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Hospital revenue cycle: Ready for change but facing big challenges

Declining margins and growing demands are forcing hospitals to rethink their rev cycle for the era of value-based care and patient experience.

Susan Morse, Managing Editor

What keeps revenue cycle directors up at night? Plenty, it turns out.

There are operational matters to conquer, increasingly demanding consumer expectations, new care and reimbursement models -- as well as the mounting pressure of declining margins throughout the industry.

Taken together, those effectively mean the business side of healthcare must strive to eke every possible penny out of its revenue streams. And there's no magic technology for making that happen. Perhaps the biggest concern that directly affects day-to-day operations, in fact, is a lack of technology revenue cycle directors want and need from their EHR, which is tied to their billing systems.

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To kick off our Focus on Revenue Cycle during April, Healthcare Finance News interviewed noted experts in the field to take the pulse of today's typical revenue cycle, the tools available, business-side challenges and the payoff of modernizing your revenue cycle.

Analytics and metrics are sorely needed

Rev cycle directors don't have access to to the advanced metrics and analytics needed to monitor and manage revenue cycle performance, according to Chuck Alsdurf, director of Healthcare Finance Policy for the Healthcare Financial Management Association.

Revenue cycle directors are looking to improve clinical workflow, to manage  and improve operations to understand their performance, but right now, they have to use tools not in the EHR to do that, Alsdurf said.

What he often hears, Alsdurf said, is "We don't have a canned tool kit from our revenue cycle platform."

While they are incorporating new technology in automation and artificial intelligence, the revenue cycle department is still dealing with constraints on  metrics and performance reporting.

"I think it's a slower evolution than they expected," he said. "There's a dichotomy between the new technology applied to revenue cycle -- and they're still using the fax machine."

Technology is one challenge. The other is the dependence on the consumer to pay his or her bill, because of the predominance of the high deductible.

Making it easier for patients to pay you

Performance in revenue cycle is measured in three phases: registration on the front-end, coding in mid-cycle and back-end billing. There's been much more emphasis on front-end of the revenue cycle, to get payments up-front or for a digital solution to set up periodic payments.

Patient balances present one of the most significant challenges in healthcare, according to Michael Rawdan, senior director of the revenue cycle department at St. Luke's in Idaho. Patient obligations have increased 29.4 percent since 2015.

The increase of high-deductible plans has coincided with rapid evolution in patient expectation that they can pay their bills and manage their accounts online through their smartphones and computers.

Hospitals and physician offices are being asked to step up their game to make it easy to register by tablet, pay electronically, and get payment in advance for elective procedures.

Revenue cycle departments need to be able to offer automatic enrollment in payment plans and financial counseling for patients who don't know that they qualify for government programs, Alsdurf said.

Revenue cycle directors are also seeing a significant increase in denials across the board, from government to  commercial plans, Alsdurf said. These denials are due to reasons of medical necessity and the technical process, he said.

"What's happening is there is more discussion on improving the processes on the front-end and reducing unnecessary denials and collaborating with the health plans on ways to reduce these issues, because it costs both sides money," Alsdurf said.

Dwindling margins? Look to the stars (metaphorically)

From 2015 to 2017 hospital operating margins plummeted from roughly 3.5 percent to a record low of 1.6 percent, according to Rob Lazerow, managing director of the Advisory Board. In economic terms, hospitals' expense growth was outpacing revenue growth.

Though the topic wasn't new to the Advisory Board in 2017, the company  decided to invest in margin management as organizations across the country were feeling these downward pressures. To that end, it built a hypothetical health system model named Antares, after the 15th brightest star in the sky that shines brightly from all the hydrogen it is burning, that will cause its collapse.

The health system Antares needed to find between $595 and $635 million in bottom-line performance improvement by 2025 to keep a 3 percent margin and avoid collapse, Lazerow said. The year 2025 was chosen because the Congressional Budget Office has said by that year, about 60 percent of hospitals would have negative margins.

The three big pillars to closing the gap are avoiding revenue leakage, growing patient volume and third, diversifying the revenue stream from non-patient sources if there is not enough money in patient care revenue, Lazerow said.

"Our guidance isn't to become a different business altogether, but to be able to close the revenue gap through a combination of diversified revenue streams," Lazerow said. "It helps systems grow their revenue without adding new volume."

Through improvements, the average health system, which now collects 87 cents of every billed dollar, could get 91 cents on the dollar, Lazerow said.

What to expect from our Focus on Revenue Cycle
Through the month of April, Healthcare Finance News reporters and editors will explore how hospitals can improve revenue cycle operations and boost their bottom line.

We'll share expert insights about today toughest challenges, biggest opportunities and most pressing trends on the way to a modernized revenue cycle.

Read our complete coverage here.

Twitter: @SusanJMorse
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Focus on the Revenue Cycle

This special collection of feature stories, interviews, videos and deep dives into what you need to know about the evolution of the revenue cycle.