The Difference Between Profit and Loss: Why Strong RCM Technology Solutions Are Vital for Success in Today’s Healthcare Climate
By Tom Hughes
While some claim that the recession has hurt healthcare market initiatives to improve revenue cycle management (RCM) and has decreased the importance of healthcare back office technology investments, the global recession, the movement toward consumer medicine, and government legislation have actually made RCM and related technology vital to payer and provider operations.
In fact, according to an article in Healthcare Financial Management, strong RCM processes make the difference between profit and loss, accounting for up to $9 million in yearly revenue for a typical 300-bed hospital. The same report indicates that costs could be even higher because RCM technology has an effect on metrics that are difficult to quantify, such as the following:
• lost charges (which may be as high as 4%);
• incorrect payments; and
• repeated administration work.
Furthermore, a recent report from HIMSS indicates that increasing recovery audit contractor audits, movement toward managed care, and a larger focus on the customer experience are the inspirations for adopting electronic claims and attachment processes. These technologies have the highest adoption rates in organizations looking to improve their RCM.
The True Cost of Rework
The Healthcare Financial Management article states that 75% of business office staff in any hospital is dedicated to reworking claims, attachments, and bills. Note that this does not include the number of floor staff members, such as caseworkers who investigate, revise, and refine related paperwork. It also leaves out the significant cost to payers, which must retain staff levels adequate for documenting denials and starting the review and approval processes once a resubmission is received.
Although providers operate in much smaller profit margins (often less than 2%, according to a report from Mark Anderson and the AC Group, a healthcare technology advisory and research firm), the true cost of rework must be examined by both payers and providers. To succeed and thrive in a healthcare environment that increasingly relies on consumers, costs need to be managed on both sides if healthcare groups want to stay competitive and profitable.
While the prospect of controlling this situation is daunting, electronic processes and particularly electronic attachments, have great potential to improve RCM in a variety of ways, including reducing or eliminating rework, improving collection schedules, and increasing revenues.
How Electronic Attachments Strengthen RCM and Boost Revenues
RCM can be the difference between profit and loss, and rework is perhaps the largest complicating factor for any RCM program. Subsequently, electronic claim submissions, complete with electronic attachments, can be a best practice for improving RCM because they reduce rework and streamline the processes.
Electronic claim submissions and attachments improve RCM by doing the following:
• drastically increasing first-pass rates;
• reducing the 75-day average for reimbursements (as reported by the AC Group); and
• controlling and reducing administrative costs.
According to athenahealth’s standard PayerView metrics, one unfortunate reality of RCM in the healthcare market is the fact that an average of only 25% of all healthcare claims are approved on their first pass. A major contributing factor to this bleak situation is inaccurate claims submissions and missing attachments. Electronic claim submissions and attachments improve RCM efforts by driving up first-pass adjudication success with robust electronic checks and controls. This means that claim and attachments sent electronically can help organizations reduce or improve staffing control because claims are handled only once.
Electronic processes improve this rate by placing information directly into standard formats and transmitting information via electronic means so errors and omissions are more easily identified and information loss is minimized. No more illegible documents and lost mail. In addition, electronic attachment service providers such as MEA store all attachments in a secure repository for quick and easy access to the health plan reviewer for seven years.
According to the AC Group, the average hospital receives complete payment 75 days after services are provided and fails to collect up to 4% of revenue. Compare this with an average 28-day cycle for other markets. The truth is that through the electronic checks and controls mentioned above, electronic claims and attachments reduce the length of the average payment cycle to between seven and 14 days. In fact, on rare occasions, clients working with MEA have received payment for services in less than one week.
HIMSS recently reported that 31% of the $1.3 trillion in yearly healthcare outlays, or about $403 million, goes to administrative costs. That means that about one third of the cost of running hospitals and payment organizations goes to administration and paperwork. Electronic claims submissions and attachments can slash this cost by 50% or more by automating the process. Not only are submissions made without the need for labor-intensive filing or processing, but they are also stored in perfect condition for years, making recall and review quick and easy.
An example of success with this model is Emblem Health. Though it is just beginning to implement electronic attachments in the hospital division, the dental division receives both electronic and paper attachments. Because electronic attachments are easier and less costly to handle, Emblem digitizes any paper submissions in the mailroom, pushing them through their digital review process and returning physical attachments to providers. This allows Emblem to receive claims and submissions in whatever format their customers prefer while maintaining the speed and accuracy of electronic attachments on the payer side.
By improving first-pass rates, cutting revenue cycles to 14 days or less, and eliminating overhead costs with electronic attachments, hospitals and payers can begin to get a handle on the $1.3 trillion dollars spent every year processing and reprocessing paperwork. With current economic realities and government legislation, technologies like these will be a must for any competitive healthcare group. Luckily, starting now is easy because electronic technology can simply be added to existing processes.
— Tom Hughes is president and CEO of Medical Electronic Attachment, Inc.