Top 10 revenue cycle mistakes
By some estimates, hospitals are losing 3 percent to 5 percent of their net revenue from inadequate revenue cycle management. For the average 300-bed hospital, this could mean revenue losses of $4.5 million to $9 million each year–often the difference between breaking even and operating in the red.
Low self-pay collections and insurance denials are two primary reasons for bad debt that are easily quantifiable. More difficult to quantify, but equally problematic to financial performance, are lost charges, delayed payments, underpayments, and the cost of rework.
What’s behind all this lost revenue? Primarily, it’s the inability to consistently meet complex and ever-changing payer requirements for preauthorizations, medical necessity, and timely filing. Communicating these requirements across a single hospital or a multifaceted healthcare system and having the processes in place to adequately address them and measure performance is a yeoman’s job, to say the least.
Over the past five years, many hospitals have diligently worked to improve their revenue cycles. While some have seen a tremendous financial impact, others either have not been able to sustain the results or did not realize the anticipated financial benefits. Those that have been unable to maintain significant improvement share several characteristics in processes and accountability structures. What are the top 10 revenue cycle mistakes the organizations make?
1 Rely on back-end rework to correct front-end errors.
Working bill hold reports, appealing denials, or processing credit balances are all examples of rework. Within a typical hospital business office, at least 75 percent of the staff is dedicated to rework. In fact, most of the actual billing of claims and posting of payment is done electronically.
Although back-end clean-up procedures can be effective in getting some types of claims paid, these processes occur too late for many of the most common errors: wrong, expired, or incomplete insurance information; no preauthorization; noncoverage of service; or failure to send notification.
To minimize rework, it is important to develop an effective preregistration and registration process that is focused on getting all of the information required for correct and complete billing. Actions should include verifying insurance information and level of benefits prior to the date of service, ensuring there is a preauthorization for the right service and the right date, and making sure the patient’s billing information is up to date.
Performing such tasks thoroughly on the front end often requires additional staff. As these processes become ingrained in the organization, however, many hospitals have been able to reallocate business office staff to the front end or reduce the total number of business office staffs.
2 Don’t report revenue cycle metrics to operational managers, and rely on retrospective reports.
Top-performing organizations understand that the value of reporting comes from the user’s ability to act on the information. Unfortunately, reporting in many healthcare organizations is retrospective rather than prospective.
For example, the manager of registration may receive reports showing all denials resulting from the patient access function for the past month. Although this information is critical to identifying trends and focusing problem-solving initiatives, it is obtained too late to be actionable. The claim is already denied, and the rework has already begun. Most likely, the revenue is forgone.
Many top-performing revenue cycle organizations have worked closely with their IT departments and vendors to develop reports or electronic indicators that will flag accounts that are most likely to be denied on the back end before the date of service. Technology may be so simple as to display those patients missing a preauthorization number or insurance information who are scheduled in a particular service area within five days. On the other end of the technology spectrum, rule-based workflow management software may prioritize and appropriately distribute accounts of scheduled patients who are missing a critical component of preregistration information.
3 Don’t confirm payment prior to service
With bad debt on the rise and increasingly complex payer models, it is imperative to confirm payment prior to service. While this process sounds simple in theory, it requires multiple steps and is best done with dedicated preregistration staff. To confirm payment prior to service, the first step is to verify that the patient is an active member of the insurance plan. For most major payers, verification can be accomplished online or via the telephone.
The next step is to confirm that the service scheduled is covered by the insurance plan and, if so, to what degree it is covered. Coverage may depend on whether the patient’s condition indicates that the service is medically necessary. Also, some payers may require preauthorization for services. Typically, the physician must supply the payer with the clinical information required for authorization.
Because the hospital will shoulder a large portion of the loss if there is no authorization, it is appropriate for registration staff to be responsible for making sure the authorization is received and that it is for the correct date and service. For some payers, it is also necessary to confirm that there is a referral from the primary care physician to the specialist.
Confirming payment prior to service is important for collecting revenue from not only insured patients, but also from self-pay patients and those who are responsible for a portion of their bill that their insurance does not pay. For elective and scheduled nonurgent services, the hospital should collect 50 percent to 100 percent of the amount due prior to the date of service. Such payment structures typically are referred to as a “down payment” or a “deposit.”
Payment arrangements for any remaining amount should be defined prior to service as well. Some leading organizations have partnered with banks to provide loans to patients. In such situations, the hospital generally receives payment for services quicker and more reliably than if it depended solely on the patient to pay. Patients who fall below defined income criteria may qualify for charity care or other medical assistance. Although many hospitals wait until the bill sits unpaid for up to 60 days before starting applications for coverage, submitting the applications in advance or on the date of service helps proactively identify eligible patients and receive payment sooner. Also, connecting patients with financial counselors as early as possible will ease the burden on both the patient and the hospital. The sooner these discussions occur, the better payment plans can be defined and the more likely it will be for indigent coverage to be obtained.
4 Rely on post date of service billing and collections to pursue all patient payments.
Top performers have found they can dramatically improve self-pay collections by requiring payment at the time of service. Nationally, only 3.2 percent of healthcare expenditures are self-pay. However, more than 15 percent of a typical hospital’s accounts receivable can be categorized as self-pay (comprising uninsured patient balances as well as unpaid coinsurance, deductibles, and copayments). The average collection rate for self-pay balances is an abysmal 5 percent to 7 percent.
To improve efforts, progressive organizations are collecting both estimated self-pay payments and estimated coinsurance amounts at the time of service. Very few organizations are able to determine what the charges for a visit will be immediately following the visit. So to collect payment without creating refunds on the back-end, organizations typically collect the lowest charge possible for the scheduled service and then bill the patient the remaining amount.
For example, a physician office may collect the charge for a Level I physician visit, or a radiology department may collect the coinsurance portion for a magnetic resonance imaging scan based on its least expensive MRI.
Organizations frequently struggle with collecting payment at the time of service. Clinicians may believe payment collection sends the message that care is contingent on payment. Registrars, too, may feel uncomfortable asking for payment.
The leadership of some organizations hold that collecting payment at time of service is a big risk-given EMTALA regulations and recent negative publicity regarding aggressive collection tactics–and that it returns insignificant financial results. Although the risks exist, the benefit can be safely realized by defining clear policies and procedures that ensure emergent care is not contingent on ability to pay and that collection tactics aren’t overly aggressive. If the collection activities are expanded beyond copayments, however, the business case is quite compelling. For example, an emergency department with 50,000 outpatient visits per year serving 30 percent uninsured patients and 30 percent patients with copayment requirements can increase its net revenue by $500,000 to $800,000 annually, depending on its initial self-pay collection rate.
5 Have rigid payment requirements.
Top-performing hospitals prefer partial payment to no payment. Recently, negative publicity has drawn attention to the practice of hospitals charging self-pay patients the full price for services while insurance companies receive discounts of 30 percent to 70 percent off the stated price. Questions have arisen as to why the poorest patients or those without insurance are shouldering the greatest expense for health care.
One reason behind this payment structure is that many payer contracts have a “most favored nation” clause that requires the hospital to give them a discount equal to the discount given to other payers–including self-pay patients. Therefore, until recently, many hospitals could not discount rates for the uninsured. In early 2004, however, California and New York courts ruled that hospitals could charge an uninsured patient a discounted price. This is expected to lead to similar rulings in other states.
Until legislation allows discounted rates for the uninsured, hospitals should take the position that receiving a portion of the payment is better than no payment–especially given the 5 percent to 7 percent collection rate for self-pay balances. Charging patients an estimated amount at the time of service is one way to collect some portion of the payment without discounting services to the point of risking other payer contracts. (Patients are still billed the remaining portion of their bill at full price.) Alternatively, hospitals can offer self-pay patients the discount they are paid by their best payer–or the lowest discount rate they are paid by all payers.
Offering patients a lower rate for services often translates into greater collections overall. A bill for $1,500 is much less likely to seem overwhelming to a patient than one for $3,000. Before implementing these tactics, however, it is important to understand the hospital’s payer mix. Some hospitals have a high percentage of self-pay patients who will pay their bill in full, no questions asked.
6 Rely on physicians to correctly and completely document services rendered.
In most organizations, physicians are directly responsible for documenting the patient’s diagnosis and the clinical services rendered. However, because the physicians are customers rather than employees, many hospitals find it a struggle to get physicians to document services completely and correctly. Incomplete or inaccurate documentation typically leads to undercharging for services.
Organizations with optimized revenue cycles have implemented tools and processes to assist physicians with documentation. They believe it is everyone’s responsibility to ensure a case is appropriately documented. As an example, one of the most common reasons for undercharges is failing to capture all complications or comorbidities. In the inpatient setting, some organizations are combating this problem by designing an insert for the medical record that has checkboxes for common complications and comorbidities. This insert not only prompts physicians to document thoroughly, but it also encourages case managers or nurses to check off the complicating factors before receiving the physician’s sign-off.
To further improve documentation, some organizations have expanded the role of the case manager to include a final review of the medical record when a patient is discharged. Because the case manager generally works with each patient and reports into a function that has responsibility for financial performance, assigning this task to the case manager seems a natural extension. Case managers review the chart for completeness and work with physicians to document any discrepancies.
In the clinic setting, a nurse or physician’s assistant is responsible for reviewing all encounter forms immediately following the visit. In an outpatient procedural setting, in addition to having immediate review, the organization may attempt to reduce medical necessity denials by providing physicians with orders to refer when they are dictating the results of the encounter. Doing so reminds physicians of the reason for the visit, which is important because claims can be denied when the physician records a diagnosis that differs from the treatment.
7 Focus sporadically on quality and training
Leading organizations demonstrate that ongoing training of registration staff and clinical staff is essential to realize tremendous financial impact from revenue cycle improvements. With constantly changing payer regulations and high turnover of patient access staff, organizations are discovering that having a position dedicated to training and quality assurance is key to driving consistent results.
Typically, patient access positions are among the lowest paid in a hospital and may attract individuals who aren’t as knowledgeable, committed to quality, or desirous of a lengthy term of employment as candidates for other positions. Infrequent training is not enough to achieve the desired behavior. Best practices recommend creating a position dedicated to training staff, measuring individual performance, and providing remediation, when necessary.
Also, top-performing organizations typically have a defined patient access training curriculum that includes discussions of the effects on the revenue cycle from their actions, common insurance models, and advice for improving proficiency when faced with difficult patient situations. Successful organizations also typically define a career path for patient access staff based on performance and competency criteria. For example, a person may start out as a scheduler in a physician office, advance to scheduling for outpatient surgery, and then move on to preregistration functions.
In addition to staff training, it is necessary to have a well-defined plan for training physicians and other clinicians on new regulations and documentation requirements. Training for clinicians is particularly useful at teaching institutions because attendings, residents, and specialists constantly change. Also, education on documentation requirements should be mandatory for all medical staff. Putting systems in place to measure compliance and provide feedback to the clinical staff will provide a constant incentive for compliance.
8 Allow accountability for results to be somewhat fuzzy.
One of the primary reasons for lost revenue is that claims fall through the cracks because nobody has direct accountability for the claim. In most hospitals, the business office has direct accountability for denials and write-ells. The business office, however, is generally not the cause of denials and write-offs. Instead, the patient access functions and clinical departments are where errors most often occur. Nonetheless, patient access functions and clinical departments do not regularly receive information that would allow them to identify and correct root causes for denials.
In leading organizations, the management of patient access functions, clinical departments, and health information services receive weekly reports on bill holds, claim errors, denials, and write-offs that result from actions in their areas. These directors and business managers should receive targets appropriate to their area. For example, patient access functions may be asked to reduce denials related to insurance eligibility and no authorization, while clinical departments may be asked to reduce denials related to medical necessity. The key to holding staff accountable is that they must be given the information needed to manage the process and be held accountable to revenue cycle leadership.
9 Leave performance metrics as an afterthought during significant improvement projects.
Reporting of results is often an afterthought that follows the hard work of understanding a problem and making change. Unfortunately, when results are not measured consistently, performance tends to slip.
When beginning a project, it is important to start planning ways the results will be sustained. The data should be readily available and credible. The point person for gathering the data and producing the reports should be clearly identified. Also, it is important to identify the people to be accountable for managing the performance and the person who will review the results and hold the process owners accountable. Developing an action-response plan that incorporates this accountability structure is a useful way to clarify the levels of performance that require action and the actions that will be needed to avoid out-of-control processes.
Moreover, clearly aligning individual staff performance metrics to those of the department and aligning department metrics to overall organizational metrics are ways to ensure that everyone in the organization is working toward the same goals.
In addition, it is important to think through unintended consequences of proposed changes prior to implementation. Organizations need to identify metrics that will measure performance early on and establish a baseline for performance. Then performance should be continually measured once changes are implemented to ensure that unintended consequences do not diminish the impact of the project at hand. For example, if the radiology department decides to offer same-day scheduling to improve referring physician satisfaction, then it will be necessary to understand the effect that this change will have on denials. The organization will need to ensure that efforts made to improve physician satisfaction do not inadvertently decrease revenue.
10 Use nonstandard definitions and procedures for recording errors, denials, and write offs.
In many organizations, it is difficult to develop a clear picture of revenue cycle issues because the data are inconsistent. In many cases, the information that is available has a huge element of human error and interpretation. For example, business office staff posting denials, payments, and write-offs may not be using standard definitions to describe the reason for the denial or write-off.
In severe cases, staff may be posting denials and zero payments as “contractual adjustments,” which automatically removes the hospital’s ability to identify, rework, and resubmit the claim. Lack of standardization and inconsistency in use of definitions causes the data that are available to misrepresent what is actually occurring, making it virtually impossible to identify drivers of variation and lost revenue.
When examining data weaknesses, leading organizations generally start their revenue cycle improvement efforts in the business office. The first step is to obtain data that will be valid and that characterize what is occurring. It is useful to identify and prioritize the multitude of factors that may cause a denial, write-off, or partial payment. The next step is to categorize these factors into a limited number of similar groups and give them a descriptive title.
Last, business office personnel need to be trained on the standard definitions and how to apply them. A manager or supervisor should regularly audit charts to ensure the codes are used consistently. By taking these steps, an organization can begin to see performance trends and ensure greater accuracy in financial statements.
AT A GLANCE
Hospitals looking to gain and maintain strong revenue cycle performance should avoid common mistakes, such as not verifying insurance coverage in advance and placing sole responsibility for correct documentation on physicians.
Elizabeth Stuller is practice leader-revenue enhancement services, GE Healthcare Performance Solutions, Waukeshaw, Wis., and a member of HFMA’s First Illinois Chapter.
Questions and comments about this article may be sent to the author at firstname.lastname@example.org.
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