Understanding Revenue Cycle Strategy How to Optimize Process and Performance

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1 Understanding Revenue Cycle Strategy How to Optimize Process and Performance White Paper BEACON BeaconPartners.com BOSTON CLEVELAND SAN FRANCISCO TORONTO

2 The revenue cycle can no longer be seen as a simple process of being paid for services rendered. At the basic level we have people, processes and technologies that intersect to recoup monies from patients and third parties. Revenue cycle staff must be knowledgeable about the policies and procedures as they pertain to physician practice management. Policies and procedures must be well written and clearly defined to guide staff to the proper ends. Processes and workflows should be clearly laid out such that staff accountability can be demonstrated. Additionally, the technologies that are available in today s market further demonstrate the need for well educated staff and clearly defined processes. This white paper focuses on identifying key targets in the people, processes and technologies of the revenue cycle that will lead the revenue cycle manager to improved performance in benchmarking, accountability and revenue. Further Complexity While basic blocking and tackling skills are required to maintain staff proficiency, it is the integration of Electronic Health Records (EHRs), Claim Scrubbers, Electronic Remittances, ICD-10 Implementation, Health Savings Accounts (HSAs), CCI updates and regulation changes and provider-based billing, among other influences, that add a level of sophistication and complexity to the revenue cycle. Though the routine processing of claims requires strict monitoring and control, organizational hierarchies typically allow soft technology to report to Information Technology (IT), with the often poor results falling on the revenue cycle manager s shoulders. Integration and interoperability become focal points for the seamless exchange of data among systems for insurance verification, auto-charging of facility and professional fees and the use of a single MPI (Master Patient Index). The revenue cycle manager now more than ever must communicate across occupational skills to identify signals of trouble in performance and exact appropriate remedies. Avoiding a revenue cycle breakdown means reducing the number of hand-offs among individuals and departments, further streamlining the cycle and eliminating errors. Appropriate communication flows and aligned responsibilities among department heads and revenue personnel are vital to revenue cycle health. All facets of a medical practice must revolve around the revenue cycle. What is the Revenue Cycle? The following graphic defines the revenue cycle for our discussion. Encounter management Documentation Charge capture Charge entry Charge capture and coding HIM Utilization management Claim submission Third-party follow-up Rejection avoidance Back End Editing Claim submission Account follow-up Customer service Cash posting Contractual posting Denials management Payment variance Front End Scheduling Demographics Insurance verification Eligibility checking Financial counseling Financial counseling Transaction posting Patient access Contract management Scheduling and prearrival Appeals 2 3/12

3 The Pyramid Effect As more processes are automated, a natural hierarchy, or pyramid, of the dollars to be collected is formed. The more difficult dollars at the top are often hard to tap, while dollars at the bottom of this pyramid tend to flow in more easily using current automation levels. Effort Lost Revenue A/R Dollars Easy Dollars While recovering the easy dollars is good, it is not sufficient. Logically, while most operations are built to focus on the bottom of the pyramid, the most successful practices involve advanced workflow processes to address the more difficult dollars at the top. It is most often how well revenue is retrieved at the top of the pyramid that marks the difference in success versus failure. Measuring and Monitoring The revenue cycle manager must take a comprehensive look at his/her own performance by examining all of the business processes involved in moving a patient through the system and ensuring that the provider is being paid appropriately. These business processes, including upfront patient referral and scheduling, patient registration and insurance verification, medical records coding, utilization management, billing, and follow-up activities associated with collections, are all part of the revenue cycle. The monitoring and ensuring of the quality of each of the processes and functions is vital. Without oversight and feedback to all contributing departments on the quality of performance, the cycle cannot be optimized. The old adage of measure twice cut once may be appropriately applied; we must be careful when using measurement and benchmarks as calculations can be made using different formulas. Improved accounts receivable (A/R) days may be achieved by increasing payments or writing off balances. We must measure, monitor and retool the workflow to minimize errors and maximize revenue. There are five key benchmarks to measure the health of your revenue cycle: 1. Cash flow All improvements in workflows and decisions on contracting and policies affect cash flow. Incremental increases in cash flow should be measured. This can be better explained in tracking First Pass Payment Rates. Improvement in First Pass Payment Rates improves cash flow and reduces costs. 2. Denial and bad debt rate The former usually leads to the latter. Align write-off codes to their denial categories. If a charge is denied due to untimely filing, the subsequent write-off should be defined as an untimely filing write-off. 3. Days in receivable Properly calculated and compared to national benchmarks, improvements can be measured. 4. A/R greater than 90 days Reductions will improve your cash flow. Be wary if a strong referral to collection agency policy is implemented. You should not allow the referral amount to be written off the books. This will improve the AR >90 days, but will it improve cash flow (item 1)? 5. Lag days This is the time between the date of service and the date of actual billing. Compare inpatient and office charges to national benchmarks. Improvements will provide a timely submission of charges and may provide a significant one-time increase in cash flow. Deny, Deny, Deny Denials will show you where improvement in performance can have the greatest impact. Breakdowns usually occur in three common areas; the first area involves patient referrals and scheduling. When patients are referred from one caregiver to another, the information that is passed along is often inconsistent or incomplete. Scheduling systems are set up to capture a minimum amount of information on a computer screen. Therefore, schedulers are focused on filling in these screens, rather than capturing the patient information most needed to send out the bill. A second set of breakdowns typically occurs when staff gathers patient information at preregistration. This includes verifying patients insurance, determining whether care needs to be authorized or securing payment sponsorship for patients who do not have appropriate financial coverage for their care. Rather than obtaining this information in advance, staff often collect it quickly when the patient arrives for care, resulting in incomplete or inconsistent information. A third set of problems that ultimately delays billing and revenue collection arises when care concludes and/or after service has been rendered. One example is the failure to collect insurance co-payments and deductibles before patients check out. Another is incomplete medical record information that either delays initial billing or forces an insurer to deny the claim. Staff assigned to follow up on unpaid bills often have other responsibilities as well. And, typically, they do not have the information they need or a systematic process in place to resolve outstanding balances 3

4 in an appropriate and timely manner. Providers that have redesigned their revenue cycles have found that the dollar value of bills that should have been sent out for payment, but were delayed for an unresolved deficiency, is typically three times higher than they estimated. Denials reveal the health of the revenue cycle. Capturing denial information can sometimes be a difficult task for organizations. Even with the advancements in technology and system capabilities, it is not unusual to see organizations with very limited, if any, understanding of their denials and the dollar impact. Organizations must take full advantage of technology tools to analyze their financial health. Capturing, analyzing and disseminating denial information are important elements in the process of denial management. We need to distinguish between controllable versus uncontrollable denials for this discussion. Controllable denials are those denials that could be avoided if steps were taken to fully understand the extent of coverage that the patient has or may not have or whether or not the claims were filed according to payer guidelines. Examples of controllable denials are: The patient cannot be identified with the information submitted The patient is not covered by the insurance plan billed on the date of service Controllable denials will include: Coding error Inaccurate eligibility No authorization/no referral obtained Not medically necessary Provider enrollment is not valid Registration error/unable to identify Untimely filing Uncontrollable denials fall under circumstances that are beyond the control of the provider. Examples of uncontrollable denials are: Patient paid directly Co-pay or deductible has not been met The payer is requesting information from patient Retooling for Improved Performance A smoothly functioning revenue cycle requires clearly delineated work processes that prioritize all activities and measure performance at each step. Redefining work processes and flow and retraining employees are the keys to improvement. To keep the revenue cycle functioning appropriately, staff must know what they should be focusing on; they should have all the information they need in front of them. Establishing work volume and quality goals also helps drive productivity and improve results. It is important to have information available at several levels of detail, from the account level up to the employee, department and then the entire revenue-cycle level, to improve accountability and demonstrate how each individual and each step in the cycle has an impact on overall performance. A revenue cycle operating at peak performance becomes a strategic resource for helping providers combat the widening gap between increasing costs and declining reimbursement. A healthy revenue cycle not only ensures the provider is getting paid for the care and service delivered, but also provides revenue to help reduce expense cuts and financial losses while improving long-term viability. High performers have an organizational strategy and culture that elevates the importance of the revenue cycle. High performers master areas important to their particular circumstances. They do not necessarily focus on the same revenue cycle areas as others, but they target those elements most crucial to their success. Simply put, they are good at what they need to be good at. High performers accelerate improvements. High performers are not just good at setting goals; they take action and execute strategies to achieve these goals. Organizations that have comprehensively redesigned their revenue cycles typically see a range of benefits, including: A 2 to 4 percent increase in annual net patient revenue that is sustained year to year Reductions of up to 25 percent in administrative, bad debt and charity care write-offs A/R levels decreased by 15 to 30 percent or more Significant improvements in employee productivity and morale and patient and physician satisfaction Inclusive to an organization s revenue cycle strategy should be people, processes, technologies, metrics, communication and culture. Here are some steps to improve these factors in your organization: People Apply high standards to hiring Emphasize education Take a career approach to revenue cycle positions Leverage compensation and work arrangements for employee satisfaction 4

5 Process Use formal structures to obtain stakeholder input Target revenue cycle improvements around the consumer experience Adopt established improvement methodologies, including those not traditionally used in healthcare Technologies Selectively use technology for interactions with customers Manage for investment value Dedicate IT staff to the revenue cycle Metrics Measure and report frequently Look beyond traditional metrics for success Develop and enforce systems of accountability around monitoring and reporting practices Communication Drive a positive scheduling/registration experience Provide estimates of financial obligations Promote financial assistance Support clear and simple billing and collections materials Recognize the importance of external communications Culture Support the revenue cycle at the highest level Garner appreciation for the revenue cycle from nonfinancial staff Demand high performance Celebrate success Make innovation a priority Conclusion Although organizations pursue a variety of strategies to attain revenue cycle excellence, results of the research are clear: high performance does not just happen. Those providers that are making good on efforts to realize patientfocused and value-driven revenue cycle processes have done so by instilling organizational commitment to their goals. Efforts must reach beyond the business office. Revenue cycle performance is affected by everyone throughout the organization, with success dependent on support from health information management, physicians, nurses and IT, to name only a few. As such, key actions will be needed from revenue cycle leadership to attain the widespread support vital for achieving high performance. Beacon Partners is one of the largest healthcare management consulting firms in North America. We focus on helping organizations improve operational, clinical and financial performance to deliver the highest level of patient care. For more than two decades, healthcare leaders have chosen Beacon Partners to optimize clinical productivity and financial performance, ultimately leading to improved quality, safety and patient outcomes. Our team of industry executives, physicians, nurses, administrators, allied healthcare professionals and analysts brings a unique, multi-disciplinary approach to the challenges healthcare organizations face today. For more information visit Beacon Partners.com. Connect with us on: BEACON BeaconPartners.com BOSTON CLEVELAND SAN FRANCISCO TORONTO 5