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Applying Lean Six Sigma to the healthcare revenue cycle

There are arguably more factors impacting the healthcare revenue cycle today than at any other time in history. Healthcare reform has accelerated the pace of change and increased consumerism, and the effects on healthcare provider revenues are still unknown.

Economic pressures have resulted in less ability for patients to pay for services, and the growing prevalence of high-deductible insurance plans is driving down volumes. Technology shifts are presenting as many challenges as opportunities with numerous new diagnosis codes to master and the need to invest in systems to measure and report quality. The result is an increasingly unpredictable and dynamic revenue cycle that requires constant organizational adaptation and vigilance.

More significantly, it requires identification of internal customers that are part of the revenue cycle process as well as elimination of waste in the process to increase value delivered to those customers. Such demands lend themselves well to Lean Six Sigma techniques.

Lean basics

Lean Six Sigma is a management tool focused on achieving quality by identifying defects in the design of any product or process and eliminating them before the product or service ever reaches a customer. Lean Six Sigma has long been associated with manufacturing but is not confined there and has many applications in the healthcare industry.

Within the revenue cycle alone, there are numerous applications of Lean Six Sigma techniques that have vast implications for cash flow and the financial viability of the organization. Some examples include: increasing the number of patients with insurance verified prior to visit, increasing registration accuracy, optimizing cash collections, and improving patient throughput. In the future of healthcare, demonstrating excellence in the patient experience will be linked to reimbursements and, thus, will be essential to monitor and improve using Lean Six Sigma techniques.

Although Six Sigma itself doesn’t target time delays, Lean Six Sigma, and its adaptations, does and one of its principles is that “on-time delivery equals quality.” Time delays are chief among the problems of waste in healthcare delivery, and certainly in the healthcare revenue cycle. With so many components to the process – payer contracting, registration, authorization and certification, financial counseling, co-pay and coinsurance collection, dictation and transcription, coding, billing, follow-up, denials adjudication and collections, among others – reducing or eliminating the waste associated with time is critical to achieving and delivering quality in the healthcare revenue cycle.

The application of Lean Six Sigma for reducing time delays in the revenue cycle can be illustrated with the results achieved over a period of one month at a Virginia surgical practice.  Baseline statistical measurements indicated the practice required a mean of 13 business days to post charges and submit a claim after the date the service was delivered in the hospital, and there was wide variability as well. Through process mapping, the practice determined there were a total of eight steps – six practice-based and two hospital-based – involved in generating a claim from a service. The two hospital-based steps required three business days and were determined to be beyond the control of the practice. The practice empowered staff involved in the work flow to identify opportunities for reducing delay in the remaining 10 days by changing the process, eliminating redundancies, automating where possible, and by other means.

It was determined that a target of nine days was achievable and sustainable for the practice, as well as reasonable in the context of available industry benchmark information. The practice developed and implemented recommendations that resulted in near-immediate process improvements, cash flow acceleration and reduced costs. The processing time was reduced to the target nine business days in one month, getting each claim out the door four days sooner, and generated a one-time cash flow acceleration of $250,000. The variability was dramatically reduced as well.

Employees also identified one step in the process that had redundancies and could be eliminated with a modification and another step that could be automated. The process redesign resulted in a manpower cost savings to the practice through the reallocation of 0.5 FTE medical records staff to other tasks related to implementation of meaningful use.

With the success of Lean Six Sigma in manufacturing and other service industries, and with the growth of alternative payment models focusing on quality, safety and outcomes reporting as well as patient experience, there is no doubt that healthcare providers will be compelled to master and use these techniques to survive, and early adopters will gain a competitive advantage. It is also widely accepted that a chief intent of healthcare reform is to eliminate underperformers as part of a redesign of the healthcare delivery system to value-based medicine, so eliminating waste in every product and process is essential. Go Lean or Go Home!