Financial Leadership

How healthcare organizations can defend against financial hazards in 2023

December 6, 2022 2:43 pm

Today’s healthcare organizations continue to operate with negative financial margins and well-below pre-pandemic volumes. As expenses continue to rise, and healthcare disruptors chip away at outpatient volumes, taking proactive steps to mitigate financial risk will be paramount.

The good news is that healthcare financial leaders are responding to the call.

“I’m seeing clients focus on growth strategies while simultaneously doubling down on expense management to position themselves for a better 2023,” says David Murdock, senior vice president of performance improvement at Kaufman Hall.

In this article, Murdock and other experts at Kaufman Hall provide their most critical strategies to steer healthcare organizations away from financial hazards and toward financial stability in 2023 and beyond.

Prioritize workforce optimization

Workforce optimization reduces labor costs while simultaneously ensuring patients’ needs are met, said Shawna O’Neill, senior vice president of performance improvement at Kaufman Hall.

“All of this requires detailed analyses around your hourly census, daily census and float pool,” said O’Neill.

Establish tighter controls around contract labor

Although contract labor was a necessity during the pandemic, it has become less critical as workforce circumstances and dynamics continue to evolve, said Murdock.

“Patient volumes are returning, and staff aren’t out sick with COVID as frequently,” Murdock said. “Contract labor rates have also decreased, so it’s less attractive to people who might have left to become a travel nurse, for example. Hospitals are taking the money they would have spent on contract labor and putting it toward increased wages or ‘stay’ bonuses. This helps recruit and retain staff back into full-time positions.”

O’Neill agreed, adding organizations need to talk about how they’ll recruit and retain nurses specifically.

“What are you doing to keep those nurses at the bedside or at least within your organization?” O’Neill said. “Pay attention to young nurses who may not have a lot of experience. Having mentors and beefing up supervision on weekends and nights can help.”

Another important strategy? Stay abreast of contract end dates to prepare for next steps, said Murdock.

“Organizations also need centralized controls and awareness of when contracts are set to end so the organization can recruit into those positions and displace the more expensive resources,” he added.

With that said, in some cases, contract labor may be unavoidable. For example, many organizations continue to struggle with hiring and retaining coders.

“While organizations continue to look for ways to improve retention and attract new coders, they should also examine temporary and permanent outsourcing resources to prevent delays in coding,” said Murdock. “This can help with short-term needs and allow certain segments/types of accounts to be removed from work queues and to allow coders to focus on more critical or specialized accounts.”

Fight denials proactively

For the biggest financial impact, focus on these three common denials: Lack of prior authorization, lack of medical necessity and non-adherence to timely filing limits, said Mark Newton, senior vice president of performance improvement at Kaufman Hall. Consider the following specific strategies:

  • Increase clinical integration by having clinicians and care management leaders collaborate with revenue cycle management to investigate, prioritize and develop strategies to prevent clinical denials. Use initial denial data to prioritize, track and monitor denials.
  • Refine denial reporting to more quickly identify and address root causes of denials.

Focus on discharge-not-final-billed (DNFB) accounts

Educate delinquent providers about the need to complete documentation in a timely manner, said Murdock.

“Providers who don’t comply should be subject to disciplinary actions as provided in the bylaws,” he added.

In addition, drill down into the root cause of the DNFB accounts, and assign those accounts to the appropriate individuals, said Murdock. For example, accounts held for pre-bill edits should go to staff who can correct or complete the data or address errors and omissions. Accounts held for charge-related problems should go back to the appropriate department to make corrections.

Reduce bad debt

Focus on point-of-service collections by leveraging price estimation tools, said O’Neill. Helping patients understand what they owe and why is also an exercise that helps healthcare organizations comply with the No Surprises Act, she added.

Shift to a productivity-based physician compensation structure

Productivity-based compensation promotes physician payment based on work relative value units (RVU), said Murdock.

“Work RVUs are correlated to access,” he added. “It’s about paying providers to ensure the right level of access for patients in the community. It’s also about ensuring fair and transparent payment based on an expected level of production.”

Once organizations set a standard level of production for each provider, they can more easily identify the right ratio of physician to non-physician staff while simultaneously mitigating the risk of over- or under-staffing, said Murdock. “This starts with recruiting providers and ensuring there are standards and guidelines in place when the recruiting conversations begin,” he added.

Once organizations agree to and communicate productivity targets, they can then develop practice-level profit and loss statements to help providers and practice managers understand how they are performing, said Murdock.

“All of this helps guide provider compensation discussions,” he added.”

However, organizations should frequently revisit this ratio as they adopt patient engagement technologies (e.g., self-scheduling tools or online bill pay) as well as centralized functions (e.g., centralized billing or scheduling). That’s because it may mean that fewer non-clinical staff are needed to complete the same amount of work, he added.

Access external benchmarks for supply pricing

Doing this helps organizations focus on contracts that require renegotiation, said Murdock.

“In addition, be aware of suppliers that offer rebates based on purchasing volume that can cloud the picture regarding item level pricing,” he said. “Rebates are important, but if you have the choice between getting a rebate and a price concession, the price concession is easier to translate to the bottom line. Price concessions also make it easier to budget and plan for the next year because you won’t know whether you’ll get the same rebate.”

Still, tracking rebates is critical, says O’Neill. “When those rebates are due, are you getting the full amount?” she said.

Provide education on length of stay, observation status

“We’ve really seen observation hours grow over the last couple of years,” says O’Neill. Here’s what she suggests to ensure accurate assignment of patient status:

  • Perform multi-disciplinary rounds Monday through Friday with a modified version on the weekend.
  • Perform huddles twice a day for observation patients to make sure they’re discharged in a timely manner or converted to inpatient status, when appropriate.
  • Review cases with a long length of stay twice weekly to determine when discharge might be appropriate.
  • Identify one or more physician advisers who can serve as a resource during the discharge planning process when questions arise.

Perform a council-based review of purchased services

This council should include the senior team or a subset of it, said Murdock, adding the team should use an objective set of criteria to evaluate or re-revaluate purchased services.

 “This provides an environment where it’s safe to question programs that may no longer be aligned with strategic priorities or provide the return on investment to justify the spend,” he added.

For example, can the organization evaluate certain essential programs (e.g., environmental services or food/nutrition) for price concessions? Can it consolidate contracts for multiple non-essential programs (e.g., consulting) into one contract? What about rethinking the group purchasing organization arrangement to work with lower-cost, local vendors instead?

Looking ahead

Experts agree that today’s choices affect tomorrow’s financial performance.

“I hope 2023 is going to be better,” said Murdock. “The decisions hospitals make now will position them better next year.”

About Kaufman Hall

Kaufman Hall is a trusted partner for organizations in dynamic, disrupted, and transforming industries. With a unique combination of consulting services, Kaufman Hall uses rigorous analytics to help leadership achieve transformative outcomes. With particular expertise in healthcare and higher education, Kaufman Hall hires the best of the best, to solve the toughest business problems on Earth.

This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.


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