Patricia Hines
Michael Randall

A hospital should ask eight questions when analyzing the financial performance of its case management department.

At most hospitals and health systems throughout the country, recent fiscal operating performance results are disappointing to disastrous. Net operating incomes and total margins have declined, beginning in the third quarter of 2008 and continuing well into 2009, and forecasters believe that a meaningful recovery is still several months, if not a year, away. At a time when healthcare leaders are carefully reviewing all aspect of operations to determine ways to reduce costs and increase efficiency while providing high-quality care and service, one key department for organizational review is case management.  

Now more than ever, hospital case managers play an important role in managing the cost per patient day by working closely with the patient and his or her family, along with the physician and the interdisciplinary healthcare team, to move the patient through the continuum of care with an eye toward financial reimbursement. How can you determine the financial performance of your organization's case management department? Here are eight questions to consider.

1. Do case managers review observation and one-day length-of-stay (LOS) cases for appropriate registration in preparation for recovery audit contractor (RAC) audits?

Prudent healthcare organizations are preparing themselves for the risk of a RAC audit by monitoring, at a minimum, one-day LOS cases. One-day LOS cases may comprise patients who meet criteria for observation status but who are mistakenly admitted as inpatients, posing a financial threat to the organization.

Action steps: Case managers play a critical role in ensuring that all patients receive treatment in the right setting. Hospitals should conduct self-audits of one-day stays to verify that physicians have clearly documented admission orders and that patients are registered appropriately. When a patient has mistakenly been registered as an inpatient, case managers should notify the registration department to prevent billing errors. Case managers also should screen all Medicare cases within the first 24 hours of admission to ensure patients are being admitted to the appropriate level of care.

2. Does your organization track and report hospital-acquired conditions (HAC) and present-on-admission (POA) conditions?

The 2005 Deficit Reduction Act requires an adjustment in Medicare payment for certain preventable HACs:

  • Those that are high-cost, high-volume, or both
  • Those that result in a higher DRG payment when a secondary diagnosis is present
  • Those that could have been avoided through the adoption of evidence-based protocols

On Oct. 1, 2008, CMS adjusted or eliminated hospital payments for 10 preventable HACs. That means that unless there is documentation that the condition was present when the patient was admitted (POA), CMS will no longer pay the extra costs of treating the condition. This policy reduces costs for Medicare-and reimbursement to the hospital. 

Action steps: Case managers should stay current in financial reimbursement policies and quickly adopt the appropriate interventions to protect hospital reimbursement. To this end, they should interact directly with physicians regarding patients' conditions and ensure that documentation on every admission includes all pre-existing conditions. The hospital should develop a method for tracking and reporting HACs. Then, based on these data, the directors of case management and quality assurance should work together to develop an action plan for improvement.

3. Are your 30-day readmission rates trending down?

Readmission rates for major diagnostic categories vary by hospital and geographic regions.Almost 18 percent of Medicare patients are readmitted within 30 days, with 13 percent being in the "potentially avoidable" category. CMS is targeting 30-day readmissions as a probable marker for both poor quality of care and financial overuse.

The financial opportunity in working to reduce 30-day readmission rates is the mitigation of nonpayment from payers. Practitioner patterns such as proactive discharge planning, patient education, and postacute care transitions to appropriate after-care venues are important contributing factors, as are patient compliance with treatment regimes and medication management. 

Action steps: Case managers should place particular emphasis on detailed discharge plans and patient education. It is essential that the patient and family understand the care required upon discharge and when to contact the healthcare provider for specific symptoms. The goal is to ensure that there is a comprehensive plan that provides the patient with education, community support, and the appropriate resources to support maximum recovery and prevent unnecessary hospitalizations in the future. Coaching patients during their hospital stay can reduce readmission by as much as 50 percent ("CMS Targets Readmission Through Payment, Audits; 'Coaching' Model Reduces Rates," Report on Medicare Compliance, June 30, 2008).

4. Does your organization trend denied days and collaborate with the medical staff and business office to resolve variances?

Many healthcare organizations do not have well-documented processes and procedures to trend the patient days denied by health plans. Typical sources of denials may be categorized as administrative, which means that no preauthorization was obtained, patients were not eligible for the services provided, or the claims were not submitted in a timely manner.

Another source of denials may be clinical in nature. Examples of a clinical denial include a patient who is treated at a higher level of care than is required and a patient who is in the hospital for a day or two, perhaps over the weekend, awaiting a treatment or procedure (these days would later be carved out of payment). Increased emphasis on the effectiveness of denials management is especially important given today's economic climate, when payers are scrutinizing the appropriateness of care more closely than ever. 

Action steps: Case managers should review all cases for appropriateness of level of care and treatment protocols. Trends should be reviewed at utilization management committee meetings, and feedback should be provided to clinicians. Finally, all denials should be appealed for secondary review and increased revenue recovery.   

5. Does your organization document and trend avoidable days (e.g., physician delays, patient delays, service delays) and use performance improvement committees to resolve these barriers to discharge?

Avoidable days are days of stay that theoretically could have been avoided if the appropriate resources were more readily available. Several categories of avoidable days may exist, including:

  • Patient and family-Occurring when the patient or patient's family is reluctant to place the patient into the appropriate after-care venue
  • Community-Resulting from the lack of availability for services in the after-care venue due to staffing shortages
  • Physician-Resulting when patients are admitted as inpatients when clinical symptoms would support observation status
  • System-Occurring when clinical tests needed by a patient are unavailable on the weekend

These avoidable day trends are essential to track and aggressively manage, particularly for those patients whose reimbursements are on a case-rate basis and where the hospital is at financial risk.

Action steps: Casemanagers should review cases on a daily basis for instances of avoidable days and collaborate with physicians, the case management physician adviser, and the administrative liaison to address significant issues through performance improvement initiatives.

6. Do physicians on your medical staff receive feedback regarding their operational performance?

Perhaps the most significant opportunity for case managers to improve financial performance is in effectively managing the LOS of patients with common diagnoses admitted by high-volume physicians. Several performance metrics are essential to communicate to medical staff committees and individual physicians. Examples include LOS by Medicare severity diagnosis-related group, LOS indexed to a standard benchmark such as Medicare Provider Analysis and Review, readmission rates within 30 days, denied days, avoidable days, and percentage of observation days versus one-day LOS days. 

Action steps: Hospitals should create or reevaluate the current effectiveness of their physician profiling/scorecard tools. Case management directors and the case management medical director should review these data monthly and conduct individual feedback sessions with physicians who have high inpatient volumes and physicians who show significant variances in clinical and operational outcomes. In an average hospital of 300 beds, an incremental improvement of 0.3 days equates to approximately $600,000 to $1 million in opportunity, depending upon variables such as Medicare volume and current staffing patterns ("CMS Targets Readmission Through Payment, Audits; 'Coaching' Model Reduces Rates," Report on Medicare Compliance, June 30, 2008). These LOS reductions can most readily be achieved by partnering with physicians in examining the care coordination processes.

7. Does your organization have an RN case manager(s) or medical social worker(s) in the emergency department (ED) during key volume hours?

EDs are frequently the point of both first and last resort for individuals without health insurance coverage and for those individuals who are noncompliant with health plan rules, and they are frequently used by patients in place of their primary care physicians. These patterns can result in inappropriate inpatient admissions and well as unnecessary use of ED resources. Moreover, a patient's use of the ED in place of his or her primary care physician limits the patient's opportunities to receive appropriate follow-up care.   

Action steps: Many case management departments staff a nurse case manager to the ED. Coverage should be provided based on ED visits by day of the week and month of the year. Key responsibilities of these nurse case managers are to prevent hospital admissions that do not meet the appropriate clinical criteria, increase referrals to home health departments, facilitate early transfers to the inpatient units and alternative venues of care, and educate patients and their families on urgent care and other community resources. Case managers may also serve as a resource to ED staff to problem solve and refer patients to other venues of medical care and other services when necessary.

Hospitals should evaluate the times at which case managers are assigned to the ED by asking at least three key questions:

  • Are these the peak hours of utilization?
  • What is our current utilization of clinical protocols? 
  • Are we experiencing the desired improvement in clinical quality indicators?

8. Does your hospital use a balanced scorecard to identify performance improvement activities?

  Near-term drivers of change focus on the critical tactics and action plan development to achieve operational excellence in financial performance, internal processes, quality outcomes, and personnel development. Consistency and standardization of practice is the foundation of a successful case management program. To build this foundation, the hospitals must define roles and responsibilities, measure and benchmark organizational performance as compared with standard metrics, and create an environment of continuous learning and growth see the exhibit.

Exhibit 1

Action steps: A case management balanced scorecard is an excellent tool to monitor and measure trends over time. By using a balanced approach to understand the strengths and opportunities of his or her organization's case management program, a hospital CFO can focus the organization on those areas where the case managers should place significant emphasis. There should be a direct connection between the more tactical elements of operation efficiency, revenue enhancement, and quality within the case management department to performance improvement on more global organizational measures of effectiveness.

Reducing LOS: St. Clair Hospital

St. Clair Hospital in Pittsburgh wanted to improve its average LOS. The goal of the organization's administrative team and the case management director was to complete a comprehensive case management assessment and implement recommended changes.

The movement of patients through the care continuum was evaluated through interviews, observations, and data analysis involving the administrative team, medical staff, nursing leaders, and case management team. Key solutions recommended included:

  • Alignment of case managers to service lines with a case load of 18 to 22 patients
  • Skill mix adjustment of nurse case managers and medical social workers to reflect evolving roles
  • Implementation of daily unit-based discharge planning rounds and weekly outlier management rounds
  • Assignment of a case manager to the ED 
  • Physician profiles sent to medical staff with 50 or more admissions on an annual basis
  • Revision and maintenance of the balanced scorecard for key financial metrics

"By implementing national 'best practice' policies, we were able to implement a culture of awareness throughout the hospital as it pertains to LOS," says Nan Rees, RN, MS, case management director for the hospital. "LOS became an organizational goal rather than one that was owned by a specific department. After two-and-a-half years, our LOS continues to trend downward, going from a baseline of 4.71 days to our current LOS of 4.31."

Developing Strategies for Effective Case Management

Hospital administrators and CFOs should prepare for the longer-term impacts of healthcare and payment reform by increasing the involvement of case managers in protecting the organization's financial performance.

No one knows for certain what healthcare reform will look like. However, based on recent moves by CMS in terms of future payment methodologies, such as the acute care episode demonstration project and nonpayment for HCAs or POAs, we can anticipate the challenges hospitals could face and the importance of the case managers in continuing to promote the financial solvency of their organizations.

Financial pressures will continue to increase as the uninsured patient population grows, reimbursement is tied to pay for performance, and Medicare tests bundled payments for hospitalization and episodes of care. Case managers should help protect the financial viability of their organizations by regularly monitoring indicators as LOS, cost per case, and readmission rates. They should also manage clinical care outcomes, as performance will be tied to reimbursement at the payer, state, and federal levels. Executive sponsorship-especially that of the CFO-is needed to promote successful case management programs that will enhance quality of care, reduce variability, and decrease the cost of care. Careful planning and adjustments to these trends will help ensure an organization's continued performance improvement.

Patricia Hines, PhD, RN, is a vice president, The Camden Group, El Segundo, Calif. (

Michael Randall is a manager, The Camden Group, Chicago (

Publication Date: Monday, March 01, 2010

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