline in those, and it would directly impact their volumes.
What can providers and payers do to comply with this regulation? Hospitals and payers will need to continue to look at new mechanisms for reimbursement and shift away from episodic and disease state care. They will have to work toward prevention and wellness. They also need to look at different reimbursement models and changes that can be made to current models to incentivize prevention and wellness.
Providers and payers are going to have to start a real dialog around this topic. A number of payers and providers are experimenting with this [different approaches to reimbursement for wellness care] already and they’ve become very creative, using approaches like group appointments. In the future, payers may reimburse more for group appointments than they’ve done in the past to achieve the long-term goal of prevention and wellness. The payers new goal is to keep patients healthier and out of the hospitals, and that’s should cost them less in the long-term.
Of course, Snow is right: If the payers reduce their costs long-term then that’s better for them, but also better because it means healthier patients. Moreover it’s a good reminder that providers also need to think differently now in order to stay ahead of the curve too. Hospitals and health systems need to invest more of their attention and dollars on outpatient and preventative care programs; lest they suffer financial losses when their inpatient volumes dwindle. It’s truly the circle-of-life for the patients, payers and providers—everyone’s ultimate health or demise depends on the other person moving in the same direction to stay healthy.
It’s estimated that 79% of all invoices are still paper in the accounts payable departments and manual checks are issued 63% of the time. But this paper- and labor-intensive process often prevents hospitals and health systems from attaining hundreds of thousands of dollars in contracted prepayment discounts.
Most finance leaders are aware that they are missing out on hundreds of thousands of dollars in savings, so to offset that, they have taken a cash management strategy that involves trying to capture interest off of the float—though it typically yields a paltry 1% return.
However, when a hospital pays invoices early, it reaps even greater returns. Consider, for example, an early-payment discount on a 2/10 net 30, where the hospital can take a 2% discount by paying before the 10th of the month on a bill due the 30th: It will earn an annualized percentage of 36.5% for the hospital, significantly higher than the interest on float.
The challenge, however, doesn’t come from a desire to actualize these early-payment discounts; rather, it is how to get the A/P department to move swiftly enough to get the payments made in time. With thousands of vendors and invoices, it may seem all but impossible to hit all the varying contracted prepayment deadlines. Not so, however: The solution is as simple as a credit card.
In 2008, Danbury (CT) Hospital was approached by American Express to consider this proposition, explains Donna Kaplanis, controller for the 371-licensed-bed not-for-profit hospital. The first challenge Danbury Hospital had was to get its vendors onboard and willing to accept a credit card for payment. The system ran a spend analysis to identify which vendors it used most frequently and what the early-payment discounts would be if it was able to pay more swiftly. After determining which vendors would offer the greatest return, Danbury worked to get them to accept the credit card.
“We needed to take a fresh look at how we do things because the old way may not be the most efficient,” she says. “This made us change some processes, and the benefit is seeing where your savings translated into real dollars.”
After four months of implementation, the program went live in February 2009. In the first year, the program was a success. Danbury Hospital charged more than $42 million in supplies and services on the card and earned early-payment savings of over $387,000—all for doing nothing more than paying
its invoices with a credit card and then making monthly payments to American Express.
Healthcare reform is changing how everyone transacts business in the industry, and that’s not just providers but also payers. Of course, when payers’ profits diminish, providers can expect to feel it too. Now that 2011 has arrived, payers will start to feel the pain of the medical loss ratio taking effect, which means hospital and health system financial leaders should prepare themselves for contract negotiations that may require them to think outside the norm, and work with payers.
Under the Patient Accountability and Affordability Act, the MLR is an attempt by the government to discourage insurance companies from spending a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing. The reasoning is that consumers should receive more value for their premium dollar.
Starting this year, regulations require health insurers to spend 80% to 85% of consumers’ premiums on direct care for patients and improving quality of care, rather than on administrative costs. If payers fail to do so, they must provide a rebate to their customers starting in 2012. The Department of Health and Human Services released the regulations in November along with a fact sheet.
Insurers have to make up their loss in funds somehow, and that’s the question: How? Note, that payers do have a possible way out. The MLR percentage can vary from state to state if the Federal secretary of state approves an adjustment to the standard. The only way to get that adjustment is if the secretary deems that meeting the 80% standard would destabilize the individual state market and that it would result in fewer choices for consumers.
Most healthcare experts believe that getting a state adjustment in most instances is unlikely, which means that payers need to recoup these losses in order to maintain the status quo. While you can certainly anticipate that your contract negotiations will be more rigid this year, payers are also inclined to find other ways to tighten their belts—and that’s where providers can actually help.
Karen Van Wagner, Ph.D. and executive director for North Texas Specialty Physicians in Fort Worth, TX, agrees that the MLR regulation has the potential to improve the relationship between payers and providers. She should know. The 600-physician, independent physician association is both a payer and a provider. NTSP offers a Medicare PPO through a wholly-owned subsidiary named Care N' Care.
“As a payer we're planning on complying [with MLR] by first evaluating our benefit set. We’ll take a look at the regulation to see what other activities we can do to meet MLR … such as improving care management, quality improvements and electronic health exchange,” she says.
As payers begin to look within for ways to save money on their administrative costs, they may find that they need to look to providers to help them (a point of negotiating leverage which providers should keep in mind). You see, if payers work with providers to improve claims processing by encouraging the use of technology for swifter and more accurate exchange, then payers would be able to save money on the cost to process claims (and so would providers).
“Prior to the health information exchange, if we wanted details on a claim, we had to go to the claims files or the physician. The big change for us is having the ability to get a real-time slice of the data and it combines claims and clinical information,” she says.
Payers could take things a step further, too, as NTSP has already done. In 2007 they founded Sandlot, anotherwholly owned subsidiary, which offers providers three technology services: e-prescribing, electronic medical record-keeping, and an integrated and flexible data and information exchange system for sharing medically related information.
Currently 1.5 million people use their system and it enables them to process at a minimum 50,000 clinical transactions a day. But one of the key features of the system is the point-of-care prompts.
Point of care is another area where payers may be looking to providers to work with them, says Van Wagner. The process is actually quite simple. When patient X arrives for any routine appointment, if there is another routine preventive care procedure needed, then the payer’s system can prompt the provider to schedule it.
“Before medical loss ratio, payers had looked into this but they weren’t all that interested. As soon as medical loss ratio regulation came out, however, they [payers] started to perk up and ask questions. Now there’s a reason to participate and that’s a good thing,”says Van Wagner. “I view this as a nifty opportunity; we think the use of a point-of-care model is where there is the greatest return for the patient, and it’s transforming how we do things.“
Indeed point-of-care models do have the potential to be a very good thing for payers, providers and patients. It is certainly an idea that’s long overdue (especially when you consider that the automobile industry has been manufacturing cars for nearly a decade that remind drivers to get routine maintenance). The takeaway in all of this for hospital and health system financial leaders is to remember that the MLR regulation has the potential to make your payer negotiations sour or sweet. It really depends on how willing you are to work with your payers to help them control their costs without cutting your reimbursements.