Optimizing the business of healthcare

Margin Management: Staying Ahead of the Curve

Meeting the challenge of moving revenue forward while controlling costs

4 The New Financial Reality – Providing Higher Quality

Product at Lower Costs

6 Revenue Cycle Optimization, Your Financial Foundation

7 From Optimization to Transformation – Analysis to ROI

8 The Impact of Big Data

10 People Assessment

12 Process Review

13 Technology Analysis

14 Measurable Results

14 Summary

15 Sources Con

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In 2012, healthcare costs increased twice as fast as inflation. The number of individuals with high deductible health plans has tripled since 2006. In the next decade, hospital margins may shrink by as much as 20%, jeopardizing the survival of many of them.1 Although the healthcare landscape has been shifting for several years, there is little doubt that impending changes will impact both the top and bottom lines of most organizations.

Revenue Cycle Optimization is an important focus for healthcare organizations. Some estimates show hospitals losing 3% to 5% of their net revenue from inadequate revenue cycle management. For a midsized institution, that could mean $4.5 to $9 million per year.2 To succeed in the coming industry restructuring, organizations must turn a critical eye on their finance and operations functions. Both revenue and costs need to be rigorously managed in this dynamic new environment. We’ve entered the era of margin management – the new imperative for a changing healthcare world.

In the next decade, hospital margins may shrink by as much as 20%, jeopardizing the survival of many of them.1

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The New Financial Reality – Providing Higher Quality Product at Lower Costs

Navigating the transition from fee-for-service to value-based purchasing presents another challenge. The most significant issue will be devising a structure on reporting outcomes to insurance carriers and “justifying” treatment plans in order to be paid for services rendered. This shift in the way healthcare organizations think about how and why they deliver care is unknown territory. Organizations will have to be even more accountable for compliance, regulatory, and legal issues than they are today.

CFO’s and finance executives can help their organizations reach the goal of higher quality at lower costs by driving increased efficiencies of existing processes and systems. They need to examine all products and processes to ensure they are: 1) achieving all their original goals and expectations, 2) reducing waste in time and resources, and 3) delivering expected outcomes – quality outputs in a timely manner. They must reevaluate and restructure any system, product or process that isn’t adding value to the organization. Transforming the revenue cycle is a key part of making healthcare more meaningful, powerful, and effective.

Growing government regulations from the Affordable Care Act (ACA) and the move to ICD-10 contribute to pressures both on revenue and costs. The passage of the ACA means more people will have coverage. However the trend toward higher deductibles for patients may make it more difficult to realize that additional revenue. Meanwhile the need to spend more time and resources collecting these fees and co-insurance amounts from patients adds administra-tive costs that have to be absorbed.

Complicating the situation is the overall shift of healthcare from “wholesale” to “retail.” As patients become more responsible – and aware – of their healthcare costs, they assume more of a consumer mentality, shopping for both price and service. To meet the demands of individuals as opposed to groups, organizations have to devote more resources toward marketing, branding, and customer development. As with any business, healthcare organizations will now have to invest and compete to acquire and retain patients. This will clearly impact both revenue and costs and put more downward pressure on margins.

HOW TO ACHIEVE HIGHER QUALITY AT LOWER COSTS

Analyze all processes, workflows and systems

Reevaluate and restructure any system, product or process

that doesn’t add value

Transform revenue cycle

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building stronger satisfaction and loyalty. Using technology to leverage patient portals may help to improve the patient experience. From a revenue cycle perspective, this could include looking up, understanding and paying bills on line, providing access to scheduling, test results, and helping patients to better navigate a complicated system.

• Embracing the new health care consumer means providing a personalized experience that includes:

• Price transparency – cost and quality data via business intelligence and data mining

• Patient financing and positive patient financial engagement • Multiple payment technologies/patient portals to improve

point ofservice collections

This is very different from what we have today. Therefore, health care systems must understand and adopt transformation to adapt to this new patient-driven healthcare environment if they hope to survive and thrive. Latest trends and best practices for collecting healthcare payments, HBMA newsletter, August 2013.

The terms “shop around” and “health care” have rarely been used together. In the traditional model, patients went to their doctor or specialist, were told what tests they would need and where they should go to get them, and dutifully trotted off as directed. Since in most cases their company-provided health plan paid the bills, the costs were invisible and immaterial to the patient.

Those days are quickly coming to an end. In an era of high deductibles and increased co-payments, patients are absorbing more of the financial burden for their health care needs. This is quickly transforming them into educated consumers instead of passive patients. With cash coming out of their pockets, they’re beginning to shop for health care services the way they might for a kitchen appliance or new car. They’re now comparing prices and services and seeking detailed information on what they’re paying for in terms of quality of care and outcomes. One report identified this increased patient financial responsibility as providers’ main revenue cycle concern.

However this “consumerization” of health care comes with opportunities as well as risks. Healthcare organizations can aggressively prospect for new patients and revenue while

From Passive Patients to Health Care Consumers

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Revenue Cycle Optimization, Your Financial Foundation

An effective Revenue Cycle Optimization program can form a solid foundation for an aggressive transfor-mation initiative. One basic definition of Revenue Cycle Optimization is improving financial outcomes by developing innovative solutions and transforming workflows to accelerate cash and improve net revenue with measurable results. There are other definitions but the common thread is getting the most out of what you have. Understanding the revenue cycle from front to back is critical as many organizations only choose to focus on particular areas and therefore may miss out on opportunities.

Revenue Cycle Optimization can help both above and below the line. Above the line improvements include better charge capture, improving patient flow/schedule management, reducing preventable denials (authorizations, medical necessity, incorrect payer assignment), improving patient cash collections both at the time of service and during collections. Below the line effects include optimizing staffing levels, use of technology, outsourcing vendor costs. In the restructured healthcare world, however, optimization - making incremental changes with what you have - is only the start. To succeed and thrive, organizations must consider moving from optimizing the revenue cycle to fundamentally transforming it. Revenue Cycle Transformation means creating and sustaining a culture of revenue cycle excellence. In order to accomplish and sustain this shift in culture, organizations typically consolidate operations, upgrade IT systems, remodel the overall operational flow, and/or add new services as sources of revenue. Forward thinking organizations understand that the shift from optimization to transformation is no longer optional.

9 Signs of Revenue Inertia1. Reduced reimbursements2. Steady increase in A/R days3. Degradation of key performance

indicators4. Inadequate and delayed staff remediation

efforts 5. Growing lag between claim submission

and payment posting6. Increased denials7. Lack of understanding of revenue cycle

data8. Insufficient or inaccurate reporting of

revenue cycle metrics

9. Lack of attention to the unknown

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From Optimization to Transformation – Analysis to ROI

It Starts With AnalysisThe single most important step to Revenue Cycle Transformation is to thoroughly assess current operations and overall revenue cycle performance and effectiveness. An organization must establish baseline performance for critical business functions (charge capture and volume, claim lag, claim denial rates, frequent and high dollar write-offs, outstanding AR, cash collections, expense) before they can chart transformative change.

There are typically three levels of process understanding: 1) What is supposed to happen (based on design, stated policies and procedures), 2) What manage-ment thinks is happening (based on reports, metrics, results, staff evaluations), and 3) What is actually happening (based on performance observation, talking with and observing staff). In order to fully map out and strive to improve existing processes, you need to review policies and procedures, meet with management and supervisors to get their input, and meet with staff for actual process observation.

To maximize revenue and reduce expense, organizations must delve deeply into their own Big Data to identify suboptimal performance and then work towards uncovering the root cause of that metric’s poor outcomes. As with any detailed operational review, the analysis consists of an in-depth review of people, process, and technology.

Tips to Ensuring a Healthy Cash Flow• Stop the Bleeding. Look at where your cash is “pooling” and not

getting posted and actualized. • Make it Automatic. Streamline your processes as much as possible

(e.g. lockbox, automated 835 remittance posting, contractual payment analysis).

• Keep it Clean. Verify that your upfront processes have appropriate controls to ensure clean claims get out the first time so that payers will pay you quickly and with fewer denials/appeals.

• Be a Copy Cat. Benchmark what’s working in the industry and use this information to prioritize opportunities and drive results

• Power Your People. Empower your staff by making sure they fully understand their roles and how they impact the revenue cycle. Share results and provide incentives.

• Sweat the Small Stuff. Closely monitor A/R and denials and dig in as soon as you see any negative shifts.

• It Starts at the Very Beginning. Institute a highly sophisticated point of service cash collections process complete with pre-visit management and positive patient financial engagement.

• Follow the Money. Create a culture where process and financial controls are required, not just expected, in order to enable sound financial outcomes.

• Simplify, Simplify. Develop a “one-touch” or “no-touch” revenue cycle process wherever possible. This requires automation, effective use of available tools and doing the work just once and not over and over again.

REVIEW POILICIES& PROCEDURES

1 2 3 MEET WITH STAFF

FOR PROCESSOBSERVATION

MEET WITH MANAGEMENT

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The Impact of Big Data

ResultsThe Department of Surgery at University of Massachusetts Memorial Medical Group recently engaged Hayes’ consultants to conduct a “deep-dive” analytical study of their operational data and the results illustrate the power of Big Data analysis.

Using a business intelligence tool, the consultants were able to review not only standard reports and dashboards, but were also able to drill down to specific data values and trends to uncover additional opportunities that might otherwise have been overlooked. This “bottoms up” analytics approach dissected aggregated data into strategic areas of focus enabling the organization to identify specific areas of opportunity, further optimizing their fundamentally strong billing and collections processes.

The revenue cycle data analysis uncovered a 3% increase in maximum potential revenue from reduction of write-offs and improved E&M coding behaviors.

How important a role will Big Data play in the new healthcare landscape? “The future is in making this investment,” says Linda Burt, CPA, CFO of Methodist Health Center in Omaha, Nebraska. “If we don’t, we won’t be here.”7

• Assembling the quantities of data required• Combining data sources and integrating them

into predictive models• Applying approaches in multiple directions,

leading to different decisions.6

Using this array of data to develop predictive models will be a critical step in driving effective revenue collection and efficient cost containment to improve margin.

The Marriage of Financial & Clinical DataOrganizations will benefit from marrying financial information with clinical data to get a complete view of their patients. The combined data set can provide more meaningful reporting metrics. For example, not all payers require rendering provider on claims, but adding the financial data provides a report of a provider’s revenue.

Finally, Big Data will play a key role in organization’s marketing efforts. Retail and other businesses have already begun to parse key engagement data to enhance the customer experience. Instead of relying on average group data and assumptions, actual data from all individuals will be available. This enables the development of sophisticated targeting and segmentation models that healthcare organizations will need to develop effective marketing programs.

Big Data has become a buzzword in recent years, but simply put, it refers to the vast volumes of data that has become available due to advances in software technology and expanded network bandwidth. Businesses now have the ability to analyze this data to drive improvements, better understand their customers, and otherwise make informed decisions. McKinsey researchers believe big data analysis can potentially save the US health-care industry more than $300 billion annually.3

Healthcare has been evolving in this area and is finally catching up to other industries. Primary care physicians’ use of electronic medical records increased from 46% in 2009 to 69% in 2012.4 The adoption and migration to Electronic Format Transactions (EFT) and Electronic Health Records (EHR) provides organizations with data that has historically been difficult to aggregate and examine. Analyzing and applying this data is a key factor in making the shift from Revenue Cycle Optimization to Revenue Cycle Transformation. According to one survey, 60% of healthcare IT professionals plan to increase investment in technology to help them improve their ability to handle complex analytics.5

An HFMA study revealed four key focus areas for Big Data application:• Establishing and implementing data governance/

data discipline

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People Assessment

Organizations have multiple, competing priorities and are struggling to sustain current operations. There is little bandwidth for the luxury of stepping outside the daily tasks to design a better system. Interim management meets that demand.

With solid leadership in place, the next step is eval-uating the team to assess individual performance levels and identify training needs. Once this process is complete a comprehensive improvement action plan can be developed. Tasks the leader should take include the following:• Target staff responsible for each task.• Share current and revised performance goals

with operational metrics for each critical business function.

• Coach each staff member on how to reach or exceed performance goals.

• Provide regular feedback on outcomes. • Acknowledge success. • Lead the improvement efforts by showing

measured progress towards goals and continued coaching to address weak performance.

• Broadcast improvements to the organization, not just the business office. The leader must garner interest across the entire organization to embrace and be accountable for improved mar-gin outcomes.

• Establish and measure operational performance metrics

• Understand IT requirements to optimize performance and be at the table for IT system selection and configuration

• Analyze data to identify, diagnose, and have the authority to resolve revenue cycle operational issues across the full cycle spectrum – much broader oversight than just the business office

Increasing Complexity of Revenue Cycle OperationsThe complexity of revenue cycle operations has increased significantly and requires a leader with a level of management skill and sophistication that is typically not found in most organizations. Very often, leadership in this area is limited to a manager that may have little or no formal training or experience to undertake transformative change. Currently the demand for leadership in this area with the requisite skills exceeds supply.

Many organizations have solved this problem by contracting outside interim management. This type of investment can help jump start the process of revenue cycle transformation - building the appropriate organizational model, streamlining and automating processes, creating performance benchmarks and measuring and quantifying results.

As an organization’s most valuable asset, its peo-ple hold the key to driving and sustaining positive change. Unleashing the power of the team starts with inspired leadership. In the current environment of payment reform, Medicare/Medicaid payment cuts, sequestration, and declining inpatient volume and rising expense – revenue cycle transformation and margin management require new skills.

The leader responsible for this change effort should be much more than an effective manager of a revenue cycle operation. He or she should be a member of the executive leadership team whose opinion is sought after and respected by physicians, peers, and executives. The ideal leader should possess sophisticated leadership skills, strategic vision, disciplined focus, and management expertise.

A health system’s Revenue Cycle leader needs to:• Envision non-traditional organizational design

and infrastructure development to ensure the right skills are available where they are needed (i.e., moving “back-office” skills to the “front-end” to avoid denials, write-offs and increase cash collections, etc.)

• Ensure visibility and oversight of front-end pro-cesses that impact revenue (patient registration, insurance verification/eligibility, cash collections, documentation and coding workflow)

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ResultsA provider serving two Midwestern states was able to increase collections of a $40 million A/R by 5% and reduce aged receivables by 10% in large part by creating better communication between finance and operations staff.8 A review and retraining program along with a workflow reorganization improved productivity by 12% at the University of Utah’s Moran Eye Center.9

In order for staff to “buy-in” to the change effort, they should have a broad knowledge of the entire revenue cycle management process and how each of them impacts the success of the revenue cycle. Siloed functions are no longer effective. All the players should understand how their individual roles affect revenue cycle outcomes. For example, they should be aware of how minimizing or eliminating denials increases cash flow. They should understand clinical documentation improvement (CDI), which is critical with new payment models (population health, outcomes and quality measures, MU I, II and III, transition to ICD-10).

The Importance of TransparencyImprovement process can’t happen if current outcomes and performance are not transparent throughout the organization. Utilizing data to train staff to be analytical problem solvers vs. task or transaction based workers is a major contributor to the success of a revenue cycle transformation program.

Personnel development that focuses on individual productivity and quality outcomes will positively impact margin improvement. This will help identify underperformers and stellar achievers. Having the right team in place, focused on the appropriate targets over time will go a long way to reducing costs and increasing revenue.

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Process Review

Audits provide the most value when the findings are converted into documented actions that will improve operations. Audit results should be reviewed and compared to performance expecta-tions for all business functions. If the outcome does not meet performance expectations, the process needs to be revised. This can take the form of significant, enterprise-wide change or be a minor task adjustment.

Once the process audits are complete, executive leadership should prioritize the list based on impact to margin management, document performance expectations, establish a firm timeline and execute. Organizations that continually evaluate where they are and how they can improve tend to be industry leaders. Process review is a critical step on the path to Revenue Cycle Transformation

ResultsServing as Interim Manager at Dana-Farber Cancer Institute in Boston, Hayes provided oversight to the billing operation, identified operational issues, and led performance improvement initiatives. As a result, Dana-Farber was able to improve their clean claim rate from 73% to 89% by documenting their billing process and retraining staff. 10

can be traced to an inefficient process that has migrated away from documented procedures and automation. Streamlined and automated process-es improve outcomes, reduce or re-align staff and eliminate waste from the system – all contributors to improved margin management by reducing overhead and increasing revenue.

Every CFO should analyze the revenue cycle manual and systematic workflows to ensure:• System updates are implemented.• All available modules are configured and

operational.• Quantity and quality of interfaces and overall

information flow is efficient.

The Importance of Audits Documenting and reviewing processes is only the first step in what should be an ongoing program to ensure that the operation is effective and achieving desired results. The only way to determine if the processes in place work is through implementation of a rigorous audit process. Audit is a fearsome word in healthcare and quite often associated with poor results and punitive damages. That attitude needs to be adjusted to re-frame “audits” as oppor-tunities to measure every aspect of healthcare op-erations to improve outcomes. Leadership needs to stress that audits are positive, transformative tools.

Before improvements can be implemented, the current state of process control needs to be established. While assessing the operational functions and performance of the current revenue cycle, the organization should also be measuring outcomes for each critical business function to identify opportunities to streamline or automate a process to reach performance goals. So often, in mature revenue cycles, policies and procedures were developed and implemented years ago. Ongoing performance looks to be acceptable and the organization - with multiple competing agendas – leaves things “as is.” This can be a primary reason health care systems’ revenue cycles do not improve and why many are failing today.

Documenting processes and workflows is argu-ably one of the most dreaded tasks in healthcare management. It is time consuming, tedious work, but absolutely necessary at the very early stages of revenue cycle transformation. A thorough pro-cess review will help highlight redundancies and time-wasting tasks and will quantify the outcome or performance expectation for each task.

Analyzing current processes also allows leadership to identify underutilized systems, poor system configuration, and multiple work-arounds that have been put in place to compensate for an inefficient process. In many cases, sub-optimal performance

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Association (HBMA) showed that 72% of patients want to pay their bills online. Organizations need to implement the technology and change the culture of both staff and patients to implement this capa-bility. With estimates of $300 billion being spent on line in all businesses by 2016, there are plenty of best practices to be learned from other industries in the area of online billing.12

Claims AnalysisA National Health Insurer Report Card from the AMA revealed the average claims-processing error rate was just under 20%. The same report estimat-ed that eliminating claims errors could save $17 billion annually.13

Pre claim/coder scrubbers limit the amount of mistakes/omissions while other coding related issues can be reduced when the proper prebilling analysis occurs. The key to minimizing claims errors is to employ technology to rigorously analyze the entire processing cycle. This type of analysis can help identify areas where technology can be implemented to automate the process and eliminate manual data entry errors.

Eligibility verification also needs to expand not only to simple confirm the patient has insurance but to determine the extent of that coverage – level of deductibles as an example. This allows staff to counsel the patient prior to arrival as to their financial responsibility. Some estimates show that organizations can increase cash collection by as much as 20% by using technology to replace traditional processes.11

Electronic Health Records (EHR)An effective EHR program can go a long way to reducing overhead costs. A retired population splitting time between multiple locations according to the season is one driver for portable, electronic health records. It will no longer be acceptable for an orthopedic provider in Maine to order a CPT, MRI, PET scan and then have the same series of tests ordered from the provider in Florida because they do not have access to the images or scans. The same holds true for any lab work or clinical chem-istry performed in either site. As patients begin to act more like consumers, they will begin questioning such unnecessary charges. Portability will be essential to satisfy this growing healthcare segment.

Electronic AR/APA survey by the Health Billing and Management

People and process improvement are clear drivers of measurable performance and margin improve-ments. Even greater strides can be made through use of the increasingly sophisticated software now available to the healthcare industry. There are several key areas where technology can improve the patient experience, lower costs, and accelerate the revenue cycle.

Eligibility VerificationWith the growing complexity of healthcare plans, determining eligibility prior to the patient visit has become even more critical. Implementing an integrated receiving system allows the provider to handle potential eligibility denial issues before a patient arrives at the door. This can help to make the patient experience seamless without a holdup at the front desk where staff are trying to deal with insurance changes, unpaid balances, or collections issues.

Technology Analysis

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Measurable Results

Moving from Revenue Cycle Optimization to Revenue Cycle Transformation isn’t easy. It requires commitment and dedication from the entire organization. Some providers have made the effort and are reaping the rewards.

An example is the successful two-phase engagement Hayes conducted with Children’s University Medical Group (CUMG), a multi-specialty faculty practice plan affiliated with the University of Washington School of Medicine. The goal was to identify and correct underlying causes of significant A/R issues. Phase One consisted of a three-month assessment of business office operations processes, Epic software solution, and data trends. Hayes’ findings included a detailed explanation of observations and recommendations regarding workflow processes as well as a recommended roadmap that prioritized tasks required to optimize operations.

In Phase Two, Hayes was retained to work with a newly hired business office director to help implement three key recommendation areas: Epic systems functionality, collections, and work responsibility transition.

The results were dramatic. Without a change in patient population, overall A/R decreased by 11% and A/R dropped by 10 days, increasing cash by $4.5 million. Outsourced aged accounts receivable decreased from $4.3 million to $1.5 million – a decrease of 65%. CUMG yielded a $2.71 million return on its outsourcing investment.

Many processes were automated including write-offs, insurance verifications, co-payment postings, and check deposit functionality. Due to a new, real time interface, insurance verification/update needs decreased from 9,000 accounts to only 2-3 per day. In addition, as a result of the engagement, call volume decreased dramatically and staff turnover was reduced.

SummaryThough the road ahead for healthcare organizations may be difficult, there certainly are actions CFO’s and other organization leaders can take to help mitigate the risks and manage margins. Finding, developing, and retaining the right people, establishing effective processes, and using developing technologies to eliminate waste and cut costs are all appropriate steps in the right direction.

Taking time from day-to-day management to undertake the type of initiative required to effect lasting change can be problematic. In-house staff and resources can be stretched only so far. However, that doesn’t make the need to implement such a program any less urgent. Many organizations have overcome this obstacle by engaging a third party to help drive the process that will result in significant margin improvement.

CFO’s and other financial leaders owe it to their organization to do everything within their power to effect change, manage the revenue cycle, and improve margin. The ones who embrace this transformative change

will succeed and thrive in the coming turbulent times.

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Sources

9 Epic Revenue Cycle Optimization, Hayes Management Consulting Moran Eye Center Case Study

10 Revenue Cycle Interim Management, Hayes Management Consulting Dana Farber Cancer Institute Case Study.

11 5 Key Strategies for Revenue Cycle Optimization, Healthcare Whitepaper, Phil Solomon

12 Latest Trends and Best Practices for Collecting Healthcare Payments, HBMA Newsletter, August 2013.

13 A Clear View of Healthcare Claims, Enkata eBook.

14 Revenue Cycle Optimization, Hayes Management Consulting Children’s University Medical Group Case Study.

1 2013 Payor/Provider Industry Perspective, Strategy&, December 2012.

2 5 Key Strategies for Revenue Cycle Optimization, Healthcare Whitepaper, Phil Solomon

3 Big Data: The next frontier for innovation, competition, and productivity, McKinsey & Company. May 2011. Web. April 2014.

4 Press Release, The Commonwealth Fund, November 2012.

5 Big Data Driving Analytics Investments, Healthcare IT News, March 2013

6 The Big Deal About Big Data, HFM Magazine, August 2013.

7 The Big Deal About Big Data, HFM Magazine, August 2013.

8 Revenue Cycle Interim Management, Hayes Management Consulting Case Study

Hayes Management ConsultingHayes Management Consulting is a leading, national healthcare consulting firm focused on healthcare operations. This includes strategic planning, interim leadership, revenue cycle optimization, clinical optimization, project management, IT consulting, and preparation for federal initiatives such as ICD-10, Meaningful Use, and HIPAA compliance. Hayes also provides software such as MDaudit and other proprietary tools to ensure clients are operationally efficient.

To learn how Hayes Management Consulting can help you with your revenue cycle transformation, call 617-559-0404 or requestconsultant@hayesmanagement.com.

Optimizing the business of healthcare

1320 Centre Street, Suite 402 | Newton Center, MA 02459Phone: 617-559-0404 | Fax: 617-559-0415www.hayesmanagement.com | info@hayesmanagement.com