Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis. September 2015

Transcription

1 Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis September 2015

2 Introduction California community health centers are currently experiencing many challenges rapidly expanding patient populations, evolving payment systems, increasing competition, staffing shortages, funding complexities, and budget constraints. As centers seek to stabilize and improve their financial and operational performance, the revenue cycle management (RCM) function is a critical area of focus. Maximizing the efficiency of RCM whether internally or through outsourcing can improve a health center s cash flow and financial performance in two key ways: by increasing collections (revenues) and by decreasing costs (expenses). Most importantly, those changes are possible without negatively affecting clinical outcomes and patient satisfaction. However, RCM processes are complex and many centers struggle to manage them effectively, resulting in missed opportunities. In response to this challenge and member requests for assistance in better managing RCM, California Primary Care Association (CPCA) analyzed options for improvement and concluded that many California health centers would benefit financially from outsourcing some or all of the RCM functions. CPCA then contracted with PMG, Inc., a leading provider of outsourced RCM for Federally Qualified Health Centers (FQHCs), after a thorough review of RCM vendors and an extensive vetting process, to create the CPCA RCM Program. Now that the CPCA RCM Program has been in place for almost two years, CPCA asked Capital Link to conduct an analysis to determine whether or not participating health centers have realized increases in payments for patient services, cost savings, and efficiencies, and to learn more about non-quantifiable impacts they encountered. CPCA also asked Capital Link to explore options for improving the existing program to better serve the needs of California health centers. The goal of this document is twofold: 1) to measure the effectiveness of the current CPCA RCM Program and explore options for improvement; and 2) to assist California health centers in better understanding the overall RCM function to help them determine the most effective solution for their particular needs. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 1

3 PART I: ANALYSIS OF THE CPCA RCM PROGRAM CPCA RCM Program Overview To support its membership, CPCA contracted with PMG to develop a program that offers a menu of specific outsourced RCM services to health centers at a competitive rate. While each participating center negotiates an individualized statement of work based upon the particular services desired, CPCA manages the overall contract, provides ongoing program management, and is actively involved in ensuring the program s success. Specifically, CPCA staff facilitate a smooth and streamlined transition into the program, ensure services meet or exceed expectations, provide PMG staff with direct technical assistance regarding California-specific billing requirements, communicate with specific payers to ensure appropriate payment of claims, address participants questions and concerns, and facilitate conversations between participants and PMG when necessary. The program is designed to provide health centers with access to proven RCM expertise as an alternative to in-house billing and collections functions since it is often difficult and expensive for health centers to locate, hire, and retain individuals with the highly specialized skills and training needed. Goals for the program include: improving cash flow; reducing billing department staffing and overhead expenses; minimizing recruitment, training, and retention costs; and allowing health center staff to focus on providing top quality healthcare. Participating health centers pay no upfront costs; fees are based on a percentage of collected payments. Centers are not required to purchase additional software since RCM management services are conducted live within their practice management and electronic health records systems. Additional value-added services of the CPCA RCM Program are listed below, and a more complete list of services is presented in Appendix A. The CPCA RCM Program offers the following RCM services: Billing to specific payers (Medi-Cal, Medicare, and private insurance) Claims management and the assurance of proper patient registration, eligibility determination, and credentialing Electronic remittance advice and posting to practice management system Denial management and reporting Medical records review and provider coding audits Reporting and executive briefings on key performance indicators Performance benchmarking against similar organizations and best practice sharing Ongoing technical assistance and training programs Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 2

4 Program Analysis Methodology Capital Link conducted a quantitative and qualitative analysis of the six health centers currently participating in the CPCA RCM Program to provide an early assessment of its success. Specifically, we sought to determine whether health centers experienced increased revenues, and improved cash management and cost efficiencies. We also compared trends to Capital Link s national database of health center financial and operational metrics to better understand how the six participating health center performed compared to their peers statewide. Capital Link s analysis included a review of information from financial audits and Uniform Data Systems (UDS) submissions, as well as data and reports supplied by PMG, CPCA, and the health centers themselves. While data was received from all participating health centers, it is important to note that only two centers have been in the program long enough to have sufficient data for review; therefore the bulk of financial and operational analysis is based on these two organizations. Comparing the data trends of these long-term participants to statewide results and industry guidelines provides additional perspective. The data analysis focused on six key metrics of RCM: denial rates, days cash on hand, accounts receivable days, percentage of accounts receivable over 90 days, blended encounter rates, and payment trends (see definitions in the following Summary of Findings section). The cost savings realized by participants were also analyzed wherever possible. Capital Link also conducted one-on-one interviews with key staff at each of the participating health centers, as well as CPCA and PMG staff. The interviews included questions about the organizations experiences and challenges, as well as any notable impacts from outsourcing the RCM functions. Because the number of participants in the program is small and the available data is limited at this early stage, it is difficult to know how much of the improvement noted in the key metrics studied are attributable to improved RCM and how much may be related to other outside factors. For example, the transition to managed care under the Medi-Cal program and the corresponding change in the payment protocol to a per-member-per-month payment system would likely have a positive impact on accounts receivables days and days cash on hand whether RCM is outsourced or not. Likewise, implementing operating efficiencies to improve provider productivity and expense management would also contribute to a stronger cash position. Therefore, the summarized findings on the CPCA RCM Program s impact to date must not be considered to be a statistically significant analysis of a large data set in controlled circumstances but rather observations and comparisons based on the information that is currently available. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 3

5 Summary of Findings The two health centers that have participated in the CPCA RCM Program the longest (12 months for Health Center A and 21 months for Health Center B) achieved significant improvements in denial rates, days accounts receivable, days cash on hand, blended encounter rates, and payment trends. They also realized a reduction in accounts receivable over 90 days outstanding for the relevant third party payers. Denial Rates Denial rates are defined by PMG and most industry sources as claims that are denied by payers upon initial presentation. Denials arise for a variety of reasons but, overwhelmingly, are related to registration (front office) challenges. PMG s assistance in scrubbing and submitting clean claims for the two health centers with longevity in the program helped ensure approval of claims the first time submitted, resulting in dramatically lower denial rates and improved cash positions for each of them. The charts below show third party claims denials in six month increments. Health center A was tracked for 11 months. During the first six months, the average denial rate was 8.2% and in the most recent five months tracked the rate dropped to 4.7%. Health Center B has an 18-month track record and has reduced the average percentage claims denials from 7.8% during the first six months to 5.8% in the next six months to 4.8% in the most recent six months. Denial Rate: Health Center A 8.2% Denial Rate: Health Center B 7.8% 4.7% 5.8% 4.8% July - Dec 2014 Jan - May 2015 Jan - June 2014 July - Dec 2014 Jan - June 2015 It is interesting and encouraging that PMG was able to help decrease denial rates although both health centers already enjoyed denial rates below the established industry norms, which are indicated below. These benchmarks, and others for the key RCM metrics provided throughout the report, are based on two main sources: Capital Link s proprietary financial audit database, which includes over 70% of national FQHCs; and PMG s published guidelines, based on their extensive experience working with FQHCs. Denial Rate PMG Recommended Guidelines: < 10% = Very Good Performance 10 15% = Average Performance > 15 % = Below Average Performance Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 4

6 Some health centers have been defining denial rates differently than stated above, instead considering them to be claims that were never paid (i.e. unpaid claims or bad debt) as opposed to those not initially paid. The unpaid claims rate is much lower than the actual denial rate. While both are important to track and minimize, improving the denial rate has a very significant impact on cash flow and financial performance, and is critical to long term success. The confusion among health centers in terminology regarding denial versus unpaid claims rates is evident from a recent financial assessment of 19 health centers conducted by PMG for CPCA in which the following information was self-reported as denial rates: Denial rate of less than 5%: 10 health centers Denial rate of 5-10%: 6 health centers Denial rate not tracked: 2 health centers Denial rate tracked but not reported: 1 health center Given that the industry standard for actual average denial rate is 11-15%, it is far more likely that the above metrics actually reflect the unpaid claims rate. It is recommended that all California health centers adopt the correct denial rate definition (percent of claims not initially paid) so consistent benchmarks may be shared across organizations to help establish best practices and areas for improvement. Days Cash on Hand (DCOH) Days cash on hand is the number of days a health center s operating expenses can be covered by the cash it has available. The increases in DCOH experienced by both centers over the period tracked were dramatic. Health Center A improved from just five days cash in FY13 (prior to enrolling in the CPCA RCM Program) to 13 days in FY14 to 22 days in FY15. Health Center B improved from 11 days cash in FY13 (prior to enrolling in the CPCA RCM Program) to 41 days in FY14 to 67 days at fiscal year-end These trends are highlighted in the chart below. Days Cash on Hand FY FY FY Health Center A Health Center B Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 5

7 Capital Link s recommended minimum number of DCOH is 45 days. The median DCOH for California health centers was 51 days cash in FY13 and 53 days cash in FY14, the most recent year available for analysis, providing a basis for statewide comparison. Both health centers attributed the increases in DCOH (80-85%) largely to the improved RCM function shorter cycles and increased collections rather than other possible variables that could potentially improve the cash position such as improved provider productivity. In general, health centers participating in outsourced RCM programs experience a very dramatic improvement in DCOH soon after enrolling due to collections of old receivables. This improvement becomes more stabilized over time and needs to be tracked accordingly to ensure established goals are being achieved on a long-term basis as well. Days Accounts Receivable (A/R) Days A/R is defined as the average length of time from the date of invoice to the payer to the date the payment is received by the health center. Days A/R at both health centers improved dramatically after outsourcing. Health Center A reduced the A/R days from 88 days in FY13 to 72 days in FY14 to 47 days in the current fiscal year. Health Center B dropped from 61 days in FY13 to 54 days in FY14 to 52 days most recently. It is important to note that days A/R is measured at the organizational level and includes all payers including some that are not part of the CPCA RCM program. The following chart demonstrates the significant decline in A/R days for both organizations since joining the program. Days Accounts Receivable FY FY FY Health Center A Health Center B FY13 was prior to both health centers enrolling in the CPCA RCM Program. Substantial improvements have been made on this key measure. Both centers are making strong progress toward being in line with industry-wide and average California health center figures. California health centers at the median averaged 46 days A/R in 2013 and 42 days in Nationally, the Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 6

8 median health center had days A/R of 45 days in FY13 and 42 days in FY14. Capital Link recommends that health centers maintain A/R balances below 45 days. Days A/R PMG Recommended Guidelines: < 30 Days = Very Good Performance Days = Average Performance > 60 Days = Below Average Performance When considering only the third party payers that are actually included in the CPCA RCM Program, the days A/R decreased from 42 days during the first six months of the program to 33 days in the most recent six-month period at Health Center A. They declined from 34 days in the first six months of outsourcing to 27 days most recently at Health Center B. The reduced A/R days provides enhanced cash flow and improved cash reserves. Submission of timely, error-free invoices results in prompter payments from insurers and reduced A/R days. Efficient follow up and re-submission of denied claims also improves A/R balances. PMG s efforts in managing these processes have clearly been successful to date. The chart below shows the improvement in days A/R for third party payers since participation in the CPCA RCM Program. Days Accounts Receivable Third Party Payers First Six Months in Program Most Recent Six Months Health Center A Health Center B A/R Over 90 Days A/R over 90 days are defined as the percentage of accounts receivable that are still outstanding more than 90 days from date of invoice. For purposes of this analysis, they are based on only the third party payers (public and private) that are part of the CPCA RCM Program. Between 2013 and 2014, accounts receivables over 90 days at Health Center A were reduced from 54% to 32%, and those at Health Center B were reduced from 47% to 43%. The following chart reflects the health centers improvements in the days A/R over 90 days during the first six months in the program and the most recent six months. As with other measures, days A/R over 90 days continues to trend down over time due to improved RCM. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 7

9 Days Accounts Receivable over 90 Days First Six Months in Program 47% 54% Most Recent 6 Months 32% 43% Health Center A Health Center B PMG influenced the A/R over 90 days figures in two main ways: 1. By collecting aged receivables that were on the books (some for a very long time) prior to enrollment in the RCM program; and 2. By ensuring prompt collections of newer receivables through the activities previously described (clean initial claims, aggressive resubmission and collections, and so forth). Both health centers A and B noted that PMG was very successful in collecting on aged claims, some of which were about to being written off. Several other health centers that were too new to the program to observe long-term trends were also able to quantify how they benefited from PMG s collection of aged receivables at the onset. One health center received a 37% increase in payments due to active collections on A/R that were over 90 days old. Another new participant received nearly double their normal monthly A/R payments in the second month after enrollment. In determining potential areas for improvement in this regard, PMG provides the following industry guidelines for A/R days over 90: A/R Over 90 Days PMG Recommended Guidelines: < 30% of all A/R over 90 days = Very Good Performance 30 40% of all A/R over 90 days = Average Performance > 40 % of all A/R over 90 days = Below Average Performance Blended Encounter Rates The blended encounter rate is the average payment received for each billable patient visit or, under a managed care system, the fixed annual revenues divided by the number of managed care visits. Maximizing blended encounter rates involves proper coding of charges and strong collections processes/systems. Effective efforts result in fewer claims going unpaid, better cash flow, and improved financial performance. The following chart shows the blended encounter rate for third party payers only. At Health Center A, the year-over-year increase in blended encounter rates for third party payers improved by 26%, increasing from $117 prior to enrollment to $148 in the most recent month available. Health Center B achieved a 20% increase from $104 to $125. Both health centers Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 8

10 attribute 80-85% of the increase in blended encounter rates to improved billing and collections activities provided through the CPCA RCM Program rather than higher reimbursement rates per encounter. Blended Encounter Rate Prior to Outsourcing $117 $104 Current Rate $125 $148 Health Center A Health Center B Blended encounter rates are also potentially influenced by the payment methodology utilized by the third party payer. In a managed care system, the provider receives a per-member per-month payment rather than a per-encounter payment that providers receive in a fee-for-service reimbursement model. The per-member per-month payment is made regardless of whether or not the enrolled user actually received services. The revenue (the numerator in the example below) is fixed, but the number of encounters (the denominator) is potentially subject to change. If the patient utilization (average encounters per user) increases over the course of a year, then the blended encounter rate is decreased and vice versa. Example: $50 per-member per-month x 12 = $600 Annual Managed Care revenue $600/3 annual encounters = $200 Blended encounter rate $600/4 annual encounters = $150 Blended encounter rate Payments Trends A comparison of the growth in patients, charges, and encounters for the two health centers during the time period tracked also highlights the significant improvement outsourcing RCM had on collections. The summary below shows payments growing faster than charges and encounters, which reflects a strong billing and collections effort. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 9

11 Payments Growing Faster than Charges or Encounters Last 12 Months Payments 28% 26% Charges 17% 23% Encounters 16% 19% Health Center A Health Center B Cost Savings Initial Analysis It is difficult to quantify the overall savings enjoyed by health centers participating in the outsourcing initiative. While staffing and overhead costs related to the RCM function were reduced, they weren t eliminated in all cases since some health centers continue to handle certain RCM functions in house. Often at least a skeletal group of billing and collections staff members is needed. We were able to compile initial data based on the two health centers with longevity in the program. One center chose to outsource all of its RCM functions and was able to effectively eliminate its billing and collections department, keeping just a coding expert to work with internal staff. The center reduced its RCM expense as a percentage of payments by 44% from 10.8% to 6%. The other health center opted to continue to use internal staff for some payers and was able to decrease its billing and collections staff by 25% and reduce its overall billing expense by 22% from 8.8% of payments received to 6.9%. It is not possible to put a figure on the value of time saved by senior staff in not having to worry about the RCM function and instead focus on the business of providing patients with high quality care. This time savings was consistently mentioned by the health centers as being extremely valuable and one of the major benefits of outsourcing. Impressions from the Field In addition to data analysis, Capital Link conducted a question and answer session with key personnel at each of the six health centers, including either the CEO or CFO. For the four health centers that are relatively new to the outsourcing program, the interviews revolved around the factors that contributed to the decision to outsource the RCM activities, the transition process to go live, and how the relationship with PMG is working to date. The feedback was generally quite positive and is summarized below. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 10

12 Access to Industry Expertise RCM is a complex and ever evolving activity. Each of the participating health centers indicated that CPCA s and PMG s knowledge and expertise in this specialized area are highly regarded and appreciated. The health centers see great value in CPCA staff s participation in the program, including their help during the transition to outsourcing and in ensuring a high level of customer service from PMG. Having both CPCA and PMG advocating on a health center s behalf with payers was considered to be particularly effective and valuable. Centers felt CPCA s strong state connections combined with PMG s specific industry expertise was a powerful combination. CPCA s initial vetting of PMG as a vendor and ongoing program management was also an instrumental factor in the health centers choosing to outsource specific functions. The participating health centers also felt that changing health insurance programs, both public and private, require specialized skills that the current staff at most health centers do not possess and that, for a number of reasons, would be unrealistic to hire. The Medicaid payment reform initiative in California and elsewhere is a prime example. The transition from fee-for-service reimbursement to a per-member per-month capitation payment for the state Medicaid program (Medi-Cal) is daunting and health centers, particularly smaller ones, have found that they are better off outsourcing to experts. Access to Trained/Competent Staff and Back-Up Each of the six health centers indicated that difficulty hiring, training, and retaining competent staff was one of the main motivators to outsource. They see major value in the fact that PMG specializes in RCM services for community health centers and has built the capacity to navigate the requirements of an array of third party payers. The health centers receive specialized advice and services and do not have to worry about staff time-off, vacancies, or over-reliance on one or two key staff members. Ability to Focus More Health Center Management Time on Operations Health centers are happy to be relieved of the burden of the RCM activities. Transferring much of the RCM administrative burden to specialists with greater capacity and expertise has allowed them to focus on other operational issues. The fact that CPCA provides oversight and support offers even greater assurance that this important function of business operations is being properly handled. None of the senior health center staff indicated that the outsourcing project had caused an increased burden on their time, but rather quite the opposite. Minimal Impact on Customer Relationships, Staffing, and Health Center Morale Health centers were questioned regarding whether outsourcing some RCM functions had unintended adverse consequences related to customer relationships, staffing, or overall organizational morale. The feedback was limited since only two health centers have actually transitioned from an internal billing and collections department to outsourcing as part of the CPCA RCM Program. Three of the participating health centers were outsourcing RCM to other vendors prior to the introduction of the CPCA RCM Program. The other health center had been a fully grant-funded operation until it became an FQHC, after which it immediately joined the CPCA RCM Program, so it never had an in-house billing function. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 11

13 None of the health centers interviewed reported any decline in customer experience or employee satisfaction or any specific organizational challenges associated with RCM outsourcing. The two health centers that transitioned from internal billing and collections to the CPCA RCM Program were able to effectively reduce or reassign staff with little or no organizational impact. One center retained all staff and simply re-purposed job functions, avoiding complications with unionized employees and contracts. The other center has maintained a key billing and collections staff person to act as a liaison with CPCA and PMG and provide RCM for payers it has chosen not to include in the outsourced scope of services. Key Performance Indicators Reports and Communications All of the health centers were pleased with the reports provided by PMG, which include trend analysis and industry benchmarking. Most of the health centers were also satisfied with the communication and interaction with PMG staff. PMG staff was described as accessible and professional, although one health center indicated dissatisfaction with communications particularly related to claims denials and denial resolution. It appears to be an isolated situation with one center, which can and should be addressed directly, rather than a more systematic concern. Opportunities for Improvement Some health centers said that while they felt the current claims follow up process was working well, they had hoped for more improvement in the rate of first-time claims approval. These health centers recognize that part of the problem is internal and believe better communication with PMG could help prevent the same types of errors happening repeatedly. PMG has an opportunity to improve health center training, and add value to the RCM function and the program overall by addressing these concerns. Conclusion The health care finance system in America is constantly evolving. As a nation we grapple with how to provide high-quality health care with the rising costs of care delivery, demographic realities of an aging population of baby boomers, and limitations on resources. New models of care and payment systems dictate that safety net organizations, in particular, that operate on slim operating margins and cash reserves receive what they are due for the services provided. Some health centers have the capacity and expertise to effectively manage the complex process of billing and collecting of patient accounts internally. Those that are able to generate good results with an in-house team retain the ultimate control and responsibility for the function. Other health centers find outsourcing RCM to industry experts to be a better solution. For some centers, the inability to find, hire, and retain qualified staff will be the main driver of outsourcing RCM. For others, it may be anticipated cost savings. One health center executive interviewed for this report stated, A very important advantage to the CPCA RCM Program is that it allows us to focus on developing our core business. This is true both in terms of leveraging a broader understanding of reimbursement opportunities as well as improvements in our ability to evaluate processes and training needs. Although the CPCA RCM Program has not been in existence long enough to allow for a definitive evaluation of its costs and benefits, the early results are promising. Current health center Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 12

14 participants report a high level of satisfaction with PMG and with the decision to outsource specific billing and collections functions. The two early adopters have achieved significant financial performance improvements as a result of the outsourcing program. Improved revenue cycle management has put them on more solid financial ground and allowed leaders to focus on other important aspects of health center operations and management. A follow-up analysis to this report in about 12 months would facilitate a larger financial and data analysis, and cost/benefit review since more program participants would have a multi-year track record. That analysis would also provide an opportunity to understand whether the initial improvements enjoyed by the two early adopters are sustained over time and experienced by the newer participants. Continuing to better understand the ongoing impact of RCM outsourcing and sharing best practices and other relevant information with California health centers will be beneficial to all. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 13

15 PART II: REVENUE CYCLE MANAGEMENT What is RCM? RCM is the process of capturing, managing, and collecting patient service revenue starting with appointment scheduling and ending with the final adjudication of the claim. Although complex, RCM is essential to operating a viable health center, especially with new federal requirements, since breakdowns in the revenue cycle process negatively impact a health center s cash flow and overall financial health. The general components of health center RCM include scheduling, patient registration (including the collection of copayments), provision of care, coding and billing, and accounts receivable management. The following list provides a more detailed overview of the steps in the revenue cycle process (1)(2). Steps in the revenue cycle process: 1. Patient Appointment Scheduling 2. Patient Reception: Patient enters the facility, waits in line, and is greeted at front desk 3. Patient Registration and Certification: Patient is registered into practice management system (PMS), demographic and UDS data is collected, insurance is verified, sliding fee discount application is initiated, and payment is collected 4. Clinical Encounter: Patient meets with provider, enters exam room, and care is provided 5. Provider Coding: Provider completes encounter form and enters the appropriate codes into electronic medical record (EMR) 6. Patient Check Out: Appointment concludes, encounter form is given to administrative staff, future appointments are made if necessary 7. Patient Statement and Claim Production: Encounter form is processed, and codes and charges are entered into PMS 8. Claim Report Prepared: Billing department reconciles and posts the encounter (ideally within three days of service) 9. Claim Submission: Claim is electronically submitted to payer 10. Accounts Receivable Oversight and Collection: Payment is received or, if claim is denied, denial is investigated and corrected if necessary, denied claim is resubmitted or secondary insurance claim is submitted, patient responsibility is determined, patient statement is mailed, payment is received, and active collection process complete What Influences the Success of RCM? The most important determinant in the success of a health center s RCM whether handled inhouse or outsourced is leadership s commitment to and understanding of the activity s importance and their attendant focus on it. Important foundations for RCM success, whether outsourcing or not, also include (1)(3): Ensuring great patient relations by providers and staff. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 14

16 Providing ongoing physician and staff education regarding how all processes in the revenue cycle are interrelated. Having a good practice management system, with built-in abilities to handle necessary tasks. Establishing a financial policy regarding the key components of the RCM process that is in writing, reviewed by the legal department, and communicated to patients. The key RCM success influencers and opportunities for improvement include (1): Reimbursement The complexity of reimbursement systems for health centers can cause confusion among health center management, front offices, back offices, providers, the board, and even patients. Medicaid and Medicare require specific eligibility criteria and extensive documentation making it difficult to bill accurately. A health center s ability to efficiently collect from these two government payers, in particular, is essential to generating positive margins. Front Desk For health centers, the main cause of claims denials is front-desk issues. Often, the front desk is a department that experiences a high level of staff turnover and a lack of indepth systems training. The level of cooperation and compliance of the front office staff in the recording of patient data, collection payments, and verification of insurance has a direct impact on the success of the accounts receivable process (4). Provider Coding As the second leading cause of claims denials in health centers, poor provider coding is often due to a lack of information about billing and reimbursement, and improperly following coding procedures. The most common errors include incorrectly coding services delivered, under-coding to help the patient, and lack of documentation to support the code (5). Accurate coding is of particular importance when it comes to commercial payers. Because they are such a small percentage 10% of health centers overall business, many undervalue the compensation received from these payers. However, payments from commercial payers can account for as much as 20% of the average health center charges (6). Practice Management Systems (PMS) Many practice management systems are not equipped to meet the needs of health centers, which can result in incorrect and confusing patient statements. Common challenges include not allowing charge processing at the cashier s desk; inadequately posting charges, discounts, and allowances; inability to identify and correct obvious coding errors; and inconsistent calculations across report formats. Furthermore, billing department staff is often insufficiently trained in how to maximize these systems. Interdepartmental Communication and Collaboration Poor communication among staff and departments is a common cause of a health center s cash-flow issues (4). Ideally, RCMrelated policies and procedures should be established via a collaborative effort between the billing department, the operations department, and executive-level management; then approved and supported by the board. Failure to acquire adequate buy-in from all parties can cause disconnect from the outset. Frequent and transparent communication is crucial among these departments who otherwise do not regularly interact. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 15

17 What and Why to Outsource? Health centers make the decision to outsource all or a portion of RCM for a variety of reasons: to increase cash flow, reduce days in A/R, reduce number of claims denials, improve and streamline the billing and collections work-flow process, reduce labor costs associated with the RCM function, and increase net revenue collections. The success of outsourcing is positively influenced by: The assignment of a key person within the organization who has the support of management, to serve as project lead/liaison. The ability to closely monitor the results of the RCM program, including analysis reports, and regularly communicating with key contact at the vendor. Choosing a vendor that has experience working with FQHCs and their unique challenges. In general, RCM vendors can provide health centers with the following services, allowing for the option to outsource some or all of the RCM functions (7)(8): Business Office Management Scheduling, eligibility and enrolment, outpatient charge capture, and workflow Data and System Interface Management Manage interfaces for lab networks, PMS to EMR, meaningful-use maximization, etc. Charge Entry Ensuring proper charge descriptions and transmitting charges to vendor via EMR or allowing vendor to manage the entire charge entry process Payment Posting and Denials Correction and resubmission of unpaid claims Unpaid Claims Generating statements, handling incoming calls, posting self-payments, and other collection services Coding Provider training on diagnostic codes, including ICD-10 Analytics Reporting and analysis on productivity, financials, denials, etc. to better understand the actual costs to deliver care services Consulting and Training Evaluate existing systems and processes, highlight any inefficiencies, and provide online and onsite training of staff Credentialing Verification Identify and rectify potential pitfalls around provider credentialing and determine participation status with governmental and commercial payers Each health center must determine which, if any, of the above functions could and should be outsourced for maximum organizational benefit. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 16

18 Potential Benefits of Outsourcing Increases net revenue collections: RCM vendors can increase revenue by collecting unpaid claims and elevating clean claim rates, therefore mitigating delays and denials. Reduces technology investment: With the shift to value-based payment models and the integration of the International Classification of Diseases (ICD-10) diagnostic code set in October 2015, many health centers are discovering that the technology behind existing in-house RCM systems are not designed accommodate this shift. So rather than fully replacing these outdated systems with modern technology, they are choosing to outsource this function. Reduces labor costs and/or allows access to staff with specialized expertise: Employee-related expenses (salary and fringe), indirect costs (licensing, training, insurance, etc.), and the opportunity costs of bad debt represent opportunities for savings. One industry study by Synergy Billing estimates that the average fully-loaded cost to collect claims is 13.42% (9). Is Outsourcing Right for Your Organization? Determining whether or not a health center should outsource involves an evaluation of its staffing and resources, company culture, and priorities. Outsourcing is the best choice for many health centers, but not for others. Some centers are unwilling to sacrifice control of important functions. They may also be apprehensive about initial costs and technology upgrades, although choosing the right RCM relationship limits or eliminates upfront investment costs. Leadership may also be concerned about the impact on employee morale and the need to restructure organizational processes. Each health center must carefully weigh the pros and cons for its own organization and make an informed decision. It can be helpful, however, to add a more quantifiable component to the analysis by reviewing a health center s performance against peer organizations on several key RCM performance indicators. If one or more results are categorized as below average according to the industry guidelines indicated below, the center may want to discuss outsourcing these functions to determine if improvements may be possible (10). RCM Key Performance Indicators Definitions and Benchmarks: Denial Rate Definition: Total Amount of Denied Claims Total Amount of Initially Submitted Claims Denial rates are defined as the percentage of claims that are denied by payers upon initial presentation. The lower the percentage, the better the cash flow and financial position. Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 17

19 Benchmarks: PMG Recommended Guidelines: < 10% Very Good Performance 10 15% Average Performance > 15 % Below Average Performance Days Cash on Hand (DCOH) Definition: (Cash + Investments) * 365 days/ (Total Operating Expenses - Depreciation) DCOH is the number of days a health center s operating expenses can be covered by the cash it has available. Benchmarks: Capital Link s Recommended Benchmark: Minimum of 45 days Days of Accounts Receivable Definition: Total Accounts Receivable/ (Total Charges for One Year 365 days) Accounts receivable are the total billings charged to patients for medical services. This calculation indicates how many days of charges are outstanding, which impacts cash flow. Benchmarks: Capital Link s Recommended Benchmark: Under 45 days PMG Recommended Guidelines: < 30 Days = Very Good Performance Days = Average Performance > 60 Days = Below Average Performance Accounts Receivable (A/R) Over 90 Days Definition: A/R > 90 Days Total AR This calculation measures the amount charged, or owed, for more than 90 days as a percent of the total charges owed, which is essentially measuring a health centers ability to collect claims in timely manner. Generally, the older the claim is, the less likely it is to be paid. Benchmarks: PMG Recommended Guidelines: < 30% of all A/R over 90 days = Very Good Performance 30 40% of all A/R over 90 days = Average Performance > 40 % of all A/R over 90 days = Below Average Performance Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 18

20 Blended Encounter Rate Definition: Total Payments Number of Visits This equation provides the average amount the health center receives per patient visit, blending all payers. It estimates cash collected independent of productivity fluctuations and should trended over a six to 12 month period to ensure data integrity. No specific industry benchmark or guideline exists for this figure since it is health center dependent. Opportunities for Savings Many RCM outsourcing vendors will provide an initial, complimentary review of RCM operations to give health centers an idea of potential savings. The CPCA RCM Program provides this service, which is called a revenue cycle check-up. There is essentially no downside risk or cost of having this assessment, since it could identify significant opportunities for cost and time savings. Additional RCM Resources Reports The High Performing FQHC of Tomorrow Expanding the Mission through Margin Sage Growth Partners, May RCM Survey Report: What s Happening Behind the Billing Office Door Neaten Healthcare, February Setting Your Organization Up for Success: Understanding the Complexities of the FQHC Revenue Cycle BKD, LLP, October ingupyourorganizationfor.pdf Key Performance Indicators That Your CHC Should Be Focusing On Priority Management Group, Inc., June To Care About Coding or Not: That Is the Question Priority Management Group, Inc., February How much is Poor Communication in the Revenue Cycle Hurting Your CHCs Cash Flow? Priority Management Group, Inc., October Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 19

21 Revenue Cycle Management: A Life Cycle Approach for Performance Measurement and System Justification Healthcare Information and Management Systems Society, March himss/files/production/public/himssorg/content/files/line%2027%20- %20Revenue%20cycle%20mgmta%20life%20cycle%20approach%20for%20perf%20measurement%20and%20syst%20justificat ion-himss_2010.pdf Improving Cash Flow through Revenue Cycle Processes NACHC, December Trainings The Revenue Cycle 360 Periodic Seminar, National Association of Community Health Centers (NACHC) Health Center Financial/Operations Management (FOM) Seminar Series, NACHC Other CPCA RCM Program Webpage PMG Website Health Center RCM Case Studies: Health Center Networking Site: center-community.html The Impact of CMS Changes on the FQHC Revenue Cycle (article) Community Health Forum, NACHC, July the%20FQHC%20Revenue%20Cycle.pdf Big FQHC Mission, Small Financial Margin (blog post) Athena Health guest blogger Jenny Englerth, CEO of Family First Health, September Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 20

22 Sources (1) Michael Holton, McGladrey, Inc., Managing the Health Center Revenue Cycle (presentation, Bi-State Primary Care Association Annual Meeting, May 17, 2011). (2) Julie M. Vlasis, Health Center Revenue and Reimbursement Management (presentation, Department of Health and Human Services, Health Resources and Services Administration, Bureau of Primary Health Care). (3) Janice Crocker. "How to Improve Your Revenue Cycle Processes in a Clinic or Physician Practice." The American Health Information Management Association 78th National Convention and Exhibit Proceedings, October 2006). (4) Robert Skeffington, Priority Management Group, Inc., How Much is Poor Communication in the Revenue Cycle Hurting your CHC s Cash Flow? October (5) BKD CPAs & Advisors, LLP, Setting Your Organization Up for Success: Understanding the Complexities of the FQHC Revenue Cycle, (presentation, Tennessee Primary Care Association: 2014 Annual Leadership Conference, October 2014). (6) Ray Jorgensen, Priority Management Group, To Care About Coding or Not: That is the Question, February (7) Priority Management Group, RCM Solutions, (accessed September 2, 2015). (8) Carrie Pallardy, 83 Companies That Provide Revenue Cycle Services Becker s Hospital Review, April 23, (accessed September 2, 2015). (9) Synergy Billing, What s Your True Cost to Collect? (accessed September 2, 2015). (10) Ray Jorgensen, Priority Management Group, The Key Performance Indicators That Your CHC Should Be Focusing On, June About Capital Link Capital Link is a national, non-profit organization that has worked with hundreds of health centers and Primary Care Associations for over 15 years to plan capital projects, finance growth, and identify ways to improve performance. We provide innovative consulting services and extensive technical assistance with the goal of supporting and expanding community-based health care. Established in the late 1990s as a joint effort of the National Association of Community Health Centers (NACHC), several state-based Primary Care Associations (PCAs), and the Bureau of Primary Health Care, Capital Link grew out of the community health center family and continues to support it through creative capital development and analytic activities. For more information, visit Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 21

23 APPENDIX A CPCA RCM Program Services PMG Services: Billing to specific payers (Medi-Cal, Medicare, and private insurance), including claims management and the assurance of proper patient registration, eligibility determination and provider credentialing Electronic remittance advice and posting to practice management system Denial management and reporting due to eligibility and coding issues Reporting and executive briefings on key performance indicators Productivity Financials Denials Ad Hoc Performance benchmarking against similar organizations Ongoing technical assistance and training programs Coding training for providers Front desk based on actual front end denial reason Medical records review and provider coding audits Best practice policy recommendations (self-pay, credit balance, etc.) Interface with Medi-Cal, health plans, and other private payers to ensure appropriate payment of claims Charge processing including pre-billing review Claim scrubbing and edits System configuration review Encounter form review and development CPCA Services: Manages the overall RCM contract Provides ongoing program management Facilitates a smooth and streamlined transition into the program Ensures services meet or exceed expectations Provides PMG staff with direct technical assistance regarding California-specific billing requirements Communications with specific payers to ensure appropriate payment of claims Addresses participants questions and concerns Facilitates conversations between participants and PMG when necessary One complimentary registration into CPCA s Financial Management+ or Health Center Management+ programs Two complimentary finance-related webinars per year for the life of the contract Two complimentary technical assistance toolkits One hour of Patient-Centered Medical Home transformation consultation Health Center Revenue Cycle Management Outsourcing: A Case Study Analysis Prepared by Capital Link 22