The Daily Briefing's Josh Zeitlin sat down with James Green, a National Partner within Advisory Board's Revenue Cycle Management Division, to discuss how hospitals should respond to financial headwinds.
Question: James, hospital budgets are tightening—according to Moody's latest report, expenses are growing faster than revenue, a big reversal from last year. What do hospital leaders need to know?
James Green: It's true that hospitals are facing major headwinds, particularly rising labor costs, lingering uncertainty about federal health care policy, and ever-green challenges in ensuring fair and accurate reimbursement. Fortunately, these problems also represent the potential for major wins—if the hospital develops a focused strategy around each.
Let's start with hospitals' high and rising labor costs. While plenty of factors drive that trend, one of the single largest is the industry's tradition of solving problems with more labor, which is always expensive and not necessarily efficient. For example, many hospitals staffed up for the ICD-10 transition a few years ago and still have not adjusted post-implementation.
A potential big win here is for hospital leaders to shift their approach to problem solving from one that is labor-focused to one that is process-focused.
Start by determining a reasonable performance metric—there are numerous examples, but one from revenue cycle might be the metric discharged not final billed (DNFB) at 4.5 days or less. Then determine two things: First, what processes need to change and what technologies/automation are required to support those processes? And second, what training is required to ensure your staff are performing at top-of-license? Then leaders can adjust staffing accordingly. More often than not, this will result with the right [staffing] spend to achieve the business goal.
Q: Let's talk about the next big problem you identified: uncertainty in federal health policy, particularly over the future of the Affordable Care Act. How should leaders operate in today's uncertain health policy environment?
Green: What happens with the Affordable Care Act is going to have a major effect on hospital finances. While the uncertainty might paralyze some health care leaders, smart leaders tend to seize the opportunity to move forward with prudent investments and strategic decisions.
For instance, the expansion of patient obligations is happening at a rapid pace, and high-deductible plans aren't going away. It is imperative that leaders move forward with a consumer-based strategy, with a significant focus on ambulatory access.
Health care leaders must start by understanding the patients they serve and/or are targeting. The goal should be to create a long-term relationship with the patient across the entire care continuum, beginning with the outpatient setting. The reality is the days of hospital inpatient stays driving the business are limited. The industry as a whole is moving toward more ambulatory care. Making moves in that direction is a no-regrets strategy.
As part of a consumer-based strategy, you need to identify services that are commoditized, yet intensely competitive in the market. Develop a pricing strategy–know where to compete on price and where not to. Create an access plan that accounts for patient demands (the need for each service) and how they want to access that service (what the patients want). Finally, ensure the patient has a very positive clinical and financial experience.
One of the major problems we have in health care is that we've structured our revenue cycle to be convenient to the hospitals, not the patient. We confuse patients in so many ways—explanation of benefits (EOBs), bills, phone calls, instructions, collection requests, etc.
With the assertive shift to consumerism, health care institutions must deliver an "exceeds expectations" patient financial experience across the entire care continuum. The financial experience needs to be one that is easy to understand, allows access to assistance when (and how) patients want it, and provides plenty of payment flexibility–payment options, low interest loans, grants, creative coverages, etc. The bottom line is most patients will pay their bills if they are deemed affordable.
There is a significant opportunity to win patient loyalty for the health care institution that gets the patient financial experience right. This is a fact no matter what happens with the ACA.
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Q: How about the third challenge you mentioned—the need to ensure fair and accurate reimbursement?
Green: With value-based care and alternative payment models growing in a world where fee-for-service is still dominant, it is more imperative than ever that hospitals hold payers accountable for correct payment. Documentation and coding are crucial under both fee-for-service and alternative payment models—and when accurate, they can provide huge wins on both the quality and finance side.
For coding, it starts with accuracy rates. Hospitals should provide continuing education, the right automation, and encoder tools to ensure coders are well supported. We recommend an outside coding audit at least biannually to ensure all coders receive the right guidance to optimize coding accuracy. Hospitals should target accuracy rates at 94% or higher.
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Next, every hospital should have a strong documentation improvement effort. They should monitor documentation opportunities by physician, group, and specialty/service, identifying potential aberrations all the way down to the individual encounter level. If done correctly, the hospital can identify documentation habits that lead to aberrations and address those very specifically. Savvy organizations are educating clinicians (and coders) proactively on specific documentation concepts that lead to an inaccurate picture of patient acuity. Again, accuracy is crucial.
Remember, most coders are extremely conservative. Even if coders are confident a patient presents CCs (complications or comorbidities) or MCCs (major complications or comorbidities), they will not code it unless the documentation is clearly written in a way that the MCC/CC is codeable. If not, they default to a lower-acuity Diagnosis-Related Group (DRG).
The Catch-22 is the lower-acuity DRG isn't accurate either. The patient is clearly "sicker," but that can't be coded due to a lack of codeable documentation. A coder's only recourse is the querying process, which is cumbersome and inefficient for both coders and physicians. The best option is a triumvirate that includes certified and well-trained coders, on-unit clinical documentation improvement (CDI) specialists who have developed a good rapport with physicians, and proactive clinical trainers to assist physicians with habitual documentation aberrations.
Finally, develop a payer scorecard that meticulously spells out the payer performance against contract terms. This should include timely payment, underpayment, and denial recovery statistic. Remember if your denial recovery rate is too high, that could indicate a payer problem. Close monitoring of contract compliance can provide a position of strength during future negotiations.
The Finance Leader's Resource Guide
Leaders in Congress and the Trump Administration are reassessing their approach to repealing and replacing the Affordable Care Act.
This guide is intended to help you and your finance teams operate in this uncertain time. Inside, you'll find the information and no-regrets strategies needed to support mission and margin in any regulatory environment.
Billing and Collections,
Internal Audits and Reconciliation,