Tacoma, Wash.-based MultiCare Health System, a four-hospital system with 819 licensed beds in the Tacoma area, began using KPIs within the last couple of years as a way to gain more leverage during the contract negotiation process, says Jason Adams, vice president of revenue cycle.
The core KPIs that MultiCare uses, primarily with payers for its larger urban facility in Tacoma and its two smaller community hospitals are:
- Days in accounts receivable
- Stage one denials
- Payer specific net to gross percentage
- Underpayments and associated recovery percentages
- Bad debt as a percent of overall revenue
Adams says days in accounts receivable is a strong overall indicator of how well a payer is performing. “A payer source A/R days KPI is definitely No. 1,” he says. With stage one denials, the focus is not necessarily on the denial itself, but the percentage of initial denials that are overturned. For example, Adams says, if a payer issues a denial for MRIs, always requesting additional information, and 95 percent of those denials are overturned, that’s an indication that either something is wrong with the hospital’s process and it should be adding the information with the claim in the beginning, or something is wrong with the payer’s process.
For the net to gross percentage, the focus is on determining the business volume for each payer, and ultimately giving the largest volume payer the best rates. A payer with 50 percent of MultiCare’s managed care volume will receive better rates on an inpatient/outpatient basis than a payer with a smaller volume, say 2 percent, Adams says.
With underpayments, it is useful to understand how many claims, along with the associated dollars, are not being processed and paid correctly by the payer. This allows MultiCare to clearly identify opportunities to improve from a processing perspective and hold the payer accountable for the edits within their claims processing systems, Adams says. Those payers that have little to no underpayments have a lower cost to collect. Ultimately, he says, the provider can work with the payer in finding ways to decrease the overall administrative cost associated with processing claims.
Finally, bad debt as a percent of overall revenue is meant to be used as a negotiating tool. If MultiCare forecasts a net revenue realization of $10 million for a particular payer, including the allowable plus patient liability, but that number falls short by 20 percent because of bad debt, the goal is to plan for that shortfall within the contract. “We then negotiate a higher net revenue increase the following year,” says Adams, noting that this KPI has been particularly useful recently as more and more patients are finding it difficult to pay their healthcare debt. “So, we’re trying to pass that burden back to the payer source.”
Analysts within MultiCare’s contracting department reviews these KPIs for eight payers monthly. The eight payers represent 86 percent of the health system’s commercial managed care business. MultiCare then meets with their largest payers on a regular basis to continuously improve their processes and decrease the overall administrative burdens with claims processing. A payer whose KPIs are showing problems may require monthly meetings, whereas with the top performing payer only bi-annual meetings are required, Adams says.
As for results, Adams says he can’t really connect KPIs directly to the decrease in their denial rate, for example. That decrease came about from process improvements at the front and back end of operations. But what using KPIs has done is given MultiCare the information, or leverage, it needed to improve payer performance, and that has resulted in better numbers.
“It has further facilitated awareness as to how we’re not realizing the full benefit of the contract due to the growing bad debt issues,” he says. “It has actually helped us get higher rates from certain payers as a result of their administrative burden and high A/R days.”
Perhaps even more importantly, the KPIs have fostered a sense of collaboration rather than conflict with payers. MultiCare has partnered with its largest managed care payer to create a cost savings initiative that will be implemented next year, Adams says. The provider’s aggregate net rate increase will be based upon the realization of those cost savings.
“I think that’s pretty advanced,” he says.