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Like many other health systems, Adventist Health, a faith-based, not-for-profit, integrated healthcare delivery system serving communities in California, Hawaii, Oregon, and Washington, expects to see operating revenues reduced over the next few years and, with them, its ability to cost-shift and subsidize programs. At the same time, Adventist wants to focus on improving quality, and a major thrust of that initiative is identifying and removing variation in care delivery across the system’s 19 hospitals, 14 home care agencies, and 150 clinics.
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Both of these developments helped drive Adventist’s decision in 2011 to move to a costing system that would better reflect actual costs than the ratio of cost to charge (RCC) system it had been using, says Paul Selivanoff, CPA, vice president finance, St. Helena Region.
“RCC assumes that you have the same markup on all items in the same department, and clearly that is not true, has not been true, and probably will be less true going forward as we price more aggressively.”
Stopping short of a full-blown cost accounting system, Adventist chose a multiple relative value unit (RVU) methodology, a hybrid sometimes called activity-based or procedural costing that is easier and more affordable.
To implement multiple RVU, the health system expects to spend between $3.5 and $4.5 million, which includes:
“It seems reasonable,” Selivanoff says, “for a company that has more than a billion dollars of net revenue to spend that much for knowledge of what it costs to do business at the patient level.”
At Adventist, two factors have led to the implementation process taking longer and being more complicated than anticipated. First, Adventist decided not to bulk up corporate project staff only to have to cut back sharply during the maintenance phase. Sometimes, bringing too many people into the process too quickly can cause false starts, Selivanoff says.“So we chose to use a smaller group and take our time, allowing the organization to address the concerns that arose at a steadier pace.”
This means that three to four people on the project team are developing the RVU system for all 17 hospitals. This leads to the second factor that is delaying implementation: Each of those hospitals has unique issues, “which restricted our ability to use a one-size-fits-all approach,” Selivanoff says.
It’s been an educational process for both the hospital CFOs and the corporate leadership group, he says. The lack of consistency in the way individual hospitals use what is ostensibly the same financial system (same general ledger, same payroll, same chargemaster) meant that each implementation of the costing system at each hospital had to be customized.
“When we actually went out into the field, it turned out to be not so much an enterprise system as a regional system. Separate instances of the same master software had been installed at each hospital. So even though there was a standard chart of accounts and standard job codes, each hospital had made changes that moved them away from the standard.”
For example, some hospitals chose to package supplies in a catch-all charge that encompasses a particular service, while others chose to itemize. So, Selivanoff explains, “You’re not going to get comparability when you try to do any type of costing analysis because your costing system takes all of your expenses from the general ledger and applies them to all your charge codes. Some hospitals don’t have those charge codes or are using them in a different way.
“As a result, we’ve had to go through and do a lot of standardization and reconfiguration before we could proceed, and that’s taken time.”
The need to reconfigure systems poses its own challenges, Selivanoff says. What happens when a hospital that has been buying supplies for years under one code, which is reflected on its purchase orders, suddenly has to change that code? “Now the hospital has credits on the old account but expenses in the new account. How do you deal with that?”
In the next year or two, Adventist is hoping to replace all of its financial systems, moving to a true enterprise model, in which all hospitals will run off a single instance and configuration of a vendor’s product and be in the same database.
“That should ensure a lot more consistency because hospitals won’t just be able to add accounts or departments or job codes on their own; those things will have to be added at the master level, where they will automatically be available to all the hospitals.”
Wouldn’t it have been easier to introduce the enterprise system before the new costing system? Selivanoff laughs. “Absolutely, but we couldn’t wait for the data—we need it now.”
Another stumbling block has been the lack of IT resources, which have been tied up with the implementation of an EHR and other clinical and peripheral systems that, unlike cost accounting, have meaningful use dollars attached.
So even though Adventist has enough accountants, according to Selivanoff, “We’ve had some situations where we’ve not been able to move data from one system to another as quickly as we’d like. There’s a lot of traffic out there, and you have to wait your turn.”
In addition to the complexity of Adventist’s current processes and systems, and the many demands on IT, there are political issues to deal with: people who are responsible for the general ledger or for purchasing, who have come to like things the way they are.
Far from being discouraged, however, Selivanoff believes that a coming together of organizational executive leaders and cost accountants—what they’re interested in and what they need to do a better job—is not far down the road. As Adventist comes to rely more and more on cost accounting, he says, it will be up to the cost accountants to say, ‘Hey, we can’t give you more accurate data because you’re not giving us the data we need from that purchasing system or general ledger. If you guys will clean up the GL, we can give you what you need.’ Then there will be alignment of priorities.”
This development is inevitable, he says, because the new cost accounting system will quickly demonstrate its value by helping hospital leaders make better decisions, such as:
One feature of the new costing system that Selivanoff is especially excited about is its ability to integrate medical records, financial systems, and quality data. Ultimately, this will make it possible for Adventist leaders to compare outcomes at different cost levels with the standard of care in the community and home in on best practices.
An example is hip replacement surgery. One Adventist hospital, hypothetically, may average $60,000 in costs while another hospital averages $30,000. “By drilling down, we can compare average lengths of stay, surgical techniques, types of equipment, and post-op care in both facilities, along with infection rates and outcomes in terms of patient functionality.
“If it turns out that the two hospitals are using different processes to generate similar outcomes, then we would want to see the hospital that is spending $60,000 adopt the model used at the hospital spending $30,000. On the other hand, if we find out that patients at the less expensive hospital generally have poorer outcomes, we can dig deeper to identify which parts of the process used at the more expensive hospital are influencing outcomes for the better and make that the standard.”
Well into its journey, the system spent a little more than a year implementing RVUs, and will be rolling the results out to hospital CFOs in 2013. Adventist Health has two pieces of advice for other multi-hospital systems pursuing a new cost accounting system. From a leadership perspective, says Selivanoff, it’s important to have one person at a very high level—in this case the CFO or COO—hold on to the vision and drive the process.
“There is a lot of distraction and noise in a large organization, and it’s helpful to have a stakeholder responsible for keeping things moving in the right direction through all the various phases.”
On the technical level, a major key to success is to know your data—what you have and, as important, where you have it—before you start. This is particularly true if the different units of a health system are not all on the same page, either using different systems or using the same systems differently.
For example, he says, if one hospital uses insurance code 3000 for Medicare and another for an HMO, or if one hospital puts the DRG code in this field and another somewhere else—and you don’t know about the discrepancies—then when you try to bring all that data together and conduct some analysis, or create some standard rules for how data are supposed to flow, it won’t work. And you’re back to customizing rather than standardizing.
Categories of data to focus on include:
Selivanoff likens the entire process to climbing Mt. Everest. Before you get to the base camp, he says, you should research the weather patterns, surface conditions, equipment track records, and the experience levels of your fellow climbers. “I think that a thorough walk-through in advance can help hospitals identify and bypass many of the problems and put in place a strategically sound implementation plan.”
Not that failure means falling off a cliff and dying, of course. But success can make you feel like you’re on top of your organization’s financial situation, with the best view around of what high-quality care looks like and costs.
Lauren Phillips is president of Phillips Medical Writers, Ltd., in Bellingham, Wash., and a frequent contributor to Strategic Financial Planning (
Interviewed for this article: Paul Selivanoff, CPA, is vice president, finance, St. Helena Region, Adventist Health, Roseville, Calif. and a member of HFMA’s Northern California Chapter (
Access Related Presentation:
Creating a High-Performance Cost Accounting Strategy
Access Related Q&A:
Moving Toward Cost Accounting
Publication Date: Thursday, February 21, 2013
In this business profile, Amy Gross, senior vice president of Key Government Finance, discusses the benefits of private placement transactions to support large-scale financing projects.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
In this business profile, Doug Polasky, executive vice president at Xtend Healthcare, explains the importance of having sound workflow processes in a consolidated business office to ensure optimal performance and reduce costs.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
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Emad Rizk, MD, president and CEO of Accretive Health, discusses the uncertainty facing hospitals and the transitions affecting revenue cycle management.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
Jim Bohnsack, vice president, solution & corporate development for Conifer Health Solutions, explains how the company helps healthcare providers leverage data to deliver better outcomes while optimizing reimbursement for all payment arrangements.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
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With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
Elena White, vice president of risk, quality, and network solutions for Optum, discusses how healthcare providers can leverage data and technology as they enable risk in their organization.
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Somnia President and CEO Marc Koch, MD, MBA, explains how hospitals can drive transformative change in the perioperative experience for outstanding clinical and financial outcomes.
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PMMC President Roger L. Shaul discusses the effects of healthcare reform on revenue cycle management and how PMMC's products help clients adapt to a changing financial environment.
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Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
Announcements from several commercial payers and the Centers for Medicare and Medicaid Services (CMS) early in 2015 around increased efforts to form value-based contracts with providers seemed to point to an impending rise in risk-based contracting. Rather than wait for disruption from the outside in, health care providers are now making inroads on collaborating with payers on various risk-based contracting models to increase the value of health care from within.
Yuma Regional Medical Center (YRMC) is a not-for-profit hospital serving a population of roughly 200,000 in Yuma and the surrounding communities.
Before becoming a ZirMed client, Yuma was attempting to manually monitor hundreds of thousands of charges which led to significant charge capture leakage. Learn how Yuma & ZirMed worked together to address underlying collections issues at the front end, thus increasing Yuma’s overall bottom line.
Kindred Hospital Rehabilitation Services works with partners to audit the market and the facility’s role in that market to identify opportunities for improvement. This approach leads to successes; Kindred’s clinical rehab and management expertise complements our partners’ strengths. Every facility and challenge is unique, and requires a full objective analysis.
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Qualified coders are getting harder to come by, and even the most seasoned professional can struggle with the complexity of ICD-10. This 5-Minute White Paper Briefing explains how partnerships can help improve coding and other key RCM operations potentially at a cost savings.
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How Lucile Packard Children’s Hospital Stanford increased payments received within 45 days by 20% and reduced paper submission claims by 70% by using ZirMed solutions.
The reasons claims are denied are so varied that managing denials can feel like chasing a thousand different tails. This situation is not surprising given that a hypothetical denial rate of just 5 percent translates to tens of thousands of denied claims per year for large hospitals—where real‐world denial rates often range from 12 to 22 percent. Read about how predictive modeling can detect meaningful correlations across claims denials data.
Emergency Mobile Health Care (EMHC) was founded to be and remains an exclusively locally owned and operated emergency medical service organization; today EMHC serves a population of more than a million people in and around Memphis, answering 75,000 calls each year.
Since the Physician Quality Reporting Initiative (PQRI) introduction, CMS has paid more than $100 million in bonus payments to participants. However, these bonuses ended in 2015; providers who successfully meet the reporting requirements in 2016 will avoid the 2% negative payment adjustment in 2018, so now is the time to act! Included in this whitepaper are implications of increasing patient responsibility, collections best practices, and collections and internal control solutions.
Getting paid what your physician deserves—that’s the goal of every biller. Yet even for the best billers, achieving that success can be elusive when denials stand in the way of success, presenting challenges at every turn. Denials aren’t going away, but you can learn techniques to manage and even prevent them.Join practice management expert Elizabeth W. Woodcock, MBA, FACMPE, CPC, to: Discover methods to translate denial data into business intelligence to improve your bottom line, determine staff productivity benchmarks for billers, and recognize common mistakes in denial management.
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