July 7 2008
Building a Better Balance Sheet— Revenue Cycle Analysis Paves the Way
By Annie Macios
For The Record
Vol. 20 No. 14 P. 20
Software solutions are making life easier for healthcare organizations that want to get a better, more precise read on their bottom lines.
Your facility is strapped for cash one month, leaving administrators wondering if they’ll need to delve into the reserves, while revenue numbers show an increase the following month. In today’s unpredictable economy, that scenario may sound all too familiar to healthcare organizations looking to make ends meet. In fact, it’s a script administrators encounter and address on a daily basis.
Disparities in insurance reimbursement and patients’ ability to pay contribute to the chief financial officer’s (CFO) dilemma of accurately estimating revenue numbers, as well as calculating the reserves needed to operate successfully and make sound financial decisions. In the past, CFOs had to rely on disparate numbers from accounts receivable (AR) that might not accurately have portrayed the hospital’s true financial picture or the income it was eligible to collect at any given time.
However, the advent of revenue cycle analytics (RCA) technology has opened the door for facilities to maximize their revenues and place numbers in a format that delivers near real-time insight into AR’s daily performance. It also has given finance personnel the confidence to stand behind their numbers with more certainty.
Stopping Revenue Leaks
It’s important for healthcare facilities to know they are receiving the maximum reimbursement for their services. Through revenue management technology that incorporates business rules, hospital policy, and workflow processes into one integrated solution, RelayHealth’s Web-based RevRunner suite of advanced revenue cycle services helps automate and simplify a healthcare organization’s financial management activities with patients and payers.
Joe Ruark, assistant vice president of patient finance at St. Elizabeth Medical Center in Covington, Ky., has been using RevRunner eligibility verification for nearly two years. During that time, St. Elizabeth has experienced significant improvement in eliminating gaps in its revenue capture and seen notable revenue increases. “We were formerly using a product from our host system to check on insurance eligibility, but it wasn’t very user friendly and became costly as we added more and more insurances. Now, we use RelayHealth’s product in preregistration, patient access, and on the back end to validate if reportedly uninsured patients have Medicaid insurance,” says Ruark.
St. Elizabeth has gained the greatest return on investment in two main areas: eligibility fees and identifying patients who actually had insurance when they originally believed they did not.
“RelayHealth charges a flat fee for checking on eligibility, while other vendors charge a fee per transaction. With [this] model, our cost has significantly decreased in this area as we added more and more health insurance programs,” says Ruark.
The technology identifies patients who have insurance, primarily Medicaid. “Some segments of uninsured patients are eligible for Medicaid, but often these populations tend to be noncompliant in alerting staff of coverage, so they are billed as uninsured,” Ruark explains. “When these patients receive their bill, they don’t reply because they believe Medicare is taking care of it. So now, instead of getting $0 from these patients, we at least receive payment from Medicaid.” As a result, St. Elizabeth has been able to recover $315,000 in reimbursement that would have otherwise gone to bad debt.
Oftentimes, a claim is denied by an insurance company for so-called wrong information, such as an inaccurate home billing address. With proper information now authenticated on the front end, St. Elizabeth is realizing a 65% decrease in the number of insurance denials.
The system also identifies patient copayments, information that is delivered to staff who can collect this fee at the time of service, thereby increasing point-of-service cash collections. As soon as a patient is registered, the transaction is sent to RelayHealth, which in turn collects the proper insurance information and makes it available to staff, all of which Ruark likens to “one-stop shopping.”
Ruark says St. Elizabeth is incorporating additional aspects of the technology, one facet being bill estimation, which is designed to produce an estimated bill up front to educate the patient on the visit’s cost. At best, patients will pay. At worst, they’ll know their liability without any surprises. While the hospital is not quite at the juncture where revenue is being estimated, it is progressing in that direction as the technology is phased in over time.
One Size Does Not Fit All
Lou Molina, CFO at Community Hospital in Munster, Ind., has been using RCA software developed by Crowe Chizek, which provides financial business solutions, for more than a year and a half to establish both bad debt and charity care allowances.
Being part of a three-hospital healthcare system with three different payer mixes poses challenges when calculating bad debt and charity care reserves. Each hospital calculated reserves slightly differently based on a grid by financial class and aging, and each had the same shortcomings that were reconciled at a year-end audit. As a result, the hospitals would have above-average pickups or charges to reserve in the last month of the fiscal year.
“In addition, we needed to provide detailed patient analysis to the auditors of all bad debt write-offs net of recoveries for all accounts from the prior year end to support our allowance account calculations,” says Molina. “This was a very time-consuming process and resulted in additional analysis and testing required by our auditors.”
The new software provides bad debt and charity care calculations based on historical write-offs net of recoveries by financial class and aging based on a rolling 12-month experience. Also, calculations generate a bad debt percent in each bucket by financial class and aging that is supported by actual patient details. “This provides actual historical experience in applying the bad debt percent to the current AR financial classes and accounts for any changes in both payer type and aging of AR that we see on a monthly basis,” says Molina.
The RCA software is used monthly to provide a more accurate and timely calculation for determining the appropriate level of allowances required for bad debt and charity care. Molina says the hospital has seen more consistent calculations in bad debts and charity care expenses and is no longer concerned with having year-end adjustments. Also, the software has provided more accurate information to help manage AR cash flow.
“The software enabled our system to reduce our reserves required for bad debt and charity by as much as $200,000 to $500,000 on an annual basis when compared to our previous methodology,” Molina says. “In addition, the preparation time for the year-end audit concerning our allowances is very minimal and is supported by patient-level detail, and we are able to focus on other areas.”
Community Hospital also takes advantage of the software’s trend reporting, which is capable of monitoring changes in financial class as percent to overall AR on a monthly basis. For example, Molina saw that Blue Cross AR were aging more as percent to the AR than any other financial class. In comparing year-over-year data, he discovered that billing issues with Blue Cross had been addressed and AR issues resolved in a more timely manner, resulting in the improved Blue Cross revenues. The software also trends payments, contractuals, adjustments, and denials on a monthly basis and can graph those changes.
“The finance department reviews these changes and, in the case of denials, investigates the root cause so that we can work with the appropriate departments to make sure we correct the process and mitigate the occurrence of denials. It gives us a great opportunity to capture additional revenue,” says Molina. “It really makes my job easier and provides more time to do analytical reviews. And as a three-hospital system, it has forced us to standardize many of our policies and procedures.”
Accuracy in Reporting
John O’Leary, director of revenue and reimbursement at Partners HealthCare System in Boston, has been using a custom version of MedeFinance’s revenue analytics software since 2002. As a large, multientity system that includes Brigham and Women’s and Massachusetts General hospitals, a challenge existed since each entity had its own legacy system for addressing AR and reserves with limited abilities for standardized reporting. Because Partners wanted to manage AR and reserves from a centralized position, it sought a system that would homogenize data from disparate systems to facilitate a systemwide view of them.
Traditionally, a hospital would determine its assets by assigning a provision percentage by payer and aging category inclusive of all reserves, including free care, bad debt, and denials, all in the same bucket. These reserve percentages would then be tested by sampling random claims—a time-consuming effort. “But now we are able to look at reserve buckets individually and come up with an individual provision percentage for each type of AR category based on the specific behavior patterns of write-offs, which provides much more accuracy when estimating reserves,” says O’Leary.
Under the old system, O’Leary says reserves would increase based on the AR’s age, but since installing the RCA software, there is now a different reserve need for each AR type. For example, it generally takes about one year for free care to get off the books, two years for bad debt, and three years for denials.
“With this software, we use history to predict the future,” he says. “Before having the revenue cycle analytics software, 80% of the staff time was spent mining for data and 20% on analysis. MedeFinance allows us to update run-outs to come up with a more accurate prediction of what the reserves are.” With current data available at the point and click of a mouse, Partners can react more quickly to changes in the current operating environment.
O’Leary says having AR data available in near real time and the ability to examine and drill down on them with confidence in its accuracy enables Partners to be a bit leaner on reserves.
Brigham and Women’s and Massachusetts General hospitals—two of the largest academic medical centers in the Northeast—produce millions of transactions each year. With that in mind, O’Leary says system-level AR reporting would be nearly impossible to manage without RCA software.
“With the ability to accurately perform reserve valuations, there are no surprises, which is a big advantage,” he says. “Hospitals have a very thin margin these days, and you have to be comfortable with what you state as reserves. Our confidence in the data is so much higher now than with what would traditionally be done, and senior management trusts in our reporting because we have the best data available at our fingertips.”
The software gives Partners’ patient financial services staff the ability to analyze denial reporting in real time, allowing them to be educated about how to mitigate potential denials. O’Leary says staff now have more time to commit to analysis rather than data mining, which can change outcomes because there is time to drill down on the data for the most accurate reporting.
By taking advantage of the RCA software, Partners can examine transactions at several facilities to detect whether similar AR issues are occurring throughout the system. If so, it can use the data to find an appropriate solution.
“You can create an executive dashboard and drive right through the data and cut it any way you want. It’s information at your fingertips, and it’s actionable,” says O’Leary.
— Annie Macios is a freelance writer based in Doylestown, Pa.