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For anyone managing a physician organization in today’s complex healthcare industry, the reality is all too clear: The intricacies of juggling rising fixed costs and falling payments poses significant challenges that traditional business models do not address.
According to the American Medical Association, costs associated with running a physician organization have escalated 41 percent since 1991; meanwhile, Medicare payment rates over the same timeframe have trended, at best, to a minimal improvement, with recent rates trending flat.
Financial managers have to rethink the relationship of cost to revenue by increasing the proportion of variable to fixed costs, especially in high-cost categories, such as staffing and real estate. A greater share of resources should shift to those fixed assets that affect front-end operations, such as care providers that can enhance patient experience.
Realigning costs to revenue should begin in back-office operations that have the least effect on direct patient care and patient relationship management. The billing/collections function provides a good place to start reworking the business model. As payments decline, but volumes remain steady, the cost per unit of work rises. For example, say a practice’s cost to collect is equal to 10 percent of its monthly collections, which are $2 million. If revenue declines to $1.5 million, the cost to collect—at a fixed $200,000—increases to 13 percent as a percentage of revenue.
Practices have a few options. One, of course, is to maintain current staffing. But that solution absorbs margins as staffing costs rise and payments decline. A second option is to downsize staff and require those remaining to be more productive—a challenge if these staffers lack the ability to take on additional work.
Another option aligns costs to revenue by turning the fixed costs of billing/collections into a variable cost. Realignment is achieved by moving the risk outside the practice, which means moving the billing/collections function to outside expertise. Costs can then be tied to collections.
If the billing/collections function is outsourced, its cost, can vary, based on payment. Thus, if the billing/collections fee is 10 percent of reimbursement, and reimbursement declines from $2 million to $1.5 million, then the fee (cost of billing/collections) declines to $150,000.
The billings/collections function also faces a set of universal challenges that place further strains on the traditional business model. These challenges are apparent in the following areas.
Operational/strategic compliance. The increasing complexities of managing specifics such as coding, denials, and regulatory compliance often requires dedicated expertise in these areas. A practice’s internal staff may lack the overall experience to be able to implement strategies that directly address these issues or improve overall efficiency of the billing/collections department. Likewise, although hospital finance managers overseeing a practice may have more in-depth experience, that experience will be with inpatient operations, not a physician practice.
Volume. As volume increases, which is expected under health reform, a practice may not have the resources to add additional staff or be nimble in its hiring practices to meet demands. Many smaller or more competitive markets may also lack an appropriate number of skilled workers for these functions.
Performance improvement. Uncovering strategies for improving performance requires an intimate understanding of data that goes beyond metrics traditionally employed to gauge how well a practice is doing. Typical practice metrics may include a collections ratio or days in accounts receivable. But these metrics do not indicate whether revenue is eroding. Breaking down a metric into smaller slices can provide more meaningful information. Aged accounts receivable that grown from 90 to 120 days, for example, can be broken down into aged receivables by payer, by payer and location, and then by paper, location, and provider.
Technology and analytics. Obtaining and updating appropriate tools for collecting and extracting data to analyze business performance can be an imposing task for a practice with limited resources and declining revenues. Dashboard reporting, in particular, requires sophisticated technology that is often beyond the means of practice. Linking denials data, for example, requires retrieving data from various information systems. Hospitals may have such tools, but integrating these with a practice’s existing information systems to obtain consolidated reporting is often impractical, and switching a practice’s systems to a hospital’s systems is often met with resistance.
Physician organizations have options in crafting a new business model and addressing these challenges. Adding to internal expertise, partnering with staffing, technology, or business intelligence providers, or using a combination of these—or outsourcing the function entirely—will better equip the practice to survive within the new reality of rising costs and declining revenue.
John is a managing director with Alleviant, LLC, Powered by Navigant Healthcare, Chicago.
Publication Date: Tuesday, February 26, 2013
A leader from McKesson discusses how healthcare reform is forcing hospitals and health systems to take a different approach to capacity management and patient flow.
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.
Emad Rizk, MD, president and CEO of Accretive Health, discusses the uncertainty facing hospitals and the transitions affecting revenue cycle management.
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.
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.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
Steve Scibetta, senior director of channel sales for Ontario Systems' healthcare product line, shares insights into effectively managing receivables.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
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.
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.
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.
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.
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.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
Greg Burgess, Founder and Chief Product Officer at Burgess Group shares insights and opportunities for payment integrity in the rapidly changing healthcare IT landscape.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
Financial services staff are always looking for ways to improve the verification, billing and collections processes, and Munson Healthcare is no different. Read about how they streamlined the billing process to produce cleaner bills on the front end and helped financial services staff collect more than $1 million in additional upfront annual revenue in one year.
Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
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.
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