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By Richard Bajner and Eric Logue
Hospitals are increasingly finding payers unwilling to increase reimbursement without sound reasoning. Hospital systems that are able to clearly articulate their "value" story have had greater success negotiating contracts that maintain current unit rate trends. Conversely, hospitals that haven't been able to back up their rate increase positions with detailed analytics have a much greater likelihood of leaving substantial revenue on the table.
What tactics work when you are trying to justify a rate increase request?
Payers are investing more resources into their analytic foundation to better benchmark hospital value profiles, including detailed cost comparisons across hospitals. We have observed the following four steps will help you define your "value" story.
Step 1: Benchmark your quality versus the market. As payment systems evolve from volume-based to outcomes-based, providers will need the necessary IT systems and analytic infrastructure to measure and monitor quality trends. It is important to view your data from a payer's standpoint so as to define the quality conversation before your payers define it for you. Risk-based payment models based on quality performance will require integrating managed care and clinical strategies in order to price your performance risk appropriately.
Some key metrics that payers currently use to shape a quality conversation include the following. All of these are based on publicly available data.
Providers that can provide trended quality data to illustrate consistent high performance have had success maintaining or raising current annual rate increases.
The following exhibit illustrates one way to present comparative quality data.
Access exhibit: Trended Quality Scores
Key take-away: If hospitals cannot quantify their quality positions to payers, they will likely not be able to quantify their positions to patients or employers, which would be critical if a contract negotiation went to term.
Step 2: Quantify your cost position. Achieving high quality is important to your value story; however, a national focus is forcing executives to better understand their cost positions. Health plans are investing in the capability to understand the value of the healthcare services that they are purchasing. As such, they are mining data for key cost and quality trends to create "value" positions for providers within their networks. These analytics become the foundation for their network strategy as they attempt to shift volume to high-quality, low-cost facilities.
A health system was recently able to demonstrate its high-quality, low-cost position using the following graphic, which defined the system's importance to the payer early in negotiations.
Access exhibit: Defining Your Cost and Quality Position
Key take-away: If a hospital has low costs, high quality, and low margins, an increase to rates is justifiable.
Step 3: Identify your rate position versus the market. The most difficult and complex step relates to quantifying your rate position versus the market. While payers have rate information for their networks, providers are often left to benchmarking their rates by comparing their discounts versus the market. Such analysis assumes similar charge positions, yet our research indicates tremendous charge variances within markets.
A more detailed and accurate benchmarking can help you quantify your rate position for inpatient and outpatient services-down to DRG and CPT detail levels.
Triangulating your market position can be achieved by benchmarking your rates to different data sets, including:
Identifying specific areas where rates fall below the market has helped providers negotiate better terms that can be implemented immediately or through a phased-in approach over time.
Knowing where you need to defend a premium price versus where you should achieve mar-ket parity is a negotiating advantage, especially if you can integrate your quality and cost story into your rate benchmarks. Recently, we helped one community hospital benchmark its rates versus market and Medicare by service line, using a single graphic to illustrate markups versus both market and Medicare by service line (see the exhibit below). This visual representation helped communicate rate opportunities and vulnerabilities to executives in order to integrate unit reimbursement rates into a larger strategic margin plan.
Access exhibit: Service Line Rate Benchmark
Key take-away: Hospitals need to understand their market positions. Justification for increased rates is related but separate from determining if the market will bare a rate increase. Hospitals can start by benchmarking their own payer rates against each other.
Step 4: Define how your services are differentiated. Through your first three steps, you've already benchmarked your cost, quality, and rates versus the market. So you're on your way to showing how you are differentiated. But asking yourself these additional questions will round out your story:
Summarizing your analysis into a single graphic quickly tells your story. For example, in the following exhibit, cardiac services have a rate, cost, and quality advantage. However, the service has seen volumes decline over recent years. Pushing rate increases to a service with volume losses may not maximize future revenue. In contrast, orthopedics has both a quality and cost advantage as well as volume growth with rates below market averages. Negotiating rate increases for orthopedics will maximize future reimbursement given the strong volume growth in this service line.
Hospitals can use this service line differentiation tool to identify and analyze how service lines compare to the market. In this example, the hospital's cardiac services have a rate, cost, and quality advantage. However, the service has seen volumes decline over recent years. Pushing rate increases to a service with volume losses may not maximize future revenue. In contrast, orthopedics has both a quality and cost advantage as well as volume growth with rates below market averages. Negotiating rate increases for orthopedics will maximize future reimbursement given the strong volume growth in this service line.
Access exhibit: Summary Service Line Differentiation
Providers with an organized approach to quantifying their value propositions and being able to effectively communicate that value to key stakeholders, including payers, physicians, patients, and employers, are in a much stronger negotiating position. Failing to do this prior to the negotiation creates risk of reduced hospitalwide margins and reduced credibility of the negotiators.
Richard Bajner is managing consultant, Navigant Consulting, Inc., Chicago, and a member of HFMA's Florida chapter (rbajner@NavigantConsulting.com).
Eric Logue is director, Navigant Consulting, Inc., Chicago, and a member of HFMA's Georgia chapter (elogue@NavigantConsulting.com).
Eric and Rich look forward to hearing from you. Feel free to contact them with any questions.
Publication Date: Thursday, February 24, 2011
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
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.
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.
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.
Emad Rizk, MD, president and CEO of Accretive Health, discusses the uncertainty facing hospitals and the transitions affecting revenue cycle management.
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.
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 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.
Steve Scibetta, senior director of channel sales for Ontario Systems' healthcare product line, shares insights into effectively managing receivables.
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.
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.
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.
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.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
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.
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.
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 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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