At the Margins

You're probably leaving $22 million on the table. Here are 4 things to do about it.

by Jim Lazarus

On my way back from HFMA's Annual National Institute (ANI), I found myself trying to unpack an interesting conundrum in hospital and health system financial performance.

We know that hospitals have seen healthy margins the past few years despite reimbursement cuts—largely as a result of successfully containing costs and the Affordable Care Act's coverage expansions. But at the same time, revenue cycle performance has lagged and the cost to maintain even flat performance has ticked upward.

So what explains this tension? I believe hospitals I work with have been missing a huge opportunity by focusing on cost at the expense of inflecting revenue cycle performance.

Advisory Board's financial research team just finished a powerful analysis that shows the average 350-bed hospital leaves $22 million in revenue capture on the table by not following best practices in four key areas: denial write-offs, bad debt, cost to collect, and contract yield. In fact, Advisory Board benchmarks also show that median performing organizations have stagnated on net days in accounts receivable—and the overall average cost to collect worsened by 70 basis points of net patient revenue from 2011 to 2015, amounting to millions of dollars for many hospitals.

So how do organizations improve their revenue cycle performance and capture that potential revenue? To start, leaders must respond to the four market forces of our time:

1. Respond to increased denials with preventive capabilities

Increased claims denials mean commercial contracts no longer provide the growing margins that used to offset lower Medicare and Medicaid reimbursement for many hospitals. Hospitals are losing, on average, five percentage points of their margin to underpayments, denials, and suboptimal contract negotiations.

Learn how to get exactly what you want from your next contract

2. Respond to higher deductibles with a better patient financial experience

While insurance coverage has increased, so has bad debt. From 2008 to 2015, U.S. workers with deductibles greater than $2,000 grew from 5% to 19%, Kaiser Family Foundation surveys showed, and this trend shows no sign of slowing down. Over that time, our own Advisory Board analysis shows the portion of patient obligations being written off as bad debt rose from 0.9% to 4.4%.

To build more enduring relationships with patients and improve collections, hospitals need to improve the patient financial experience with a foundation built on transparent search capabilities for price estimates, convenient access for scheduling and payment, and a positive care encounter. The goal should be for each point of financial contact to contribute to the construction of a durable relationship.

3 must-dos for a positive patient financial experience

3. Respond to MACRA with an increased focus on documentation performance

The Medicare Access and Chip Reauthorization Act (MACRA) includes significant financial penalties not only for poor quality and cost performance, but also for insufficient reporting. This increased complexity and financial risk is expected to drive even more physicians to leave solo or small group practices for hospital employment.

MACRA also increases the need for precise risk adjustment documentation, which is required for an accurate Medicare Risk Adjustment Factor score that determines financial targets for bonuses and penalties for health care providers. As hospital-sponsored physician employment has increased, so has the need for resources to quickly meet documentation performance standards to minimize revenue at risk.

Use our toolkit to sell individual physician documentation training to key stakeholders

4. Respond to consolidation with smarter integration

Too many hospitals stop the integration of newly joined revenue cycle organizations at the creation of a joint centralized business office, rather than seeking further economies of scale. Hospitals should pursue more holistic integration to transform the revenue cycle from a cost center to a value generator. This integration should include a value-added shared services organization that provides a common business intelligence platform across entities and service lines systemwide, the ability to generate a single patient bill for all physician and hospital services, and the use of integrated coders to drive further understanding and coding accuracy.

The good news

The Blueprint for Revenue Cycle Transformation

The good news is that there are tried and true best practices to address these four forces. The most successful organizations I work with have visibility into performance data, thoughtfully allocate resources, and drive accountability through all levels of their enterprise.

Learn more by downloading our brand-new infographic, "The Blueprint for Revenue Cycle Transformation."

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