Rebuilding Hospital Cash Flows Through Electronic Coding, Billing and Reimbursement Solutions CAPITALIZING ON TECHNOLOGY

Rebuilding Hospital Cash Flows Through Electronic Coding, Billing and Reimbursement Solutions CAPITALIZING ON TECHNOLOGY

2 Executive Summary Today s hospitals face an operating environment with increasing challenges daily trials compounded by rising costs, labor shortages, reduced levels of reimbursement and a growing Medicare population. The majority of hospitals currently experience a capacity crunch and need to better manage patient flow/scheduling and bed utilization to meet projected increase in demand as the population ages and life expectancy increases. Although demands are increasing from every angle, the reality is that operating revenues have been steadily decreasing, with over a third of U.S. hospitals in 2003 carrying negative operating revenues. 1 One of the main factors that weaken a hospital s financial stability is decreased reimbursement due to incorrect medical coding. Coding and billing errors undercut a bottom line that is necessary to provide patient care. On top of the daily demands of their jobs, hospital billing and coding staff must keep abreast of changing code definitions and payment levels. These updates are often overlooked or incorporated incorrectly. Such errors are especially significant for the hospitals that rely on Medicare for a substantial amount of their revenues, as the government s subsidies for Medicare and Medicaid patients continue to decrease annually (in 2003, about 60% of hospitals lost money treating Medicare and Medicaid patients 2 ). While the reality for hospitals is a paralyzing array of regulations and decreased reimbursement by government and private payers, many are finding that electronic coding, billing and reimbursement (CBR) solutions offer the ability to convert these pressures into profits. This paper: Captures industry research and highlights key data from interviews conducted in July/August 2005 with 38 industry experts and decision makers in large provider and payer organizations regarding the challenges of correct coding and reimbursement Reviews findings from the interviews regarding the impact of electronic (especially online vs. software) coding, billing and reimbursement solutions 1 American Hospital Association, The Fragile State of Hospital Finances, 2004. 2 American Hospital Association, The Fragile State of Hospital Finances, 2004.

Securing Future Revenue with Electronic Coding, Billing and Reimbursement (CBR) Solutions 3 The accuracy and timeliness of medical billing are invaluable to a hospital s operations, yet they are highly variable. With a future certain to bring rising costs and decreasing reimbursement, it is essential to make profit patterns more predictable. By integrating electronic CBR solutions, hospitals are able to efficiently reduce costs, increase revenue capture, optimize labor and improve process management. Technological solutions are vital in today s reimbursement reality where the constant interchange of data can help or hinder a facility s ability to stay afloat. To file complete, accurate claims and receive proper reimbursement, hospitals turn to industry experts, including the American Hospital Association (AHA) and American Medical Association, as well as market leading organizations such as Ingenix, 3M, Cerner, McKesson, IDX, Eclipsys, Epic, MEDITECH and Siemens just to name a few. Facilities search for technology solutions that will support their business goals and ultimately enhance profitability. The solutions used by participants in our research include electronic (especially online versus software) coding, billing, reimbursement and training tools, a combination that makes it easier to build efficiencies. Present Conditions Hospitals of all sizes struggle with accurate, complete coding and billing. Even after more than a decade of consolidations and attempts to centralize administrative operations, including billing processes 3, mistakes and challenges remain. By further streamlining coding and billing through electronic CBR solutions, the complexities a hospital faces can be simplified, while generating additional capital. A key to increasing profitability is through electronic CBR solutions This is what hospitals are demanding quality for billing and coding is their livelihood. They want to make sure they have the correct coding in order to get the correct reimbursement, and from a profit standpoint, they don t want to have a bottleneck in that area, which can quickly happen. They want to increase the through-put area as much as possible by maintaining the quality. Scott Johnston, Technical Director, Healthcare Financial Management Association 3 Gaynor, Martin and Haas-Wilson, Deborah, 1999. Change, Consolidation and Competition in Health Care Markets, Journal of Economic Perspectives, vol. 13(1).

4 In our research, decision makers in hospitals indicated that their ultimate goal of sustaining a healthy cash flow can be achieved by meeting these objectives: Reduce claim denial or error rates to less than 10 percent. Increase staff productivity through timely claims processing (Specific goals mentioned by a respondent included these figures for 40 FTEs: 2.6 records per hour for inpatient records, 4.7 records per hour for outpatient surgeries, 31.2 records per hour for outpatient diagnostic, and 13.6 for ER.) Reduce days in accounts to 40 45 days by avoiding initial coding errors. Maximize revenues and minimize bad debt through streamlined communication and consistency through proper coding and billing. It is how these goals are met that allows hospitals to manage their cash flow challenges. Challenges As the AHA chart illustrated on the next page shows, paperwork remains a significant challenge for hospitals, especially given worker shortages. 4 While the need for technology solutions is evident, generally unfavorable operating returns hinder hospitals in their efforts to raise funds for capital improvements, including technology upgrades 5. A recent survey by the American College of Healthcare Executives underscores this fact: 71 percent of hospital CEOs ranked financial challenges as their top concern, with the issue of technology increasing in importance within a three-year period 6. Compliance with federal and state regulations, which increase pressure for hospitals to submit their bills electronically, is also driving the need for updated technology. In addition to the government s requiring electronic submission of Medicare and Medicaid bills beginning in October 2003, private payers have been following suit all in the name of more efficient processing and systemic review of coding and billing patterns, which in turn result in better detection of coding errors and fraud. The trend [to incorporate electronic coding, billing and reimbursement solutions] started with larger organizations, major hospitals and university teaching centers, but has expanded and is expected to soon encompass all hospitals. Gretchen Young-Charles, RHIA. Coding Staff Specialist, American Hospital Association 4 American Hospital Association, Overview of the U.S. Health Care System, February 2005. 5 American Hospital Association, The Fragile State of Hospital Finances, 2004. 6 American College of Healthcare Executives, Top Issues Confronting Hospitals: 2004.

Care Setting Emergency Department Care Surgery and Inpatient Acute Care Skilled Nursing Care Home Health Care Every Hour of Patient Care Requires 1 Hour of Paperwork 36 Minutes of Paperwork 30 Minutes of Paperwork 48 Minutes of Paperwork 5 Hospital CEOs rank the need for technology as an increasing concern. To streamline the paperwork burden and address other revenue cycle challenges, it is clear that, when compared to physician practices, hospitals are leading the trend in moving toward electronic solutions, as seen in the following chart. 7 And the resulting benefits are significant a recent report to Congress by the Medicare Payment Advisory Committee (MedPAC) refers to research with preliminary results indicating that the longer the investment in technology (by hospitals), the greater the financial effect. 8 AVERAGE OFFICE CONVERSION TO ELECTRONIC SOLUTIONS 100 80 83% 79% 80% Physician Office Hospital/Institution Percent 60 40 20 69% 62% 58% 55% 53% 43% 39% 32% 58% 31% 58% 35% 49% 21% 32% 0 Electronic billing of Medicare Electronic billing of private payers Practice mangement tools Electronic code look-up tools Electronic coding reference tools Online medical and coding news Electronic medical records E-mail access Web access However, even though hospitals are far more connected than physician offices, most still use print copies of ICD-9-CM and CPT code books, and nearly all expect that at least one reference copy of each code book will continue to be purchased, even when an office becomes completely electronic. 9 7 Shugoll Research, based on 600 phone interviews conducted August 2004-May 2005. 8 MedPAC, Report to the Congress: New Approaches in Medicare, June 2004. 9 Shugoll Research, based on 600 phone interviews conducted August 2004-May 2005. CPT is a registered trademark of the American Medical Association.

6 Overall, the adoption of CBR solutions is likely to meet less resistance than in the past, given increasing comfort with technology. A recent study in the British Medical Journal of 54 U.S. generalists and internists showed in 2004 that close to a quarter of physicians currently use mobile devices, such as personal digital assistants (PDAs); by 2005, that figure is expected to be up to one-half. The general consensus among the group of physicians is that handheld devices and other technologies are becoming everpresent in health care, a trend some attributed to younger doctors entering the field with much higher technology comfort and proficiency. According to the study 10, common uses for handheld devices include: Point-of-care assistance drug information, clinical guidelines, decision aids, patient education Patient information patient tracking, clinical results Administrative functions electronic prescribing, coding, tracking schedules Research activities data collection, participant education Medical education lecture notes, presentations, photographs and diagrams Slow Technology Adoption: Its True Costs Keeping pace with federal and private payer s regulatory changes is increasingly difficult for hospitals that may not have the staff and resources to analyze the rapid and often irregular changes in code definitions and payment levels. Claim delivery method (paper vs. electronic) makes a difference as well in accuracy level and processing time. On average about 94 percent of claims received electronically from hospitals are clean versus 87 percent of paper claims, according to a survey completed by the HIAA. More specifically, in comparison to providers, the rate of errors on claims submitted to private payers was found to be higher for hospitals (6 percent for hospital electronic claims vs. 3% for physician paper claims and 13 percent for hospital paper claims vs. 11% for physician paper claims) 11. This could be due to the more complex nature of coding in hospital settings where multiple procedures, conditions and diagnoses are involved. According to the HIAA study, errors were not centralized in a certain department or function, but, instead, crossed every department and function and involved every aspect of the revenue cycle and management processes. Hospitals claims errors are higher than physicians or other providers Many of the common errors that delay claims during processing or cause their return, as illustrated in the analysis hown next of 160,000 Medicare fee-for-service 12 claims and 900,000 private-payer claims 13, could be avoided with electronic coding systems that check for basic information and use logic edits to ensure that the codes used are properly supported. 10 BMJ, Doctor s experience with handheld computers in clinical practice: qualitative study 2004; 328:1162 (15 May). 11 HIAA, Results from an HIAA Survey on Claims Payment Process, March 2003. 12 CMS, FY 2004 Improper Medicare Fee-for-Service Payment Report. 13 HIAA, Results from a HIAA Survey on Claims Payment Process, March 2003, based on 900,000 claims.

SOURCE OF MEDICARE FFS CLAIMS ERRORS REASONS FOR PRIVATE INSURANCE DELAYS IN CLAIM PROCESSING 7 Non-Response Errors (30%) Insufficient Documentation (44%) Coordination of Benefits Across Multiple Plans (25%) Lack of Information on Pre-Existing Conditions (25%) Lack of Premium Payment (9%) Medically Unnecessary (17%) Incorrect Coding (8%) Other (1%) Potential Fraud (2%) Eligibility Questions (2%) Other (18%) Information to Prove Medical Necessity (19%) For instance, electronic CBR solutions can minimize common errors referenced in these illustrations, such as those caused by insufficient documentation, by offering official language for documentation or prompting for the billability of certain code and modifier combinations, often supporting higher levels of coding. When it comes to medical necessity checks, electronic coding solutions currently available on the market (such as UBEditorPro.com from Ingenix, used by a few of our respondents), provide online access to updated and active Local Medical Review Policies, Local Coverage Determinations, and National Coverage Determinations specific to the Medicare fiscal intermediary selected. Users can conduct terminology or code searches to assess whether a procedure falls under any of the Medicare coverage issues, or look up medical necessity denials using the L code associated with each LMRP/LCD policy.

8 The Solution: Electronic Coding, Billing and Reimbursement Overall, study participants agreed on these specific benefits of electronic coding, billing and reimbursement solutions in hospital settings: Shorter bill processing time Better revenue capture rates Lower error or denial rates Reduced time in A/R Improved staff efficiency Savings due to reduced need for print code books and reference guides Improved ability to comply with new federal guidelines or regulations Enhanced ability to analyze financial metrics One clear advantage offered by online CBR solutions in particular was staff s ability to access the technology remotely and the associated productivity gains. We actually saw a 30% increase in production when our staff went home [and used online coding resources] because they are not interrupted, it s a quieter environment. Barbara Farkas, Director of Health Information Management, Detroit Macomb Hospital More so, remote access to online coding solutions allowed for better utilization of resources. Streamlining processes through electronic CBR solutions offers opportunities to increase cash flow and ultimately plan for a hospital s future. We were looking to [have] electronic scanning of the records across all seven system hospitals. So that, when one hospital is short a coder or has lost a coder, the rest of us can pitch in and help and easily having a coder from home dial in and get that information [and use online coding resources] Barbara Farkas, Director of Health Information Management, Detroit Macomb Hospital

Ultimately, our respondents agreed that electronic CBR solutions enable hospitals to convert internal and external pressures into profits by minimizing administrative costs while maximizing total revenue through more efficient revenue cycle management. 9 [The main advantage is] speed. I love to see the medical records coding on a rapid pace. I m seeing claims submitted much faster than they were before. Also, the resolution of claim denials is quicker now. Colleen Stegal, Billing Manager, Midland Memorial Hospital, TX As noted by decision makers in hospitals, goals and measures vary by organization and typically involve improvement over historical performance, or agreed-upon levels based on the hospital s specific situation in terms of patient and payer mix, degree of automation and staff levels. Yet, the overall objective is to utilize electronic CBR solutions to amplify assets while increasing the bottom line. Industry experts agreed. I think that after we get through the learning curve people tend to feel that they cannot not live without [electronic coding, billing and reimbursement solutions], and wonder why did we not have them a long time ago. And they are much more comfortable with the accuracy they create since books are not able to keep up with the changes with all the hand outs that come out every month versus electronic changes which are there instantaneously. Scott Johnston, Technical Director, Healthcare Financial Management Association Internal efficiencies through electronic CBR solutions allow hospitals to amplify their assets. The Know-How Many of the respondents in our research also noted that most recently, online training has been another great way to help keep staff current with the latest changes. Online training allows for Web delivery of instruction when, where and precisely as it is needed.

10 Online training solutions increase employee productivity. Some of the additional benefits of online training, as noted by our respondents, include decreased training costs, convenience, ability to fulfill learning requirements and quick updates on the latest code changes for immediate application. Web-based education programs are very nice because you can train [coders] in 1 1/2 hours versus all day long. You don t have to send them out of the hospital Janice Balmer, Medical Billing & Coding, Director, Skiff Medical Center Our research indicates that, due to online training, more often staff is better utilized. I think you save by going with an electronic [training] program. You can combine elearning with [online] coding and actually serve it up as needed. Coders are going to be able to do a lot more. Scott Johnston, Technical Director, Healthcare Financial Management Association Assets + Technology = Compliance & Monetary Benefits As new technology is woven into existing assets, hospitals are not only able to better meet federal and state coding and billing compliance obligations, but also reap internal efficiencies that lead to increased reimbursement. [Electronic solutions] pay for themselves through better billing, better processing of claims and less denials. Chantal Worzala, Senior Analyst, Medicare Payment Advisory Committee [MedPAC], Senior Associate Director of Policy, American Hospital Association Our denial rate has gone from 20 percent to 5 percent since implementing electronic solutions. Our days in A/R have gone from 80 four years ago to 46. Mindy Vandebers, Manager of Coding & Reimbursement, Avera McKennan Hospital, IA

Improved revenue cycle management is the main point of focus for hospitals when considering investments in electronic CBR solutions. And most of our respondents agreed that electronic CBR solutions help with this goal. In some cases, the benefits take time to be realized, but they are well recognized. 11 Capitalizing on Technology The message is clear: A hospital without electronic CBR technologies will most certainly face cash flow challenges due to higher coding error rates and inefficiencies. With the integration of these electronic CBR solutions, a hospital can also now get to the source of the problems for instance they can easily pinpoint if billing errors associated more often with specific coders or certain procedures, or if outdated codes are the root of the problem. Furthermore, electronic solutions can help management make key decisions about the types of businesses with which they want to collaborate, what services to provide and at what prices and which markets to serve. As with any business, this proactive analysis is crucial to creating and sustaining positive cash flow. It s very important for hospitals to have these administrative [technology] systems in place it s almost universal that hospitals have their billing and coding entirely electronic in order to go back and forth between the provider and the insurer. There are definitely efficiencies to be gained by going electronic. Chantal Worzala, Senior Analyst, Medicare Payment Advisory Committee [MedPAC], Senior Associate Director of Policy, American Hospital Association Recommendations for Survival, Success and Satisfaction The economic implications of incorrect medical coding and billing are far-reaching for hospitals. Policy decisions and regulations put enormous pressure on providers who are not operationally ready for these changes but whose payers follow Medicare policies. As indicated by respondents in our study, a hospital can be efficient and financially solvent with electronic CBR solutions. By streamlining internal processes and increasing productivity, the hospital can reap reimbursement once thought out of reach. With clear benefits for hospitals and their staff, the facility can gain financial and clinical stability and, most importantly, the ability to convert pressures into profits and plan the future with confidence.

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