HFMA research shows the potential for 2.9 percent revenue improvement and the need to choose comparison groups carefully when setting targets.
Performance improvement in the revenue cycle can have a significant effect on a hospital's bottom line. New HFMA research shows that moving from median to top-quartile performance in days in accounts receivable (A/R) could translate to an increase in cash flow of $250,000 to $2.9 million, depending on the organization's demographic characteristics and peer group. It could also result in an increase in point-of-service (POS) cash collections of $10,000 to $500,000 per month (also dependent on the organization and its peer group).
However, hospitals face numerous challenges in tracking and comparing revenue cycle performance, including having information to support true peer comparisons and having timely information to be able to set performance targets that reflect current industry conditions.
Now, HFMA research shows just how important timely data and true peer comparisons are in revenue cycle performance improvement. The research also shows how much revenue growth is possible for hospitals that take advantage of improvement opportunities.
Choosing the Appropriate Peer Group
Significant opportunity exists to improve revenue cycle cash collections, HFMA research shows-and customized peer data are key to maximizing opportunities to enhance performance. Customized comparative data related to hospital revenue cycle performance allow healthcare finance executives to focus on the most meaningful measures of performance, adjust and adapt to the most recent data in the field, and learn from organizations that face the same challenges every day. With these types of data, organizations can discover not only what their level of performance is, but also what it can be.
Benchmarking of the revenue cycle for hospitals has been hampered by a lack of customized comparative data. Benchmarking has value if it can place individual organizational performance in context. Context depends on peer comparisons. "If we are at 39 days in gross A/R, what does that really mean from a performance standpoint?" says Joseph Koons, managing director of the revenue cycle for not-for-profit Centra Health, Inc., Lynchburg, Va. "How do we know whether that's an indication of good performance or whether we have work to do? We cannot know for certain unless we can draw comparisons to our peers."
Peer groups must be truly similar in the factors that influence revenue cycle metrics in order to provide effective comparisons. "Hospitals come in different shapes, sizes, socioeconomic areas, and payer mixes," Koons says. "A high-Medicare, high-governmental payer mix will have a profound impact on A/R performance. A high volume of managed care and commercial self-pay patients will put pressure on cash as well as A/R days performance."
But categories of peers vary widely among some benchmarking data services. In some instances, representative samples contain a large number of small hospitals. The demographic characteristics-such as payer mix, net patient revenue, and mix of inpatient, outpatient, and ED visits-may be significantly different from those of the organization seeking comparative peer data. And HFMA research shows that demographic data such as these are crucial in setting targets for high performance.
Charles Behl, vice president, revenue cycle for Rush University Medical Center, Chicago, obtained annual revenue cycle metrics from a software vendor for a few years. "If we spotted an organization that was doing really well in a particular category, we would want to reach out to that organization and try to find out if it was doing something we could learn from and whether we could apply that practice to our organization," he says. "But we were getting different slices of peer groups. For example, when we saw an organization with great performance, we'd take a closer look and discover that 3 percent of its patients received public aid; in Illinois, 14 to 15 percent of patients are on public aid. We'd wonder if the reason the organization was performing so well was simply because it had a better payer mix," he says.
Although bed size and geographic location are often used to define hospital peer groups, HFMA research indicates that revenue cycle performance actually is more directly determined by other factors:
- Payer mix (particularly percentage of self-pay, Medicaid, noncontracted payer, and Medicare Advantage patients)
- Net patient revenue
- Total admissions
- Outpatient visits
- ED visits
In fact, when identifying comparative benchmarks, hospitals should consider payer mix and net patient revenue as primary differentiators.
For example, consider the key performance indicator of days in A/R. HFMA research shows that a combination of payer mix, net patient revenue, and inpatient/outpatient volume mix has a strong association with level of performance related to this indicator. The top-quartile benchmark for days in A/R ranges from 35.5 days to 38.7 days-a difference of more than three days-among peer groups of comparable net patient revenue and payer mix.
The importance of choosing the appropriate peer group is also seen in findings related to aged A/R over 90 days. For this performance indicator, the benchmark for top-quartile performance is 26.5 percent overall, but 28.2 percent when one of the peer groups is excluded-a difference of nearly 2 percent. In this instance, examining top performance of the entire population, rather than of hospitals that share similar demographics, may lead to unrealistic expectations for performance.
These findings reinforce the importance of selecting a truly comparable peer group when setting a performance target.
The Importance of Timely Data
Hospitals also need recent data to set appropriate performance targets. Performance targets are relevant only when information is current, because industry trends can affect expected performance levels and revenue cycle data change dramatically from year to year. A performance target that is based on untimely information runs the risk of lagging behind current performance in the industry.
For example, although median days in A/R was about 52 in 2004, it dropped to about 46 in 2009. Thus, timing and current statistics are key to comparative benchmarking.
But gaining access to the most timely data related to revenue cycle performance standards has been a challenge for hospitals. Consulting services or software vendors that have offered revenue cycle benchmarking services over the years often have tended to provide data months after the data were collected.
Jho Outlaw, executive director of the revenue cycle for Sisters of Charity Providence Hospital, Columbia, S.C., recalls getting quarterly wrap-up data from a benchmarking service two months after the end of the quarter. "The timeliness of the data was an issue," she says. "When I'm sharing data with the administrators for my organization, I don't want to give anyone a reason to doubt the credibility of the data I'm sharing. When quarterly data are received two months after the quarter has ended, questions regarding the relevance of the data can arise based on when the data were collected."
Putting peer comparisons in context depends on timely assessment. "Revenue cycle technology is advancing rapidly," Koons says. "These advancements enable our organization to become better at what we're doing, but hundreds of other hospitals are experiencing the same effect If we look at data that are six months or a year old, we're not getting a true comparison of performance, because the bar has moved."
Seizing the Opportunity
Using benchmarking as part of a systematic performance improvement process can yield significant improvements to the bottom line. For example, moving from median to top-quartile performance in days in A/R-from 43.1 days to 37.7 days-can yield an average improvement of 5.4 days, when reviewing all peer groups, for an average improvement in cash flow of about 5 percent. Meanwhile, moving from median to top-quartile performance in POS collections can result in an average improvement of 16 percent (from 30 percent to 46 percent).
The degree of financial improvement varies depending on the hospital peer groups, as shown in exhibits 5 and 6. Consider days in A/R: The average opportunity for improvement when moving from median to top-quartile performance is an increase in cash flow of about $1 million when taking all peer groups into consideration. However, a closer look by peer group shows considerable differences in opportunity, ranging from $250,000 to $2.9 million. Similarly, although the average increase in monthly POS collections across peer groups is $600,000 when moving from median to top-quartile performance, the opportunity by peer group ranges from $200,000 to $1 million, or an increase of 15 to 22 percent.
Experiences from the field support the potential for significant improvement arising from effective use of benchmarking. At one time, Sisters of Charity Providence Hospital was pretty much of a middle-of-the-pack operation. "We didn't get much criticism, but we didn't have a lot of 'Wow!' moments, either," says Outlaw.
Since July 2010, Sisters of Charity has completely reorganized its revenue cycle to move from a median to a top-10-percentile organization. The hospital already is seeing major improvements. In 2010, the organization's up-front collections averaged $188,000 a month. In January 2011, Sisters of Charity recorded $466,000 in up-front collections. "Being able to show my patient access director where we stacked up in comparison with our peers lit a fire underneath leaders in our organization, Outlaw says. "Cash collections began to come in not only from inpatient, outpatient, and surgery areas, but also from the emergency department." The hospital's patient access areas most likely will not maintain such a high level of up-front collections every month. "But even without that big collection in January, our up-front collections are 50 percent higher per month than our average monthly collections in 2010," Outlaw adds.
Customized peer comparison data have helped Centra Health find an opportunity for improvement that otherwise would have been missed. The hospital has been working aggressively over the past seven years to maintain a low cost to collect, and the organization thought it was doing a pretty good job: Its cost to collect was running at about 1.8 percent. However, that figure encompassed only patient accounting and patient access departments; in comparison, peer hospitals were including costs associated with health information and clinical coding.
"When we added health information and clinical coding, our cost to collect jumped to 4.6 percent," Koons says. "There were organizations in our peer group that showed cost to collect with health information and clinical coding well below the 2 percent mark, with some running at around 1 percent. We're not performing as well in comparison with our peers, and that has made us think about leveraging economies of scale and technology. We're now taking action to improve our cost to collect, whereas before we had access to customized peer comparison data, we weren't as focused on it."
The availability of customized peer comparison data each month keeps a hand on the tiller. "How do we measure our performance against that of our peers with the most recent cut of data?" Behl asks. "Are we improving, or are there warning signs that we may be falling behind?"
Knowing that the hospitals in an organization's customized peer group are a good match with the organization helps that organization confidently change direction when its performance is below that of its peers. "It's nice to have a universe of facilities to take a look at, but it's better to truly compare an academic medical center to another academic medical center, or a community hospital to a community hospital," Behl says. "What works for one hospital might not work in another shop or in another marketplace. Getting information from a customized peer group gives hospitals another data point for deciding how they can make changes to perform more effectively."
About HFMA's MAP App
HFMA has launched a new tool that enables hospitals to track revenue cycle performance using industry-standard metrics, compare their results with those of customized peer groups, connect with other revenue cycle leaders, and access best practices, expert commentary and unique HFMA analysis.
The MAP App was developed by and for industry leaders under HFMA leadership. The application is a component of HFMA's new MAP initiative, which gives providers the tools they need to measure revenue cycle performance, apply evidence-based strategies for improvement, and perform to the highest standards of revenue cycle excellence.
"In an environment of healthcare reform, hospitals need to do more with less," says HFMA President and CEO Richard L. Clarke, DHA, FHFMA. "In the revenue cycle, operating efficiently and securing appropriate payment are imperative. HFMA's new MAP App is a tool for evidence-based performance improvement to help hospitals identify and meet their revenue cycle goals."
Like the MAP initiative as a whole, the MAP App was created with extensive input from healthcare providers. The MAP Keys-KPIs that are the basis for MAP App measurement-were developed by a task force of industry experts. And the features and functionality of the MAP App were designed based on extensive discussion and testing with hospital and health system revenue cycle leaders.
Key features of the MAP App include:
- Standard indicators of revenue cycle excellence, called MAP Keys, that are the basis for measuring revenue cycle performance
- A dashboard that tracks an organization's performance in key areas and highlights trends
- The ability to create customized peer groups for performance comparison
- A revenue cycle scorecard that ranks an organization's performance against peer groups and targets
- Aggregated user data that yield monthly industry benchmarks and trends
- Case studies that identify proven strategies of MAP Award winners and other top performers
- Monthly updates that provide hospitals with performance data that are timely, accurate, and audited
- Automated alerts that notify hospitals of changes in performance
The MAP App also offers tips on evolving best practices and includes a community discussion forum for airing common concerns.
"Unlike other performance comparisons that provide data through self-reporting surveys, the MAP App is based on provider operational data that have been consistently sourced following industry-standard MAP Key definitions," says Suzanne Lestina, director of revenue cycle MAP for HFMA. "MAP App operations include ongoing controls and periodic audits to ensure that the resulting benchmarks and comparisons are consistent across all providers."
For more information, including a video of the MAP App and an explanation of its features, visit http://www.hfma.org/map/.
Publication Date: Wednesday, September 28, 2011