a competitive strategy for hospital stability...front end collections consumers paying more...

FALL CONFERENCE October 12, 2018

A COMPETITIVE STRATEGY

FOR HOSPITAL STABILITY

Prepared by:

Stephanie Dorwart Mike Evans Chief Executive Office Managing Principal Altius Consulting Group Revenue Cycle Solutions, LLC New Kensington, PA 15068 Pittsburgh, PA 15222

Revenue Cycle Solutions, LLC, All Copy Rights Reserved©

Options for the Future of All Healthcare Organizations • Continue to provide quality healthcare services to your community

• Often one of the largest employers in region • Focus on wellness, community and population health needs when developing

strategies

• Long Term goals fall into one of three categories Maintain independence and develop strategic plans to successfully compete

Become a part of a larger system through merger or formal affiliation

Sell to another provider entity


Good is the enemy of great. Tom Peters

All great changes are preceded by chaos. Deepak Chopra

Don’t be afraid of change. You may lose something good, but you may gain

something better. Unknown

The need for change…is now!


As healthcare organizations continue to be challenged financially, they must seek creative and meaningful ways of streamlining their overall operations and revenue cycle processes.

No matter what long-term strategy for viability is pursued, the organization’s

house must be in order.


Value Equation

Superior Outcomes

Improving long-term outcomes through reliable delivery of high-

quality care

Patient Centered Care

Personalizing treatment plans

based on individual health characteristics,

preferences

Efficiency

Streamlining processes to

increase access, reduce waste

Cost Effectiveness

Delivering cost-effective care in

the most appropriate

setting

Value


Who should manage improvement?

Financially Responsible, High Quality Organization

FINANCE • Revenue Cycle • Budget • Cost Accounting • Investment • Reinvestment • Productivity

Human Resources

• Position Control • Benefit Cost • Pay Practices • Job Requisitions • Turnover • Productivity

Performance Improvement

• Lean/Six Sigma Operational Improvements • Process Change • Decreased

Waste

Operations • Length of Stay • Discharge Planning • Patient Satisfaction • Overall Quality • Outcomes • Productivity


Co

st Co

ntro

l: Labo

r and

No

n-Lab

or

Redefined Triple Aim


Continuous Improvement Cycle

Benchmark &

Evaluate

Plan

& Implement

Monitor

&

Adjust


Financial Improvement Areas of Focus • Revenue Cycle • Labor Management

• Productivity • Benefit Structure • Pay Practices

• Non-Labor Expense Reduction • Purchased Services • Supply Cost

• Information Systems • Operations

• Length of Stay • Quality Outcomes • Satisfaction • Manage episodes of care

• Physician Practice Management


Best Practice Revenue Cycle Approach

Opportunities for improved revenue

cycle performances present

themselves in these areas:

Operating Margin Improvement

Cash Acceleration

Expense Reduction



Executive Summary

OPPORTUNITY AREAS Total Opportunity (No Reduction Applied)

RANGE OF OPPORTUNITY

Conservative Moderate Aggressive

Total Operating Margin Improvement

Net Revenue Improvement:

Coding Denials $ 1,076,428 $ 538,214 $ 807,321 $1,076,428

Patient Access Denials $ 3,083,649 $ 1,541,825 $2,312,737 $3,083,649

Patient Financial Services Denials $ 2,439,428 $ 1,219,714 $1,829,571 $2,439,428

Total Net Revenue Improvement Initial Denials $ 6,599,505 $ 3,299,753 $4,949,629 $6,599,505

Total

Operating

Margin

Improvement

$ 6,599,505 $ 3,299,753 $4,949,629 $6,599,505

Cash Acceleration

Front End Collections $ 413,828 $ 206,914 $ 310,371 $ 413,828

Unbilled (DNFB) Reduction $ 916,498 $ 458,249 $ 687,374 $ 916,498

Billed AR Reduction $ 477,104 $ 238,552 $ 357,828 $ 477,104

Total One Time

Cash Flow

Impact

$ 1,807,430 $ 903,715 $1,355,573 $1,807,430

Expense Reduction

HIM Staffing Reduction $ 84,410 $ 42,205 $ 63,308 $ 84,410

PFS Outsourcing $ 450,000 $ 225,000 $ 337,500 $ 450,000

Total Expense

Reduction

Improvement

$ 534,410 $ 267,205 $ 400,808 $ 534,410

Total Opportunity

(exclusive of investment costs)

$ 8,941,345 $ 4,470,673 $6,706,009 $8,941,345

CDM Charge Capture Ensure there are charges for all billable services

Set pricing at or above highest payor

All codes (revenue & CPT) are up to date when placed on bill




CDI Initiative Need for improved provider documentation

for better specificity (Clinical Documentation Specialists assist providers to document appropriately to justify the most accurate assignment of DRGs, which in turn, will positively impact the Case Mix Index)



Claim Denials Select claim denials should be challenged and

re-billed timely

835’s with denials should go to work queus

Post 835’s in their entirety to the legacy system to determine root causes of denials

Commonly seen – 6-7% of total gross claims submitted are initially denied. Appeals can lower that to 2%.



Cash Acceleration

Front End Collections Consumers paying more out-of-pocket due to

high-deductible plans Insurers enjoying discounted rates (for

volume) while continuing to shift a greater share of the contracted payment to patients

Related AR is increasing Need to shift resources to front end (Patient

Access) Increase front-end collections


Cash Acceleration (continued)

Unbilled AR DNFB (Best practice of 5 days, high of 22

days) Late charge posting: post charges to patient

account timely Assignment of codes: all required

documentation (ex. H&Ps and discharge summaries) should be available for coding within 5 days)


Cash Acceleration (continued)

Billed AR % of billed AR > 90 should not exceed 20%-

22% (best practice) Insurers should pay within 30-45 days on

clean claims Need sound AR collection strategy which

includes; optimal process flow; use of supporting technology; optimal use of inside and external resources


Expense Reduction

Staffing Realign people from back-end to front-end

for budget neutral solution Management of Vendor Agreements Too many vendors; software, purchased

services, billing, coding, collecting, auditing, etc.

Re-evaluate all contracts periodically - hold accountable for results


Expense Reduction (continued)

Information Technology (IT) Maximize capabilities and functionality of

legacy system Too many bolt-ons and interfaces to

manage; can impact integrity of data Legacy system requires upgrades to bolt-

ons Ask, “Doesn’t our legacy system do this?”

Typical Hospital Expenses

Mortgage on the house – 5%

Essential Services – 14%

- Maintenance Contracts

- Equipment

- Facilities Repair

- Utilities

- Software contracts

- Rent

Examples

Bad Debt – 4%

Services – 7%

- Legal

- Travel

- Education

- Contract Labor

- Medical Professional fees

Supplies – 18%

Salaries, Wages, Benefits – 52%

Little Ability to Affect

Some Ability to Affect

High Ability to Affect

Operating Expenses at a Typical Hospital

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

LABOR COSTS

Investments in Future Growth – 8%

- New Equipment Technology

- Physician Recruitment

- Facility Improvements

LABOR COSTS

SUPPLIES


Without Benchmarks and Data…..


Without Benchmarks and Data…..

You may meet this creep…….


Otherwise known as job creep….

1,740

1,760

1,780

1,800

1,820

1,840

1,860

1,880

1,900

1,920

2014 2015 2016 2017 2018

Full-Time Equivalents

Full-Time Equivalents

Organization hired a

consulting firm to complete an organizational

assessment followed by a

large scale layoff

Systematically, the organization replaced

the majority of the positions lost and found themselves in the same position four years later. This time, the financial

situation was worse because they had less volume and revenue


How do you compare?


Compensation Ratio

The median performance for profitable hospitals is 47%. This value is expected to decrease by 3-5% under health reform by 2017

If your hospital is operating above 45%, improvements will be necessary

Definition: (Salary Cost + Benefit Cost + Agency Cost)/Net Patient Revenue

Poor (25%) Median (50%) Better (75%) Best (90%)

National Acute 56.90% 48.45% 40.90% 33.48%

Regional Acute 54.32% 45.37% 38.37% 30.5%

State Acute 49.55% 41.70% 37.72% 31.54%

National Critical 61.39% 53.47% 46.67% 38.62%

Regional Critical 66.09% 55.96% 48.01% 40.57%

State Critical 63.04% 54.11% 46.26% 29.85% Source: ALTIUS Proprietary Database


Net Patient Revenue per FTE

Hospitals that experience poor performance with this indicator, should review both the labor expense of the organization and the revenue cycle performance. Although hospitals or systems have spent large amounts of resources ensuring augmentation of revenue cycle performance, this area requires constant attention

Definition: Total Net Patient Revenue divided by Full-Time Equivalents To calculate the Full-Time Equivalents divide total hours (including contract) by 2080.

Poor (25%) Median (50%) Better (75%) Best (90%)

National Acute $124,574 $150,125 $179,933 $222,439

Regional Acute $125,678 $156,305 $190,863 $235,032

State Acute $150,210 $177,496 $224,582 $268,854

National Critical $98,147 $119,479 $144,272 $168,522

Regional Critical $83,084 $103,694 $132,415 $148,427

State Critical $102,916 $121,471 $142,329 $167,391 Source: ALTIUS Proprietary Database


Rule for Success

• Establish targets/standards for ALL departments • Update performance metrics annually • Compare to external sources • Include manager input • Relate the targets to budget and department

strategic plan and/or scope of service • Link targets and performance to position control

and the job requisition process • Develop through industry standards, historical

performance and peer-group comparisons • Foster an environment of continuous

improvement


Best Practice – Benchmark your Performance

Develop global and departmental targets o Gauge your performance against national and customized peer

groups o Establish recommended worked (productive) and paid targets on a

department and organizational level o Select realistic goals that are based on your local environment and

patient care model


Best Practice – Build Accountability

Establish a transparent accountability model o Require all levels of management to respond to staffing

overages in a timely manner o Develop a “Back on Plan” report that requires managers not

achieving targets to submit action plans and performance improvement steps

o Link annual performance reviews to productivity performance o Link productivity targets to budget


Best Practice – Hardwire Productivity into your Budget

Link the budget process with productivity target and job requisitions o Utilize your comparative benchmarks and current productivity

performance to develop initial budgeted FTEs based on projected volume

o Once final budget is adopted, create alignment between productivity targets and budgeted FTEs

o Utilize target productive hours to guide job requisition process


Best Practice – Prospective Hiring

Implement Prospective Staffing Needs Analysis o Utilize your historical turnover rates and current position control list (including open

positions) to determine future staffing needs o Consistently realign findings with open position list and adjust needs as required o Review list as job requisitions are submitted to ensure all positions posted are still

needed and all positions needed are posted

Calculate total current FTEs

and total open positions

Adjust for expected

turnover in next six months

Identify staffing needs in six months

and adjust open

positions accordingly


Best Practice – Include Provider Entities and Clinics

Complete a physician productivity study and implement targets o Include visits and revenue in addition to RVUs o Study the downstream impact of the physician’s referrals o Identify opportunities on a service-line basis o Secure regional information in addition to national o Monitor performance on a department and provider basis


Practice Management

Focus on more than just productivity and appropriate staff to provider ratios o Benchmark collections o Evaluate charges o Determine appropriate utilization of extenders

o Hold extenders accountable for meeting standards and benchmarks

o Focus efforts on achieving break even status o You may have a few superstars in a practice but if all providers must

pull their weight for success

The above practice is losing $115,000 per provider, in today’s environment……………. Hospitals and organizations that continue operating at that level……………. Will not survive


Revenue Cycle Assessment Work Plan


Sample Assessment Work Plan

SUMMARY GANTT CHART

Total

Completed

Hours

2018Timeline

Assigned Estimated

8/29 9/12 9/26 10/10 10/24 11/7 11/21 12/5 12/19 1/2 1/16 1/30 2/13

Task To

Hrs

GENERAL (RCSC & RC SCORECARD) CFO 158 0 16 16 17 14 11 10 11 10 11 10 11 10 11

PATIENT ACCESS Registration Supervisor 293 0 12 18 29 22 30 21 29 20 22 23 29 16 22

REVENUE INTEGRITY Revenue Cycle Director 435 0 29 36 42 34 41 37 33 35 32 39 37 20 20

HIM CLINIC Clinic Billing Manager 124 0 24 4 2 2 26 26 20 20 0 0 0 0 0

HIM HOSPITAL HIM Director 58 0 25 25 4 4 0 0 0 0 0 0 0 0 0

BILLING Revenue Cycle Director 192 0 23 21 31 25 21 17 17 5 10 4 8 4 6

FOLLOW UP Revenue Cycle Director 223 0 16 14 24 11 38 17 30 13 18 9 16 9 8

CONTRACT MGMT CFO 20 0 0 2 2 4 4 4 2 2 0 0 0 0 0

Total Hours 1,483 0 145 134 149 112 167 128 140 103 93 85 101 59 67

Scheduled Completion 10% 19% 29% 36% 48% 56% 66% 73% 79% 85% 92% 95% 100%

Actual Completion 0%


Sample Metrics for Audit Work Papers Data Required Calculation Best Practice Metric

1.) Total gross patient revenue the latest 3 month period Total gross revenue / number of days in 3 month period = average daily gross revenue

Total gross patient AR as of the latest month period end Total gross patient AR / average daily gross revenue = Gross AR days outstanding

38 Days

2.) Total net patient revenue the latest 3 month period Total net revenue / number of days in 3 month period = average daily net revenue

Total net patient AR as of the latest month period end Total net patient AR / average daily net revenue = Net AR days outstanding

38 Days

3.) Total point of service (POS) collections for latest 3 month period POS collections for the latest 3 period / net patient revenue for the same period = POS collection rate

> 2%

4.) Credit balance AR as of the latest month period end Total credit balance AR / average daily gross revenue = Credit AR days outstanding

< 1 Day in AR

5.) Total patient AR amount that has been discharged but not final billed. This amount should include all legacy systems unbilled AR + unbilled AR which resides in bill scrubber system + Medicare Return to Provider (RTP) file/Claim rejection file

Total unbilled AR / average daily gross revenue = number of unbilled AR days

< 5 Days in AR

6.) Total insurance denial write-off amount for the latest 3 month period

Denial write-off amount for latest 3 month period / total gross revenue for the same period = Denial write-off percentage

< 2%


Sample Metrics for Audit Work Papers

7.) Charity care write-off for the latest 3 month period

Charity write-off amount for the latest 3 month period / total gross revenue for the same period = Charity write-off percentage

< 2.5 %

8.) Bad debt write-off amount for the latest 3 month period

Bad debt write-off amount for the latest 3 month period / total gross revenue for the same period = Bad Debt write-off percentage

< 2.5%

9) Late charges (Department charges beyond 2 days from date of service)

Late charges postings/ Total Charge postings

<2.0%

Notes and recommendations:

A.) Obtain all raw data directly from the hospital’s A/R and G/L systems. Do not rely upon hospital submitted calculations.

B.) Best source for Insurance Denials, Charity Care and Bad Debt amounts are the hospital’s A/R Transaction Summary reports. Alternative source is hospital’s G/L system.

C.) Bad Debt write-off amounts should correspond with collection placement amounts. Differences may represent internal revenue cycle problems.

D.) Some facilities may not have a handle on their denial rates , which is an immediate consulting opportunity

Data Required Calculation Best Practice Metric Actual


Sample KPI Metrics Scorecard

Best Practice Monthly

Area / Indicator Benchmark May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Average

Revenue Performance

Gross Revenue 9,329,443 9,392,011 9,615,510 9,449,318 9,163,181 10,124,925 9,095,000 8,974,320 9,212,502 9,238,995 9,499,057 9,415,749 9,005,811 8,702,738 $9,381,409

3 month Average Daily Gross Revenue 323,692 312,758 308,010 309,071 306,826 312,363 311,902 306,459 299,800 301,383 307,149 312,820 303,485 298,069 $313,888

Late Charges Posted > 4 Days (as Of 11/12/15) 462,127 224,971 572,368 459,412 333,937 341,173 434,541 433,604 167,654 566,860 588,602 340,526 229,980 299,002 $387,584

Late Charges as a % of Gross Revenue 2% 5% 2% 6% 5% 4% 3% 5% 5% 2% 6% 6% 4% 3% 3% $0

Net Patient Revenue (NPR) 3,400,519 3,024,351 3,268,846 3,487,948 2,916,028 3,521,373 3,739,145 2,988,910 3,715,717 3,164,072 3,350,229 3,461,707 3,504,211 3,160,870 $3,393,648

Cash Collections

Active AR Payments 3,348,285 3,777,265 3,003,462 2,792,861 3,557,422 3,785,174 2,861,935 3,595,133 2,589,756 3,090,894 3,768,553 3,261,963 3,733,209 3,462,487 $3,326,765

Payments as a % of Gross Revenue 36% 40% 31% 30% 39% 37% 31% 40% 28% 33% 40% 35% 41% 40% $0#DIV/0!

Payments as a % of NPR 100% 98% 125% 92% 80% 122% 107% 77% 120% 70% 98% 112% 94% 107% 110% $1

POS Payments 27,018 24,803 32,748 25,685 22,737 23,570 19,619 23,653 22,893 21,652 22,890 30,564 27,885 27,476 $25,957

POS Collections as a % of NPR 1.2% 0.79% 0.82% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% $0

POS Collections as % of total patient cash collections 23% N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R N/R NR

Discharged Not Final Billed (DNFB)

DNFB Total 3,617,511 3,547,240 4,383,206 3,529,167 3,136,632 3,343,206 3,404,915 2,583,503 3,153,045 3,403,470 3,322,616 3,187,085 3,145,387 2,718,500 $3,489,276

DNFB Beyond Bill Hold (Unprinted Bills) 1,449,801 497,352 1,218,707 974,932 220,581 201,219 1,279,390 530,535 784,847 1,015,699 1,178,073 1,183,079 1,064,851 411,368 $913,555

DNFB Days 5 Days 10.1 10.1 12.5 10.2 8.7 9.4 9.9 7.6 9.9 10.3 9.8 9.3 9.1 8.4 $10

Patient Access

Pre-Pegistrations Rate 95% N/R N/R N/R N/R #DIV/0!

Insurance Verification Rate 98% N/R N/R 39% 58% 57% 58% 58% 58% 58% 62% 61% 52% 42% 44% 54.8%

Registration Accurary Rate 98% 99.78% 99.68% 99.74% 99.69% 99.68% 99.66% 99.79% 99.80% 97.92% 97.72% 97.12% 97.80% 98.29% 99.2%

Patient Wait Times 7.5 minutes 10 11 8 8.38 6.00 4.00 7.00 6.77 6.43 6.81 6.00 7.02 7.37 7.77

Brownsville General Hospital: Profile of a Hospital in Trouble!

• BGH is a 92-bed acute care, med/surg. hospital with a 19-bed mental health unit

• Annual revenues are $29M, and expenses are > $31M, three years running

• Cash reserves < $500K, with very little investment income

• Inpatient med/surg volumes in decline for seven straight years

• Mental health unit typically at capacity

• Outpatient departments and ED have good volumes

• Payor mix: 60% Medicare, 25% Medicaid, 10% commercial/mgd care, 5% self-pay

• Hospital located in blighted community w two bigger, more successful hospitals located 20 miles away with easy accessibility

• Population is aging and declining

• Physical pant is deteriorating; no capital improvements in five years

• Physician recruitment very difficult

• Payroll soon to be in jeopardy



Lessons Learned 1) Focus on revenue and cost improvement simultaneously 2) Optimize revenue cycle, new services, MD recruitment

and alignment 3) Perform organizational assessment (including revenue

cycle and operations) every 2-3 years 4) Annually benchmark the organization and utilize

information for budget and improvement goals 5) Annually update the CDM, with quarterly maintenance 6) Implement a monthly performance improvement

steering committee meeting 1) Updates from rev cycle, productivity, practice management,

population health/quality

7) Review all hospital insurance contracts to ensure market comparability and competitiveness; negotiate both rates and language


Lessons Learned (continued) 1) Reduce expenses more than you think you need to 6) Let metrics and unassailable analytics drive decisions 7) Manage all vendors and departments very tightly based

on productivity and value 8) Survive on Medicare rates and reduce the overall

episode of care 9) Align with physicians – execute contracts with

incentives; ACO, PHO development


Focused efforts on growth and cost reduction lead to a remarkable operating margin improvement.

Case Study: Weirton Medical Center

Weirton WV

9.40%

6.40%

1.30%

-1.20% -1.90%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2017 2016 2015 2014 2013

Operating Margin

44.20%

47.10%

49.10%

55.40%

57.60%

35.00%

40.00%

45.00%

50.00%

55.00%

60.00%

2017 2016 2015 2014 2013

Personnel Expense as a percent of Total Operating Revenue


A comprehensive approach to hospital stability and viability will include both revenue enhancement and expense reduction strategies…operating simultaneously.

Anatomy of a success story: Warren General Hospital

Warren, PA Revenue enhancement + operational efficiencies=stable organization Potential bankruptcy avoided, strong partnership attained!

Anatomy of a Success Story

Warren General Hospital, Warren PA • Through a well-designed approach to expense reduction and

revenue generation, the hospital was able to reverse its trend of annual multi-million dollar operating losses.

• It became financially and strategically attractive to a number of organizations interested in affiliating with or owning the hospital.

• The hospital recently signed a partnership agreement with Highmark/AHN/LECOM, and through a significant infusion of capital, is once again a viable and vital source of healthcare for the communities it serves.



Jack Welch’s Six Rules for Organizational Success

Face reality as it is, not as it was or as you wish it to be Be candid with everyone Don’t manage. Lead Change before you have to If you don’t have a competitive advantage, don’t compete Control your own destiny or someone else will

One more for good measure: Don’t make hope a strategy

a competitive strategy for hospital stability...front end collections consumers paying more...

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