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How hospitals can know when to outsource revenue cycle management

These key performance indicators reveal a lot about whether turning to a third party will prove to be a worthwhile investment.

Jeff Lagasse, Associate Editor

Revenue cycle management can be a tricky beast, and whether to seek help from an outside vendor is a question with which many health systems struggle. While it may not be the best fit for every hospital or system, there are certain signs that using a third party may be the way to go -- and looking at key performance indicators can often be what tips the scale.

Naturally, there are a lot of benefits to having a tip-top revenue cycle: Increased cash flow, reduced cost-to-collect, greater point-of-service cash collections and fewer denials are but a few. Monitoring key performance indicators, or KPIs, can help a system determine whether investing in a vendor or consultant would provide an adequate return.

[Also: Revenue cycle outsourcing saves health systems money, oversight, executives say]

Melissa Scott, director of advisory services at the healthcare technology company Change Healthcare, said it may be time to hire some revenue cycle assistance if underperforming KPIs include bad debt, charity, cash-to-net revenue, credit balance AR, billing turnaround and the percentage of claims paid on the first pass.

"While there is a cost to bringing in a revenue cycle consulting firm, these types of engagements do typically pay for themselves," Scott said. "Oftentimes, moving the needle in just one of these areas can justify the spend. For example, it isn't uncommon for a hospital or health system to be faced with denials in excess of $1 million per year. Making improvements in this category alone can yield a significant ROI."

[Also: Revenue cycle outsourcing to surge in next 5 years, report says]

Revenue cycle struggles are common, and according to Scott, that's because it isn't just one thing. It's the coordination and documentation of care, it's translating those services into appropriate codes for billing, it's generating the respective facility and/or professional claims. Add to that the ability to vary billing and reimbursement guidelines for each unique payer, and balancing new payment models. Oh, and there's keeping up with those pesky regulatory changes. It's a lot.

"Oftentimes, we see revenue cycle treated as a department that sits on the back end with billing," Scott said. "The problem with this is that everything should be done accurately and efficiently prior to claim generation to get the claim out the door and paid on the first pass. Errors in front-end processes such as registration, patient demographics, insurance verification, and eligibility can cause all the things done right after that point to be thwarted and result in a denial. Every person that touches data that ends up on a claim, or aids in the care and documentation process that support billing and reimbursement, needs to understand they are part of revenue cycle and how they impact the organization's KPIs."

A common mistake organizations make, she said, is to buy a piece of technology and expect that the revenue cycle is going to improve. Sometimes these organizations deviate from the model's workflows and request customizations so that the technology will adapt to the processes it has in place. This can not only hinder performance, but be costly in the long run because it may have to be corrected retrospectively.

It's better instead to have people and processes wrapped around technology. But that can be a significant challenge, particularly when shifting to value-based care models. Most traditional chargemaster analyses and revenue strategies focused on the traditional, fee-for-service reimbursement models. Now there's an increased focus on risk-based payments, and an increase in payer and provider shared risk agreements, which have left a lot of organizations struggling to make the necessary cultural and technological shifts.

"It's troubling how unprepared most healthcare organizations are today with how far value-based care models have progressed," said Scott.

Organizations that can't adapt to these market shifts will continue to struggle financially, she said.

"There isn't a princess or rose on the horizon that can make life easier in this space. What are the alternatives to investing in revenue cycle optimization when underperforming? Cutting costs is often what we see struggling hospitals turn to as a first measure. Reducing staffing, trying to do more with less -- efforts such as these usually reduce quality and patient safety, and are self-defeating rather than driving improvement to the bottom line."

Payment reform isn't over yet. More changes are coming -- and hospitals that haven't yet engaged in value-based care are going to need strategies to adapt. 

"The wheel has been invented," she said, "and though the road might be bumpy, you don't have to start over."

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com

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