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Efficiency, not speed, counts most, experts say
AR days no longer the best benchmark
By Craig S. Weller, RHIA, MBA
and Linda Fotheringill, Esq.
Fotheringill & Wade Consulting, LLC
Almost every aspect of health care has changed significantly over the last five years, let alone the past 30. Most of us can remember when protecting a patient’s privacy was an ethical issue for hospitals and physicians. Now it’s a matter of regulatory requirement under the Health Insurance Portability and Accountability Act.
Beyond this recent change, however, there is an amalgam of activities that has had and will continue to have a profound effect on hospital financial viability. We have experienced cyclic problems with shortages of various professionals, access to affordable liability insurance, and the lack of capital for replacement of plant, equipment, and technology.
30% reimbursement comes from MCOs
Where hospitals once received 95% of their reimbursement from fee for service insurance companies, approximately 30% now comes from managed care organizations. Medicare and Medicaid, which were considered reasonable payers (low but steady), have fallen victim to budget cuts.
The Balanced Budget Act of 1997 completely changed the reimbursement scenario, and it is estimated that additional reductions in Medicare payment may reach $21 billion in a five-year period. State governments are reducing programs, services, and funding for Medicaid recipients to avoid spending money that doesn’t exist.
At the same time, the economic cycle has placed a burden on all companies to reduce costs, either to survive or enhance shareholder equity. This business reality is easily seen in the health care marketplace, where providers face a series of obstacles in getting paid for even the simplest of services. Internally, the "revenue cycle" most commonly is labor- and paper-intensive, with billing deadlines and collection goals.
Layered on top of this reality is a payer marketplace that can collect millions of dollars in interest by not paying claims on a timely basis. An even better result occurs if the claim is denied.
Between 25% and 30% of claims are denied
Industry estimates are that between 25% and 30% of all health care claims either are denied or rejected. With the economic climate and an increased market penetration of managed care, the number of denied claims continues to rise. The result is a direct threat to a hospital’s financial viability.
This point was substantiated by Washington, DC-based The Advisory Board Co., a leading research organization, which recently surveyed hospital executives and found that decreased claim reimbursement is their highest-priority financial concern. In their responses, executives identified claim denials as the principal cause of the decreased claims reimbursement.
With all of the changes affecting health care, the basic measure used to compare hospital financial productivity has not changed. The venerable "days in accounts receivable [AR]" continues to be the choice for benchmarking one hospital against another. Unfortunately, many hospitals across the country live by this metric, even basing employee compensation changes on achievement of "days in AR" goals.
Financial policy can manipulate AR days
When examined under a bright light, it is clear that the number of AR days can be manipulated through financial policy. Some hospitals have policies that allow a write-off to bad debt for any denied claim under a defined value or over a certain age.
In the current environment, where every revenue dollar is important to future success, this criterion that once had universal appeal should now be viewed only as a measure of efficiency — how quickly did the hospital turn a bill into cash — and not a panacea for financial comparison. Perhaps more important is the establishment and regular reporting of a companion effectiveness metric — one that measures how well bills are turned into cash.
Scraping for every dollar
When the AR days measure became important to hospitals, claim denials were literally unheard of. Now, as we scrape for every dollar to meet both present and future needs, there must be an organizational commitment to identifying all denied and underpaid claims and aggressively pursuing a reversal of the insurer’s determination.
Some hospitals have demonstrated leadership in creating multifunctional departments geared to protecting all aspects of the revenue cycle. They largely have been rewarded for their efforts by being more effective in their billing and collection practices. For everyone else, however, perhaps a low-tech solution to generating more cash for the hospital is a necessary first step.
Throughout the literature on modern management methods, examples can be found of improved performance when a process is measured and reported upon. Measuring and reporting both efficiency and effective metrics for financial operations will make clear the opportunity to turn denied claims into cash.
Hospital executives and board members need to understand the nature of the decreased claim reimbursement problem, as well as opportunities that exist within the organization for improving operations. Perhaps a good portion of our financial future is in our own hands — keep the money we have, and fight for what we deserve.
[Editor’s note: Linda Fotheringill is a lawyer who frequently provides consulting services to hospitals in the area of denial management and is the co-author and a faculty member of the Denial Management Institute (DMI). Craig Weller is director of operations for Fotheringill & Wade and a faculty member of DMI. They can be reached at 212 Washington Ave., First Floor, Baltimore, MD 21204. Telephone: (800) 597-7759; Fax: (410) 296-1558; e-mail: firstname.lastname@example.org.]