How Investing in the Revenue Cycle Can Improve Your Financial Position
August 01, 2011
In this edition of IMA Insights, we will discuss how focusing on the revenue cycle can improve your financial position, specifically, related to the use of technology and transforming revenue cycle processes. There are many options available to automate processes within the revenue cycle. Some leading revenue cycle technology includes eligibility verification, quality assurance systems, payer communication management, patient payment estimation, propensity to pay scoring, financial assistance automation, E-cashiering, follow up tools, and workflow automation. There are also many processes within the revenue cycle that should be implemented to improve your organizations financial performance. Though Return on Investment (ROI) is often calculated prior to embarking on improvement initiatives, the associated opportunity cost of not introducing technology and transforming processes to show the financial impact is not always considered. In this article, we will demonstrate that there can be an opportunity cost associated with not undertaking projects with high probability of ROI.
With the demands inherent in managing a Revenue Cycle Department, the increased pressures of reduced reimbursement and the slow economic recovery, Revenue Cycle leaders are challenged to improve productivity with antiquated or underutilized technology and shrinking labor budgets. It is critical that Revenue Cycle leadership teams focus on streamlining key processes within the revenue cycle, calculating ROI on prospective initiatives, and implementing those that make financial sense. In addition, it's important to evaluate opportunity cost as well, which calculates what it costs to maintain status quo. The opportunity cost calculation may include such things as interest income and cost to collect, which can be as high as 5% and 10% respectively. Increased productivity and therefore labor cost and increased revenue may be applicable as well. In this article, we will provide examples of how ignoring necessary transformative process initiatives, existing technology enhancements, or new technology needs, can negatively impacts your financial position.
Though we cannot address all areas of the revenue cycle in this forum, we will demonstrate opportunity cost for key Patient Access and Patient Accounting processes such as Point of Service (POS) collections and technical denial management.
Revenue Cycle Departments are often hampered by inefficient automation, particularly with work flows that make it impossible to effectively focus on cash collection and quicker liquidation of the accounts receivable (A/R). The potential failure points within the processes are numerous and very difficult to manage. Patients present for service, often with little notice, which makes it difficult to verify patient benefits and obtain financial clearance prior to service. These and many other issues combine to produce financial results that are less than optimal. In addition, interdepartmental communication within the Revenue Cycle is traditionally poor or non-existent, and there is typically a lack of formal, integrated training.
As well, revenue cycle technology available within many host systems is underutilized. Underutilization of technology may prevent efficient follow-up protocols, tracking staff productivity, impact the way POS payments are collected, and can impact how denials are identified and categorized. Revenue Cycle Departments must know, or learn, the capabilities of the systems they utilize to ensure they are getting the most from those systems.
Leading technology to support best practice processes is often available in base hospital information systems. Exploring those options or other commercial options, can make revenue cycle processes more efficient and can help facilities improve their financial position by getting all they are due out of the revenue cycle. In the case of POS Collections, a solution as simple as an in-house developed Patient Pay Estimator using MS-Excel, could provide staff with the information they need to begin this type of initiative, in preparation for a more elaborate Patient Pay Estimator software solution. In this example, front end staff could be given critical information needed to calculate and collect patient balances prior to service, rather than waiting until the insurance pays and a patient statement is generated. Insights
Below is an example of how adding technology and transforming processes can improve the following financial indicators that, if left unmanaged, will contribute to reduced interest income, increased cost to collect, increased bad debt, and reduced revenue. The financial performance of your organization - as measured by improvement in POS Collections and Technical Denials - is dependent upon integrated technology to drive workflow, provide scripting, and manage exceptions.
Here are a few examples of calculating financial opportunity within the revenue cycle:
POS Collections: Metric: 2% of Net Revenue
Net Revenue $250 Mill * 2% = $5 Mill
4% Interest Income = $200,000
4.75% reduction in Cost to Collect = $237,500
Total Opportunity: $5.43 Mill
This represents the opportunity for a hospital with $250 Mill in Net Revenue performing minimal POS collections. To reach this target, processes must be transformed and technology must be enhanced or implemented.
Technical Denials: Metric: < 2% of Gross Revenue
(Assumes current technical denial rate is 7% of Gross Revenue, with a reduction to 2% of Gross Revenue)
Gross Revenue $725 Mill * 7% = $50.75 Mill
Gross Revenue $725 Mill * 2% = $14.5 Mill
Gross Revenue Difference: $36.25 Mill
Normalized to 27.5 % (Net to Gross Revenue ratio): $9.96 Mill
4% Interest Income = $398,750
4.75% reduction in Cost to Collect = $473,515
Estimated Normalized Opportunity = $10.8 Mill
Industry technology awareness is critical to allow your organization to inventory and compare what you have and are using to what is available in the marketplace today. Considerations include integration, scalability, implementation timeline, and available resources to support technology.
Propensity to Pay scoring, with scoring profiles customized to your community characteristics, will streamline self-pay approvals, limit unnecessary outsourcing and proactively identify financial assistance candidates.
The ability to electronically forward accounts into the financial counseling process expedites identification of eligibility for entitlement programs reduces unnecessary outsourcing to self-pay vendors and improves charity care and bad debt classification. State-of-the art applications will pre-populate from demographic and insurance information, contain Medicaid and Financial Assistance applications, and integrate with propensity-to-pay systems. Automation of the financial assistance rules and workflows dramatically improves productivity and outcomes.
Patient accounts that have been financially cleared with a positive propensity to pay can be automatically linked to a payment estimation tool that is integrated with the eligibility system, charge master and contract management systems. This integration increases payment certainty by applying insurance benefits to real charges and applying contractual allowances before developing estimates.
Electronic cashiering allows payments to be accepted real-time from any location, at any user desktop, with automated cash posting and management. This accelerates and increases collections, enables more employees to accept payments and improves customer service, leading to enhanced customer satisfaction. Dashboard reporting of payment activity, including the ability to track, audit and control all customer payments improves department collection efficiency reporting.
Technical Denial Management begins with Financial Clearance for 100% of inpatients and scheduled outpatients. This has a direct link to preventing denials and reducing associated lost revenue and account re-work. Integrated eligibility verification and payer communication management systems automated within the registration module assure that service-specific benefits and payer communication regarding pre-authorization requirements are taken care of immediately. Eligibility verification systems can provide the ability to design "standard" and "detailed" benefit screens, with eligibility and benefit information mapped to your host system. The ability to send real-time HIPAA 270 eligibility transactions and receive 271 responses will allow staff to be trained to understand and respond in an appropriate and fiscally responsible manner. To manage payer communication in a way that increases productivity and reduces denials, systems are available that can provide an electronic record of payer communication via automated calls, monitored calls, PC calls, and fax management, both in- and out-bound. Finally, web and electronic image management increases staff ability to file successful appeals with reduced time invested.
While focusing on surviving the pressures of healthcare reform and reduced reimbursement, Revenue Cycle leaders must keep a keen eye on designing and implementing efficient operational processes and maximizing the usage of current and new technology.
Here are additional KPIs for Patient Access and Patient Accounting, where opportunity cost can be calculated and applied.
e 95% Overall insurance verification rate of scheduled & pre-registered patients e 95% Insurance verification rate of unscheduled inpatients & high-dollar outpatients within one business day d 5-6 DNFB A/R days (includes late charge hold period + HIM "DRG development") d 55 Net A/R days d 15%-20% Insurance A/R aged more than 90 days from service/discharge If analyzed and calculated realistically, the opportunities identified should dictate your process transformation initiatives and technology needs and have a positive financial impact to your organization for years to come.
We are pleased to have the opportunity to present this information to you. If you have any questions or need assistance in revenue cycle process transformation, ROI and opportunity calculations, or implementing technology, please call me at (484) 832-9940 or Kim Hollingsworth, Partner, at (610) 517-1386.