How Hospitals Can Better Manage Revenue Cycle in a Value-Based World

by | Jun 25, 2018 | Healthcare

Reading Time: 5 minutes

From 1990 to 2007, the U.S. government increased healthcare spending by about $1 trillion. The problem with this statistic is that once figures reach thirteen digits they begin to sound like monopoly dollars. To put it another way, this 18-year period saw an annual growth rate of 7.3% in healthcare spending, which is more than double the 3% annual growth in real GDP.

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Value-based care has emerged as one way to try and combat the rapid growth in healthcare spending. While the emphasis on quality holds promise for patient care, it has created financial challenges for hospitals. Let’s examine the impact it has had on the revenue cycle.

The shift to a value-based model

The Obama administration oversaw the shift to what it hoped would be a more affordable healthcare system by replacing the Fee-for-Service (FFS) model, which stressed quantity of care over quality, with a value-based system. From a national policy perspective, the Affordable Care Act (ACA) reduced spending on Medicare but increased incentive-based payments to hospitals who operated efficiently. The ACA essentially shortened the healthcare industry’s financial leash and told them to behave better.

Similarly, 2015’s MACRA legislation bolstered both the Merit Based Incentive Payments System (MIPS) and gave bonus payments for participation in Alternative Payment Models (APMS). These national initiatives, combined with like-minded actions on the state level, have incentivized the movement towards value-based healthcare. This change has been beneficial for patients but has meant tighter margins for hospitals and has created a host of revenue cycle issues that must be faced in this new reimbursement landscape.

What are the challenges caused by value-based care?

The new reimbursement structure is complex, and this has had an impact on hospitals’ revenue cycles.  For example, decreased Medicare expenditure and a change in employers’ healthcare plans have increased the cost of deductibles in recent years.

According to an article written by Jacqueline LaPointe of RevCycle Intelligence, high deductible payments have, “caused out-of-pocket expenses to rise 225% since 2006”. This increase in individual expenditure has seen payment structures change so that hospitals now need to collect more money from patients. Naturally, individual payers are less reliable than the government or private insurers as they don’t often have the funds to pay. More financial burden for patients means greater stress for hospital administrators and more cracks for revenue to slip through. This financial leakage has become a serious problem. A 2016 report from The Poneman Institute showed that the average US hospital loses $17.4 million annually to incorrect billing information.
A payment structure more reliant on patients is clearly the new norm as hospitals increasingly adopt value-based models and baby boomers move into their 60s and 70s. To face this issue, health systems would do well to implement analytics tools to handle the ocean of data that is threatening to flood their collection process.

How can analytics help?

From a data perspective, an analytics tool offers health systems a view of their financial situation that is not possible with simple EHR reports. The increasing number of payers has resulted in far too much information to process for even the most capable of hospitals. In an interview with Healthcare Informatics, Impact Advisors VP Scott Pillittere explained a worst-cast scenario for this issue: “I was on a call with a CFO recently and they have been live on Epic for about a year, on a community connect model, meaning they are using someone else’s Epic, and they have an 80-report backlog, no one to create reports, and haven’t even thought of the data analytics and what will be required to advance them”.

The CFO in question was not able to see the forest for the trees. The hospital was bogged down with individual reports and could not get a holistic view of its revenue cycle. With revenue cycle analytics, the health system would have been able to combine all of these reports into one dashboard and rapidly locate aspects of the system that were lacking.

Analytics can also be employed to boost customer satisfaction in the healthcare process. With patients footing a larger portion of the bill, the necessity for correct information and a smooth collection process is paramount. An otherwise easy trip to the physician can be completely spoiled by a poor experience at the front desk. Revenue cycle analytics can spot problems along the revenue stream faster than individual reports and allow administrators to dive deep into the data to root out the cause of the issue. Along with data solutions, an analytics tool also offers solutions for people problems within a health system.

The industry-wide shift towards value-based care is a problem for many health systems and data analytics is not a panacea for struggling revenue cycles. But, the tool can be effectively used to ease financial analysis for administrators facing an overwhelming number of reports or spot misidentified patients before problems arise. All of these factors improve a hospital’s revenue cycle in a value-based reimbursement structure that puts increasing pressure on the institution’s bottom line. Like the government’s $1 trillion rise in healthcare costs, the term “analytics” sounds meaningless and distant but its benefits could not be more vital.

Read more about challenges with revenue cycle management by downloading results of our RCM survey conducted with HIMSS Analytics.

Teddy Craven

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