Financial diss and assnt9

1 The Advisory Board Co., “Running on Medicare Margins,” September 2011, 13 2 https://www.hfma.org/brg/pdf/Revenue%20Cycle%20White%20Paper.pdf 3 https://www.healthexec.com/topics/finance/fee-services-share-healthcare-payments-shrinking

HCAD 640 – Financial Management for Healthcare Week #9: The Health Care Revenue Cycle

WEEK #9 OVERVIEW

All businesses must generate cash to maintain long term economic viability, but the health care sector is unique – particularly with respect to where and how revenue is generated. In the modern era, healthcare leaders face unprecedented threats. First, the number of uninsured and self-pay patients are rising while third-party reimbursement is declining. As a result, managers within the health care industry must improve their ability to collect every dollar that their organizations are owed. Second, these same leaders must prepare for new methods of reimbursement that are emerging as a result of healthcare reform. According to a recent Advisory Board report, a typical 300-bed hospital that does nothing to address these changes will see its operating margin drop to a negative 16.9% in 20211. This outcome is likely to come as a result of several converging factors, including a shift to a payer mix that is up to three-quarters Medicare and Medicaid, diminishing opportunity to cost-shift losses from these government programs to commercial payers, replacement of inpatient surgical volume by outpatient or other less profitable medical services, increased supply and labor cost pressures, and payers increasingly expecting revenue to align with quality and efficiency goals.2

Within this module we discuss the traditional revenue cycle structure, however we would be remiss if we did not discuss the dramatic change taking place as a result of the Patient Protection and Affordable Care Act (PPACA) and the more recent Medicare Access and CHIP Reauthorization Act of 2015. These two pieces of legislation have introduced numerous changes to the structure and risks involved in the near and long term reimbursement process – including Accountable Care Organizations, value-based purchasing, alternate payment models, and more. For more information on the long term impact of the Affordable Care Act on revenue cycle operations, please read the article at the link below:

Hospital revenue cycle operations: Opportunities created by the ACA: http://healthcare.mckinsey.com/sites/default/files/793544_Hospital_Revenue_Cycle_Operations.pdf

The Traditional Revenue Cycle

The revenue cycle is a complex multi-stage process that involves numerous areas within the traditional health care setting. Each step in the process is vital and ultimately determines whether the organization and providers will be paid for the services rendered to the patient. In basic terms, the health care revenue cycle consists of the stages shown in the graphic below:

1 The Advisory Board Co., “Running on Medicare Margins,” September 2011, 13 2 https://www.hfma.org/brg/pdf/Revenue%20Cycle%20White%20Paper.pdf 3 https://www.healthexec.com/topics/finance/fee-services-share-healthcare-payments-shrinking

Source: Mynor Veliz, CFO, Intermountain 2015

What is important to note in this graphic is the complexity involved and the number of key players involved in the process. Any single area of underperformance can directly impact the financial performance of the organization. Further, there is a significant amount of effort that must be expended prior to the arrival of the first patient and a large amount of work is involved in the analytics and analysis of performance after reimbursement is received. However, in basic terms the revenue cycle consists of the following core elements:

• Patient scheduling/pre-registration • Point of service registration, counseling & collection • Encounter utilization review and case management • Record coding and charge capture • Submission of claim • Follow up with third party payer / insurer • Processing of remittance and/or resubmission of denied claims • Payment posting, appeal reviews and collections processing

Key Terms in the Revenue Cycle Pre-registration: Collection of all registration information, including eligibility, benefits and authorizations, prior to the patient's arrival for inpatient or outpatient procedures. Registration: Collection of a comprehensive set of data elements required in establishing a Medical Record Number and satisfying regulatory, financial and clinical requirements.

1 The Advisory Board Co., “Running on Medicare Margins,” September 2011, 13 2 https://www.hfma.org/brg/pdf/Revenue%20Cycle%20White%20Paper.pdf 3 https://www.healthexec.com/topics/finance/fee-services-share-healthcare-payments-shrinking

Coding: The process of transforming descriptions of medical diagnoses and procedures into universal medical code numbers. Charge Entry / Capture: Documented services are manually or electronically translated into billable fees. Claim Scrubbing & Pre-Adjudication: Documents are evaluated – usually through use of proprietary pre- adjudication software – to detect and eliminate errors in billing codes, reducing the number of claims to medical insurers that are denied or rejected. It is essentially a way of auditing claims before they are submitted to insurers. Claim Submission: Billable fees are submitted to the insurance company via a universal claim form for payment. Electronic Data Interchange (EDI): The computer-to-computer exchange of business documents in a standard electronic format between business partners by moving from a paper-based exchange of business document to one that is electronic, businesses enjoy major benefits such as reduced cost, increased processing speed, reduced errors and improved relationships with business partners. Patient Collections: Collecting patient balances, making payment arrangements. Remittance Processing: Posting or applying payments/adjustments to the appropriate accounts, including rejects. Denial Analysis / Third Party Follow-up / Appeals: Pursue collections from insurers after the initial claim has been filed. Utilization Review: Evaluation of the necessity, appropriateness, and efficiency of the use of medical services and facilities, which includes regular reviews of admissions, length of stay, services performed, and referrals.

The Traditional Revenue Cycle

Performance of the revenue cycle is typically accomplished via numerous key performance indicators (KPIs) and metrics. The Healthcare Financial Management Association (HFMA) maintains a repository of industry standard metrics to encourage objective and consistent calculations while also helping guide organizations’ revenue cycle performance. By developing KPIs and comparing performance, hospital and practice leaders can better allocate resources and improve revenue cycle efficiency. Although there are numerous metrics perpetually evaluated, among a few of the more commonly used HFMA metrics include:

1. Insurance Verification Rate: This is a measure of total monthly scheduled encounters that have been verified prior to or at time of service AND unscheduled encounters verified prior to final billing. A successful verification is defined by the individual organization policy. This is a trend measure of patient access that is intended to evaluate revenue cycle process efficiency and effectiveness and is calculated by:

Number of verified encounters Number of registered encounters

1 The Advisory Board Co., “Running on Medicare Margins,” September 2011, 13 2 https://www.hfma.org/brg/pdf/Revenue%20Cycle%20White%20Paper.pdf 3 https://www.healthexec.com/topics/finance/fee-services-share-healthcare-payments-shrinking

2. Net Days in Accounts Receivable (Days in A/R): Net A/R is the net patient receivable on the balance sheet. It is net of credit balances, allowances for uncollectible accounts, discounts for charity care, and contractual allowances for third-party payers. This ratio is calculated by:

Net Patient Accounts Receivable x 365

Average daily net patient service revenue

3. Payer Denial Rate (aka Clean Claim Rate): This is a measure of the number of reimbursement claims that pass through the reimbursement system(s) of the supporting health insurers without error or that require no manual intervention. This measure is calculated by:

Number of claims that pass edits requiring no manual intervention Number of claims accepted into claims processing tool for billing

A more robust review of key performance indicators in the revenue cycle process can be reviewed at the website below:

HFMA MAP Keys: https://www.hfma.org/MAP/MapKeys/

The Emerging Revenue Cycle

Following the passage of the ACA in 2010, the health care industry has steadily evolved towards an increasingly consumer centric environment. While the majority of care continues to be provided on a fee for service basis, this is a shrinking portion of the health care delivery reimbursement spectrum.3

Increased pressure for price transparency coupled with presumptions that reimbursement will be tied to quality outcomes is leading many to question the logic and validity of the traditional revenue cycle model in favor of one that is more clear, efficient, and less burdensome for both the patient and the provider. The image below provides an indication of how the revenue cycle is currently perceived through the eyes of a patient and at least one author’s view of how the process might change in the coming years. Additional reading pertaining to the revenue cycle and the evolving health care reimbursement landscape can be obtained at the sites below:

A New Model for Effective Revenue Cycle Modernization: https://www.hfma.org/downloadasset.aspx?id=52362

Hospital revenue cycle trends to watch in 2019 — 8 thoughts:

https://www.beckershospitalreview.com/finance/hospital-revenue-cycle-trends-to-watch-

in-2019-8-thoughts.html

1 The Advisory Board Co., “Running on Medicare Margins,” September 2011, 13 2 https://www.hfma.org/brg/pdf/Revenue%20Cycle%20White%20Paper.pdf 3 https://www.healthexec.com/topics/finance/fee-services-share-healthcare-payments-shrinking

Source: The Advisory Board:

https://www.advisory.com/research/revenue-cycle-advancement-center/resources/posters/the-patient-financial-journey

Supportive Reading:

1 The Advisory Board Co., “Running on Medicare Margins,” September 2011, 13 2 https://www.hfma.org/brg/pdf/Revenue%20Cycle%20White%20Paper.pdf 3 https://www.healthexec.com/topics/finance/fee-services-share-healthcare-payments-shrinking

1. “Examining the Basics of the Healthcare Revenue Cycle” at

https://revcycleintelligence.com/news/examining-the-basics-of-the-health-care-revenue-cycle. Accessed April 30, 2019

2. Key Strategies for Modernizing the Revenue Cycle. https://www.hfma.org/ModRevCycle/. Accessed April 30, 2019.

3. “Cashing in on Revenue Cycle Improvements” at:

https://www.beckershospitalreview.com/finance/cashing-in-on-revenue-cycle- improvements.html. Accessed April 30, 2019.