For many hospitals and health systems, keeping patient bad debt under control is like pushing a 2,000-lb. boulder up Mount Everest. No matter how strong the facility is financially, bad debt has a way of crushing a lot of fruitful cost-cutting efforts. What if you could change just one thing on your system and suddenly start to see your bad debt turn into revenue? You can, if you add an online recurring payment option.
It’s not new, but online self-service payment technology is far from mainstream at hospitals nationwide. And those that have an online payment option may not have set up a recurring payment feature. That's a missed opportunity for hospitals, however, as there are more than a few greenbacks to be garnered by adopting the same technology that retailers have been using online for years.
That’s exactly what Winter Park, Fla.-based Adventist Health System discovered. Adventist, which ranks as the largest nonprofit Protestant healthcare provider in the nation, began seeing the financial benefits of adding recurring payment technology to its website in the past year.
Since November 2006, Adventist Health System, which provides care to more than four million patients annually, has had online payment capabilities, but something was missing. Tim Reiner, vice president of revenue management for the 7,700-bed health system explains that for nearly nine years his team has made it a priority to work with patients to secure their portion of the bills, but they couldn’t hit on the right formula to increase payment numbers. While it had improved point of service collections overall, Adventist was still seeing high amounts of unpaid patient debt.
It’s estimated that hospitals and health systems collect anywhere from 35%?65% of the remaining patient balance after insurance—Adventist calculated that percentage to be around 58%.
“We really needed to move the needle on that metric,” says Reiner. “Hospitals aren’t really in the business of, nor is it our core competency to, monitor long-term collections or to remind people of payments.”
In an effort to reduce billing that ended up in long-term collections, without resorting to sending bills to an “early-out” collection agency, last year the health system decided to expand its use of self-service technology to give patients the ability to enroll online in recurring payment plans for outstanding balances, he explains.
The costs were minimal—Adventist simply added a new component to its existing NCR healthcare self-service kiosk, and then the vendor connected Adventist with a credit card processing partner to take care of the back end.
“This program takes the burden off our outsourced [collection] agency and it’s patient-friendly. It also reduces our overall expenses,” says Reiner, who estimates that Adventist has approximately 250 patients monthly using the recurring payment option out of the 2,400 patients who use monthly online payment.
The online option allows patients to set up recurring payments that extend up to 36 months with a minimum of a $50 payment each month. The patients’ credit card information is stored in the system and then automatically charged until the amount owed is fulfilled.
As a result, Adventist has increased collections by $150,000 per month while saving 6-10 cents on every dollar by avoiding using the “early-out” agency. Moreover, if there is refund due back to the patient, Adventist can refund the amount to the patient’s card, preventing the need to cut a check. Refunds via check cost an estimated $4-$7 versus the $2-$3 for using a credit card.
It’s such a simple addition, but with much of the low-hanging financial fruit from quick cost cutting gone, adding an online recurring payment option to your website may offer just one more opportunity to decrease bad debt and increase the bottom line.
Here’s a CFO pop quiz: What is the one, often overlooked, linchpin in the revenue cycle? I’ll give you a hint; it’s also the most important tool you have for ensuring compliance and optimal reimbursement.
If you answered, “the chargemaster,” then you’re correct.
It’s easy to forget just how important your chargemaster is, especially with all the other revenue cycle components you have to watch. But if there’s one area you cannot afford to take your eyes off, it’s the chargemaster. With every revenue transaction funneling through it, the chargemaster has the potential to bring in or cost your hospital millions of dollars. Knowing that, I have to ask, why is it that so many hospitals still use a manual process when an automated one is really a time- and money-saver?
When you stick with a manual process, errors due to absent or incorrect information are often identified downstream when it’s past the point of the original transaction. Moreover, there are thousands of changes to coding rules each year, and with many hospitals using a chargemaster with as many as 40,000 line items, it’s impossible to think that this could be correctly updated manually. A manual chargemaster also leaves financial leaders without the ability to pinpoint specific sources of errors, which ultimately leads to reimbursement delays, reductions and denials. Quite simply, anything with the level of detail, complexity and routine maintenance of your chargemaster has too many variables that can translate into revenue leaks for your hospital.
Actually it’s been estimated in more than a few healthcare reports that providers lose millions of dollars annually due to errors in claims data—which is often traced back to the chargemaster. Traditionally stopping a revenue leak comes from revenue management efforts focused on revenue operations and revenue audits—those are excellent tools, but what about revenue integrity?
Revenue integrity strives to prevent risk reoccurrence and lessen its impact. As any doctor will tell you, it’s better to prevent illness than to treat it. To prevent problems, in this instance, you need to use technology to your advantage. You need to make process improvements such as teaching staff to use the technology you have more adeptly, creating and follow best practice rules and ensuring correct payment through proper pricing, charging, coding and documentation.
I’m not advocating an unnecessary spend—in reality automating your chargemaster is as vital to the health of your hospital as having great physicians and top-notch medical equipment. Just ask Doug Barry, vice president of revenue cycle and HIM for Glen Falls Hospital in Glen Falls, NY.
This 400-bed hospital, largest one situated between Albany, NY and Montreal, Canada, includes a main acute care hospital campus and 28 health care facilities and a service area that stretches across six, primarily rural, counties and 3,300 square miles. The breadth of their coverage area means that many of the services they provide do not generate enough revenue to pay for themselves—a situation to which many other facilities can relate. For Glen Falls Hospital, optimizing their revenue is critical, which is why in fall 2009 the facility decided to invest a six-figure sum into automated revenue integrity software.
When the market tanked, Glen Falls Hospital went through the same budgetary overhaul that many hospitals nationwide did, however, at the end of their process they had cut their highly skilled chargemaster person. Recognizing this error, they promoted from within but still needed to train this person and provide the tools to discern where their revenue was leaking. It was time to automate. After researching and talking with various vendors, they landed on Craneware, based in Atlanta, GA.
“We needed this software for continuity and consistency. For us it was the absence of the intellectual capital [that made us realize] we needed to automate this process,” says Barry. “It’s an area with a high volume of activity; you need to have a control point.”
Prior to taking the software live, Barry’s team trained on it. What they found? Along with improvements in their ability to efficiently price, charge and code for services, their reporting and data mining processes went from being a weeklong effort to three to four minutes.
Moreover, the software flags exceptions to industry best practices and allows hospital staff to manage those exceptions rather than getting mired in complex details. It also enables staff to identify the exact sources of the problems and correct them before they become patterns of behavior within the charges. A much more efficient approach than correcting the same errors over and over again later, after claims have been denied or rejected. Plus the automated process allows providers to see losses of revenue that would be missed by traditional scrubbers.
“Just 12 months prior to adding the Craneware software we had a consultant check our chargemaster and we were told that it was in relatively good shape but what we found intriguing was that the consultants never talked about the things we were not charging for,” says Barry. “This software is doing a better job of identifying opportunities.”
Indeed automating their chargemaster has given their bottom line a boost—they’ve been able to identify more than a few opportunities over the last year.
I understand that financial leaders have a lot of cost-cutting measures on their minds and the supply chain offers the low-hanging fruit; however automating your chargemaster has the potential to unveil millions of dollars in reimbursement—it’s not low hanging fruit but I think you’ll find it’s a more ample harvest.
Tom Hughes, President and CEO of the Georgia-based Medical Electronic Attachment, Inc. discusses how the HIPAA HL7 and 275 standards will benefit payers and providers. The standards, designed to facilitate the electronic exchange of patient data, are expected to be finalized in the coming months.[Sponsored by Emdeon]
I thought healthcare providers were working to decrease costs. But because I gave birth this year, my baby boy is more expensive than other children born in years past.
I’ll back up. In July I gave birth to a very handsome little boy. I’m thrilled to be a mom, but now I fully understand how expensive children are. I’m not just talking about diapers and formula; I’m talking about the cost of healthcare. You see, my son was a breech baby so I had to have a C-section. In the weeks that followed his birth I had a slew of routine appointments with my pediatrician, a visit with the X-ray lab, blood work, and more tests. I got a clean bill of health for my son, thankfully, but I also got several other bills from all these providers—it seems all these visits were not covered by my health insurance.
I, like so many other people in the U.S., now have a high-deductible health plan. In the past, insurance covered me for most general issues; however, now I have to cover a large chunk of change myself before the insurance kicks in. Now, in theory, by having this type of plan consumers will be more inclined to shop around for the best price. Well, I’m a very educated healthcare consumer, and I can tell you that you don’t shop around when you are giving birth.
Nor do you shop around for the best price when you have a newborn baby. Moreover, I have a good friend who is afflicted with stage four brain cancer and she isn’t looking for bargains either. She is going to the hospital that can provide her with the best treatment.
For the mounting bills that I and my friend are receiving, we have more than a few culprits to lay the blame onto: the economy, the hospitals, the insurers, our employers, even our physicians. But no matter who you blame, the fact is that consumers are paying more and the trickle down effects are hitting hospitals, as evidenced by a couple of reports from the rating agencies, Moody’s and Standard & Poor’s.
Last week, Moody’s released a report on hospital admissions. In what they describe as “an historical anomaly that isn’t likely to be reversed any time soon,” it seems that the rate of growth for patient admissions to not-for-profit hospitals is actually declining. They chalk this up to a bad economy. But that’s just a blanket term; it’s not really the economy, but the people who are affected by the economy—and these days they can’t afford to pay out of their pockets.
"Hospitals are largely reimbursed on a per-case basis by governmental and private payers, creating a direct link between all volume indicators and hospital financial performance," said Moody's Senior Vice President Lisa Goldstein, author of the report. That’s a fair and true statement, but it leaves something out. Unless the consumer goes to the hospital, then the payers don’t actually even get involved.
I don’t think that declining admissions will actually surprise any hospital CFO, but the findings are worth knowing. Here are a few highlights:
Since 1991, the rating agency found slower growth from one year to the next as the median growth rate declined to -0.02% in 2009 from 1.03% in 2008.
They predict the poor admissions rate trend will likely continue into 2011.
They also predict that admissions may become less important under a bundled payment system.
Also of note, thanks to fewer patients coming through the doors and the erratic predictability of reimbursements ratings agencies are more inclined to give hospitals lower investor ratings.
If a possibly lower investor rating and declining hospital admissions aren’t enough to grab your attention, perhaps data released in the S&P Healthcare Economic Composite Index will be.
According to the report, the average per capita cost of healthcare services covered by private insurance and Medicare programs rose 7.32% over the 12 months ending August 2010. Hospital and physician claims for patients covered under commercial health plans were the hardest hit, as claim costs associated with commercial health plans rose 8.66% while Medicare claim costs for services rendered by hospitals and physicians rose the least at 5.08%.
That’s a pretty large and steady increase for an industry that’s supposed to be tightening its belt. Now if you consider that the average consumer will receive a 2%-3% raise this year (if they’re lucky), then you can see that the numbers aren’t showing a bright financial future for patients or providers.
With the current rate of per capita cost of services rising by more than double what consumers will see as increases in their own paycheck, patients simply will not be able to afford to pay their share for care much longer. That’s an equation that isn’t healthy for anyone’s bottom line.
Managing a healthcare organization's risk is a challenge, but doing so while the payment environment undergoes massive upheaval requires some serious forward thinking. Just ask anyone working in radiology these days and they’ll tell you it’s a tense time for their bottom lines—which makes it all the more important that they stay atop their revenue cycle by completing a regular financial risk assessment.
Diagnostic imaging has been a target for more than its share of cuts by Medicare. The government’s strategy: slash spending for imaging services by decreasing payments for the technical component of certain non-hospital advanced imaging services. Consider that in 2010, the Medicare Physician Fee Schedule final rule had adopted a 90% utilization rate for certain imaging equipment valued at more than $1 million, which included CT and MRI services. That number will change in 2011, however. The Patient Protection and Affordable Care Act will adopt a 75% utilization rate for CT, MR, nuclear medicine, and PET equipment phased in over four years.
Both inpatient and outpatient imaging centers stand to feel the hit from this decrease in reimbursement, but it’s the outpatient imaging centers—those that lack other streams of income—that will be hit the hardest. Michael Gonzales, billing operations manager for Radiological Associates of Sacramento Medical Group, Inc., knows this topic only too well, and he offered me his insights on how the 900-employee private practice approached its revenue cycle challenges.
With more than 90 providers, RAS generates more than 750,000 claims per year. Gonzales’ job is to make sure as many of those claims get paid as quickly as possible. So, he and his team did a financial risk assessment to uncover current and potential problems. They recognized the possibility of more decreases in reimbursements, but they could do little to control that.
Like so many other healthcare providers, the assessment uncovered other, preventable, revenue cycle leaks. One of the biggest was in patient eligibility—they had an eligibility denial rate of 4.3% of the monthly volume. That denial rate is not completely surprising when you consider the group saw approximately 2,000 patients per day across 23 locations. But there was more.
“Historically we’ve also had challenges with reliability and rejections. Making sure we capture data right on the front end is extremely important, but we were having issues because there were so many [different] secretaries [capturing the data],” says Gonzales.
Gonzales and his team started out by looking at a kiosk solution—software that’s intended to lower costs while maintaining a high level of interaction with customers and employees. The system they considered used patient IDs at check-in and for the insurance eligibility and co-pay estimate, however they weren’t convinced it was the best choice for their patient base. They wanted a system with real-time eligibility verification software which would also work with their existing scheduling software. They opted for the Duluth-GA-based Navicure, an Internet-based medical claims clearinghouse, which they took live at RAS as of February.
The new system runs the patient schedule three days prior to examination and determines eligibility. For walk-ins, staff is able to use a single website to check the patient’s insurance eligibility. Within the first three months of addressing the eligibility issue, RAS saw a 56% reduction in errors, Gonzales says.
“The new software only helped us accomplish 80% of our goal,” Gonzales says. “We also dug more deeply into our denials.”
That’s when their financial risk assessment really enlightened—they found another $100k in drug reimbursements that hadn’t been paid. “We run a pretty tight ship at RAS so for years we haven’t done a risk identification project as it pertains to revenue cycle,” he says. “But this is about making sure we are getting paid what is owed in our contracts.”
There are a lot of changes taking place due to healthcare reform and the economy, and many healthcare financial leaders are grappling for any way to minimize their financial exposure and that means assessing risks. As the payment environment changes in the coming years, healthcare facilities must become extremely adept at identifying, measuring, monitoring, and eliminating their risks or they may lose greatly needed revenue.
Christopher Columbus was more than an explorer, he was a savvy financier (and to some a conquistador). He knew that his exploits required more funds than he could come up with on his own, so he had no choice but to negotiate the financial backing of Spanish Queen Isabella I. Three ships and a long journey across the ocean later, Columbus reached America.
Columbus’ willingness to partner for financial gain is a fascinating example which, perhaps, more hospitals should consider mirroring for their own success. That’s an idea I’ve been pondering since reading two recent reports by Standard and Poor’s and watching more than a few hospital mergers. Before the great recession and the enactment of the Patient Protection Act none of this would probably have crossed my mind, nor the minds of most CFOs, however these days, partnerships and mergers for future growth and survival just seem to make sense.
Here’s what got me thinking that perhaps it’s time for more hospitals to merge, or at least partner with others. First, there’s Michigan. The crash of the auto industry put a lot of folks in Detroit out of work; however the fallout was further reaching than one city, sister cities in Michigan also struggled. Financial strain took a toll on business and towns across the state and more than a few hospitals found themselves cutting to keep the bottom line in the black. When there was no more low hanging fruit (a.k.a., quick-fix cuts) it was time to look for another pathway to bolster the financials.
Lo and behold, in September, Central Michigan Community Hospital announced it will be merging with McLaren Health Care. The McLaren system consists of eight regional hospitals across the state and serves 29 counties. The merger gives CMCH access to more than 10,000 associated physicians, technological and medical advancements, and increased capital for investments. Sounds like a smart way to grow and gain financial stability.
Interestingly that same month, Traverse City, Mich.-based Munson Healthcare announced it would not move forward with a merger with Grand Rapids, Mich.-based Spectrum Health, noting that they preferred to pursue an affiliation with another health system. Apparently the University of Michigan Health Systems approached Munson Healthcare about a possible affiliation as an alternative to a merger. Yet another smart path for a financial boost.
Then at the onset of October, Saint Joseph Mercy Health System in Ann Arbor, Mich., and IHA, one of the largest physician group practices in the Ann Arbor area, announced a merger. The intent of the merger is to create an integrated health network and help both providers prepare for changes in healthcare delivery brought on by national health reform. Looks to be a good way to expand the physician network and ensure more stability for both the hospital and the group practice.
Michigan is a good example of what many hospitals and health systems are starting to do across the country—hey are coupling in order to deal with uncertainty. But there was more to my ponderings on whether hospitals should pursue a pairing.
While following a spate of hospital and health system mergers, last week I read two S&P reports that piqued my interest. The first was Volatile Times Continue for Speculative-Grade Health Care Providers. In it, the ratings service looked at how nonprofit hospitals and health systems on the lower end of the rating spectrum are doing. Their analysis of the current healthcare situation is that these lower-rated hospitals and health systems face a multitude of challenges that are resulting in a ”disproportionately larger percentage of downward rating actions within the speculative-grade category and a greater number of providers joining the speculative-grade ranks.”
While overall S&P believes that there is a return to stability for the healthcare sector, the report notes that the downward pull on the speculative-grade rating trend will likely continue, at least in the immediate future. Some of the challenges dogging these lower-rated providers include
operating losses
weak demographics
limited business position
balance sheet metrics characterized by high debt and low liquidity
aging facilities requiring high capital spending to fix (which some providers can’t afford)
“Industrywide, we believe that financial and operational difficulties tend to be more problematic for lower-rated providers because those providers are more likely to lack the operational flexibility and balance sheet cushion needed to withstand additional strain,” the report states.
Moreover the S&P report notes that the instability will likely prevail with this group as they contend with softer volumes, potential state Medicaid funding and eligibility changes, high debt and charity care, technology investment and facility upkeep.
S&P believes that the Medicare rates will likely cause lower total inpatient payments for acute care hospitals in 2011—which is a fair assumption. Moreover, the uncertainty surrounding the Patient Protection and Affordable Care Act’s as yet unwritten rules are giving them cause for pause. “We believe lower-rated providers may face greater rating volatility because, in our experience, they generally have thinner margins and weaker balance sheets and as such are less capable of absorbing additional strain,” they note in the report.
Sounds like S&P thinks it will be a tough time to be a lower-rated hospital, many of which are small, stand alone hospitals.
In the second S&P report, U.S. Not-For-Profit Small Hospitals Move Toward Stability, the rating service reviewed how the operating and balance sheet metrics for U.S. not-for-profit small hospitals showed signs of improvement in fiscal 2009. “We believe that the sector's response to the recession, which focused on tightening expenses and strengthening service lines, have helped small hospitals improve operating margins,” the report notes.
It’s potentially promising that the smaller hospitals are managing to find the kinds of savings and efficiencies needed to pull themselves up, but it’s also what makes this a great time for many of these smaller hospitals to join together—either partner or merge—with other hospitals or systems. It’s a great time to build upon the strength that’s blossoming at some facilities.
Generally, I’m not an advocate for giving up independence, but this recession has made one thing clear to me—the expression there’s safety in numbers is true. When Columbus sailed the ocean, he didn’t do it alone, he partnered with a strong backer and then took multiple ships with him. In doing so, he was able to achieve his goals.
If you’re looking to come out ahead with your hospital’s bottom line, then it’s important to realize that while at first blush it doesn’t seem possible that there is money in Medicare, there actually is—and it may be hiding in your cost report.
It’s not news to hospital CFOs that Medicare-certified institutional providers are required to submit an annual cost report to a fiscal intermediary. The cost report contains provider information such as facility characteristics, utilization data, costs and charges by cost center (in total and for Medicare), Medicare settlement data, and financial statement data. Nevertheless, as with all things Medicare, there are so many exceptions to the process that even the cost report, which should be straightforward, is an area where hospital-owed funds seem to magically disappear.
This Houdini act is costly for most facilities, however. So to find out how you can change this I checked in with Paul Soper, CPA and partner responsible for Medicare reimbursement services at the Philadelphia-based IMA Consulting. He says that aside from bringing in an experienced reimbursement director or qualified consultant, there are three areas where hospitals can wave their magic wands to make what’s owed reappear.
Trick #1:Coinsurance. Medicare anticipates that many of the patients who walk through your doors may not be able to pay the coinsurance or the deductible for which they are responsible. Hospitals that track to see which patients don’t pay and can demonstrate to Medicare that they’ve done everything possible to collect the amount—but couldn’t—will find that Medicare will reimburse them up to 70%. Generally, hospitals are already doing this type of tracking and reaping the benefits of it. Nevertheless, you’re likely missing more money than you realize in your Medicare bad debt.
Soper recommends reviewing your Medicare records as far back as five years looking at all of the Medicare deductible and coinsurance payment the hospital incurred and then matching it against your patient accounting information to see which claims were paid. If the claim wasn’t paid, did the hospital claim it as Medicare bad debt? If it didn’t claim it as bad debt, why didn’t they, and under Medicare regulations, are they allowed to claim it?
“[After going through this process] we found one large, inner city Detroit hospital was capturing $4-$5 million in Medicare bad debt, but they were still missing about a million dollars a year,” says Soper. “Everyone should do this review either internally or externally, to look for potentially unclaimed Medicare bad debt.”
Trick #2: Medicaid Disproportionate Share. To maintain access for their low-income beneficiaries, Medicare added a special payment adjustment to its prospective payment system, the Medicaid disproportionate share hospital (DSH) designation. With the creation of DSH, hospitals are compensated for higher operating costs incurred for inpatient treatment of low-income patients.
The DSH payment is a percentage add-on to the basic DRG payment, and this percentage can be computed by totaling two ratios: the proportion of all Medicare days that are attributable to beneficiaries of supplemental security income and the proportion of all patient days for which Medicaid is the primary payer, and the formula used changes depending primarily on urban or rural location and hospital size.
Soper notes that while hospitals already track their Medicaid patients, they may be overlooking opportunities. For instance, hospitals may have patients who pay them through worker’s compensation or even through another insurance provider, however, that doesn’t mean that the hospital isn’t eligible to submit a claim to Medicaid. To find out if they are missing Medicaid payments, hospitals should go back a year in their files and run each of their patients through a state eligibility database. Once they’ve found all their DSH patients, they need to see how many days these patients were at the hospital to be sure they get the maximum allowable payment. The key criteria to watch for:
the patient must be Medicaid-eligible
the care must be inpatient
the patient cannot be a Medicare patient
“We worked with a large Michigan hospital that was missing between $3-$4 million, though typically [this type of review of Medicaid yields] $200k,” says Soper.
Trick #3: Wage Index. Medicare has
some complicated rules on compensating a hospital and they further complicated it with the wage index. What was the purpose of the wage index? To adjust Medicare payments to hospitals to account for area differences in wage costs. The formula is the relative hospital wage level for each geographic area compared to the national average, thus it varies significantly among areas.
Since the formula uses an average hourly wage of all hospital employees, there’s a potential for hospitals to be underpaid by Medicare. How? Soper explains that at one hospital with which he worked, all the on-call physicians were paid for eight hours, regardless of whether or not they were needed. The hospital was counting those unworked hours in their formula. However, Medicare regulations note that you only need to count hours worked in the average hourly wage.
Moreover, contracted physicians’ and nurses’ hourly wages should be counted in a hospitals’ average hourly wage—doing so can cause you to justifiably be geographically re-classed by Medicare, resulting in your hospital receiving all the money owed through this program.
There is plenty of money in Medicare and much of it is rightfully owed to hospitals—it just needs to be claimed. These three tricks aren’t quick, but by digging into your patient files and uttering a little “abracadabra” you just might levitate your bottom line.
The nation's healthcare system has four overarching goals: wellness, high-quality care, access to care, and a stable health system. Most healthcare providers wouldn't argue, however, that there's a fifth goal— getting paid fairly for the care that's given.
Back in the spring, shortly after the Patient Protection Act was signed into law, I spoke with a few folks about some of the effects this legislation might have on hospitals. Not surprisingly, the Healthcare Financial Management Association (HFMA) had already given it plenty of thought.
Tap the brain of nearly any healthcare leader to learn what he or she feels drives cost in the system and they'll likely point to how they are paid. The current methods and incentives for healthcare payment actually "block, rather than support" the nation's healthcare goals, according to a HFMA 2008 Healthcare Payment Reform whitepaper. Further, the report goes on to state that the system doesn't "effectively reward wellness or high quality."
Numerous reports indicate that giving patients greater access to primary care services would help abate the problem through preventive treatments and screening. Many patients, however, cannot afford to maintain the continuous interaction needed to achieve better health, and few healthcare providers are adequately compensated for this type of care.
The Healthcare Reform Act of 2010 attempts to address the wellness issue by providing more coverage to those who cannot generally afford care. But the legislation falls short in the path it takes to compensate providers for their work—using fundamentally the same Medicare processes and fee-for-service.
"Regardless of what Washington [D.C.] changes, healthcare will move away from volume-based payment and to performance-based," said Richard Clarke, HFMA president and CEO in an interview. "We polled financial officers all over the country about what they thought payment reform would look like in five years and over 70% thought that we would be operating under some sort of pay-for-performance."
Payment reform is slow in coming from the government, however, healthcare providers are watching for other avenues to pursue.
"Right now, we're all volume-driven," said James F. Doyle, Senior Vice President & Chief Financial Officer of the 427-bed Elmhurst Memorial Healthcare in Elmhurst, IL. "Our survival depends on getting more market share."
Doyle, who was a member of the HFMA Advisory Council that offered insights for the group's payment reform whitepaper, explained that with a volume-based payment system, healthcare providers that give high-quality, efficient care—thus reducing the volume of patient services needed—are actually rewarded with reduced payments.
Therefore, the current system encourages competition for higher margin services and in some instance oversupply and overuse of services. In essence, lower quality service actually leads to more revenue for providers. Unnecessary or overuse of services also drives up costs for hospitals—creating a poor financial cycle that's difficult to break.
The HFMA whitepaper offers three ways the government and healthcare providers could approach correcting the current payment system to remedy the cost:
Condition-specific capitation for preventative services and chronic care. This includes periodic payments to a provider for care management, financial rewards for touting preventative services and financial rewards for defined patient outcomes, plus consumer financial incentives for participating in their care.
Episode-of-Care Payment. This includes a healthcare network that receives a global payment or multiple payments to providers for all services a patient needs; payment adjustments for high levels of services as long as outcomes are achieved, and bonuses or payment penalties for providers based on outcomes and satisfaction.
Payment to Support Societal Benefit. Includes the payers in a region making payments to teaching hospitals and for research to cover these costs and payers making separate provider payments to cover the cost of uncompensated care.
In the meantime, the government is attempting to find new ways to drive quality while reducing costs. Its latest venture is the Accountable Care Organization (ACO), which is designed to improve clinical outcomes, care processes, and business performance while simultaneously keeping costs low. The Center for Medicare and Medicaid Services says ACOs are mechanisms to organize care and incent shared saving with the intention of "promoting high quality and efficient service ? for Medicare fee-for-service beneficiaries."
To be eligible to participate in an ACO, healthcare provider must be willing to become accountable for the quality, cost, and overall care of the Medicare beneficiaries; they must enter into a minimum three-year agreement; have enough primary care physicians to treat 5,000 beneficiaries, and a have a clinical and management system in place. The efficacy of the ACO program remains to be tested, however, more than a few hospitals nationwide are showing interest in participating.
Payment reform is an ongoing process, however, in its current state many hospitals will continue to lose money and quality will continue to diminish, according to most industry experts. More and more healthcare providers may have to work with payers, the government, and their patients to find an equitable system that pays them for providing high-quality service, and at the same time ensuring that providers don't spend even more to get paid.
As a hospital financial leader you analyze the financials all the time. But how far do you really dig into them—are you looking for problems or overlooking them? Perhaps you realize one day that your cash flow is inconsistent. You check your days cash on hand and see it dropping to a low of 58 days. You notice your receivables are averaging 170 days and sometimes hitting highs of 198 days, and your bad debt is gobbling up over 12% of revenue.
There's a problem. So, you reach out for help from a consultant and his solution is to bleed the hospital more by writing off $13 million in receivables so you can start with a "clean slate." It's enough to make you run in horror, but you'd better stand and face those numbers.
It's the worst of all scenarios, and it was the case for Vail Valley Medical Center, in Vail, CO, an 84-bed facility with net revenue of $278 million. But Vail Valley isn't an anomaly—more than a few hospitals have found their finances in this situation in the last couple of years. So, how does a hospital in such an affluent area of the country get in so deep, and more importantly, how were they able to get out of this financial mess?
John H. Wilson, director of patient accounts at Vail Valley Medical Center, explains that after joining Vail Valley Medical Center in 2008, he began to uncover a few process-related problems, such as fewer than 50% of all claims were being submitted electronically because there was no process in place to determine if an electronically submitted claim actually made it through to the payer's system. It turned out that many of the claims that were making it through were being denied, but the Medical Center didn't have a locked-down process for dealing with denials.
His analysis of the process of claims going out the door was that it was erratic. There was no way to tell which ones were going electronically. Vail Valley thought it was submitting claims to a clearing house before they were going to the payer, but that was the case for less than 50%. Vail Valley's technology was fouling up the finances. Wilson says getting the technology up to date became a primary focus.
"We definitely had a couple of issues with our claims processing system," Wilson says. "Clean claims weren't going out the door. Then we found out that part of the problem was with the company we had outsourced this to. They just weren't doing any follow up on the claims, so a lot of our claims were being lost to ‘timely filing’ denials." The outsourcing company was let go, though the financial damage was done. Translation: Lost money—nearly $10 million.
Moreover, due to its location, Vail Valley Medical Center has a large volume of international patients, therefore the facility was frequently in contact with international insurers. If you thought your TPAs were challenging, consider that these insurers frequently called to request discounts, and the hospital had no defined process for offering them. Members of the Medical Center's team were providing discounts as high as 25%—and these discounts weren't tied to a specific "pay-within" time period.
"On an international insurance call, if the company was willing to pay us something, my people might give a 30% discount and while another might give a 25%," he notes. Translation: More lost money.
To further compound the situation, Vail Valley Medical Center didn't have the systems in place to accurately estimate a patient's self-pay portion for a procedure. That meant that nearly 50% of the estimates it did provide were off by thousands of dollars.
That might not have been such a problem, but the Medical Center did have a policy to write off the difference between what a patient had been quoted and what the procedure actually cost. Moreover, it had no online bill pay component to enable international patients to easily settle bills once they left the country. Translation: Happy customers, but more lost money.
"We had five different pieces of software that we were using to do bills, contracts, and invoices—and we had to maintain support and pay for all of them," says Wilson. "We couldn't get the estimate right—plus when our international patients would go home, they had to figure out a way to pay their bills—and it's easier to pay online than to correspond by fax, but we didn't offer that option."
How Vail Valley fixed its woes
In addition to leadership implementing standardized processes and policies for claims processing, including discounting services and claims denials, the Medical Center realized they needed more technology to be a success.
"We added a new policy that non-contracted insurance gets 3% if they pay within 15 days—that has made a big difference," says Wilson. "But for us it was the technology component that really turned this around."
Now, technology can be a hindrance, it can be expensive and it's not always necessary to purchase new technology to fix financial worries. On the other hand, sometimes it is a blessing. In the case of Vail Valley, Wilson says its new system made all the difference. After adding RelayHealth Financial Solutions to correct work flow and other technological deficiencies, the Medical Center was able to turn its financial nightmare around.
Just by tweaking some policies and using better technology, in two years the facility:
Increased the percentage of claims being submitted electronically from less than 50% to more than 90%
Slashed AR aging from 178 days to 78 days
Bolstered 58 days cash on hand to 166 days cash on hand
Notched point-of-service cash collections up by 15%
Pushed down bad debt of more than 12% to just under 4%
Vail Valley's policy and systems changes also meant it was able to steady its cash flow and collect more than $1.4 million in payments via the Web in just six months. It's not always fun to flip over the seedy underbelly of a financial operation, but doing so can be both enlightening and lucrative.
Financial leaders are charged with being aware of more than where every penny goes -- they must also be keenly aware of how their billing activities leave them open to compliance scrutiny. Sometimes that means taking a magnifying glass to areas like the chargemaster to see if the hospital is slipping off track, and if so, revamping workflow processes, adding new technology to unify disparate systems, and retraining staff -- such was the case for Intermountain Healthcare.
Salt Lake City's Intermountain Healthcare is a nonprofit system of hospitals, surgery centers, doctors, clinics, and homecare & hospice providers that serves Utah and southeastern Idaho. With approximately 2,500 beds, 23 hospitals, and 140 medical clinics there are ample opportunities for revenue generation, but there's also plenty of room for billing inconsistencies (and therefore, compliance woes) if charge tickets aren't done correctly.
Last year, Todd Craghead, vice president of revenue cycle at Intermountain, began the process of trying to bring Intermountain's chargemaster in line for all the facilities in the system. Though many hospitals are a part of the system, 23 of them were still, for the most part, operating independently -- and that meant independent back office processes and different approaches to billing. The system wanted to unite not only to improve their billing process, but to take better advantage of its size.
"While we knew there might be a fair amount of money being left on the table, our motivation to unite was based on a review that we had done which highlighted a number of areas of compliance risk for how we were capturing and charging for items -- we needed corporate standardization and process efficiency, and a common tool to help us bring things together," he said.
To do this, Craghead and his team decided to look for a software program to streamline, and make their charge capture process consistent. "We have revenue folks doing reviews already, but we saw a lot of variation and we were concerned. We wanted to be consistent," said Craghead.
Though they had created charts payables for particular service lines, over time extra information was seeping into the tables and they continued to add different charge codes. "The chargemaster had become less useful, and we were using that to measure productivity statistics. So if we used the charging mechanisms we had to do more on the back end to resolve things that couldn't be billed but were being dropped onto bills," he said.
In their effort to resolve this inconsistency, they looked for vendor software that could help. They underwent a vendor review process, and after nine months, Intermountain selected Craneware, Inc.'s Chargemaster Tool Kit.
"With it we are now able to manage the request process and we can track where things are and who we are waiting on. We also have other tools that allow us to review codes, but the real difference for us has been managing the workflow and our chargemaster," he noted.
Over the next couple of years, Craghead expects that Intermountain will also see money that was left on the table find its way back into the hospital's coffers, but the need to get the chargemaster in order this year wasn't about that. While return on investment is always the goal for financial leaders, it's easy to forget that ROI can come in shapes other than dollar signs.
A periodic chargemaster review can help your facility systematically verify that the correct HCPCS and CPT codes are assigned to each line-item. It ensures your departments have a complete array of codes to report all services provided, and that all chargemaster line-items are compliantly reported to assure accuracy and reduce the effort necessary for maintenance. Now that's an ROI that any financial leader should be able to get behind.