Attacking denials recoups $3.6 million for hospital

Internal processes, problem payers in spotlight

Provider organizations know that declining government reimbursement is only one factor that sends them into the red.

Johns Hopkins Hospital in Baltimore, saw that it might be leaving millions on the table every year due to denials, a lackadaisical approach to appeals, ineffective relationships with payers, inaccuracies at registration, loopholes in contracts, missing medical records, late charges, bills processing, coding and case mix intensity, and poor clinical documentation. The hospital system then began a multi-phase program that it called the Revenue Recovery Initiative to try to recoup those dollars. In fiscal year (FY) 2000, the effort recovered more than $8 million — $2.6 million of which resulted from a reduction in payment denials and overturned old denials.

The hospital had been experiencing a climbing denial rate, says Dan Wassilchalk, MHA, RHIA, director of performance improvement (PI) and utilization management (UM) for Johns Hopkins. In the first half of FY98, the hospital denial rate had reached a high of 2.8% on the clinical side and 1.4% on the administrative side, a total of 4.2%. By the end of FY98, the clinical denial rate dropped to about 2.6% on the clinical side, but the administrative rate increased the same amount.

"A 4% to 4 ½% denial rate is like discounting your service," Wassilchalk says. "Who can afford to do that when you have hospitals with profit margins of 2% and less? When you are hovering on the edge, it can make the difference between whether you end up in the black and or in the red."

At Johns Hopkins, every tenth of one percent in the denial rate was equivalent to about $340,000, he explains. "We realized that to drop it three-tenths of one percent was worth $1 million."

Looking inside first

The PI/UM department decided to make a strong attack on denials. "We began by asking, How can we be more productive on the internal side before we could extend resources to focus on the payers?’" Wassilchalk says. "Following a recent 20% downsizing in our department, we knew our budget wasn’t going to increase so we had to examine our use of existing resources to become more efficient." (For more information on the effort by providers’ associations to push legislative relief from Balanced Budget Act of 1997 cuts, see p. 11.)

The first step was to generate a culture for change, with the understanding that the hospital could not afford to operate while losing these amounts of denied revenue. The department would integrate PI and UM to where the two functions would no longer be managed separately, and would capture data and focus on problematic cases in terms of both clinical and financial outcomes.

Wassilchalk also realized that through staffing restructuring, combined with reorganization and retraining in the department, PI could be trained to do UM duties and vice versa. Therefore, the department rewrote job descriptions, established performance standards and adjusted salaries to account for the added skills and knowledge required for the positions. Following the rewriting of the job descriptions, all staff members had to reapply for their positions. Staff turnover reached 35%.

Bedside laptops eliminate transcribing

Then the department addressed the work processes themselves to see what it could do more efficiently. Some of the changes it made included:

• Capturing patient data on the nursing units through dedicated ports made available for the staff’s laptops.

The old process involved writing down the information, bringing it to the office and keying it into a computer. "That forced us to do a check out and check in’ process," Wassilchalk says. "In the morning, we checked out with our census, which took about a half hour. In the afternoon, we checked back into our census. That took about a half hour, too."

By capturing all of the data on a laptop plugged into a network on the nursing units, the department eliminated the need for check out/check in. That saved an hour a day for each staff person — a total of 16 hours a day. The department plans to reinvest some of these savings to provide the staff with hand-held devices to ease recording and documentation while on the floor.

• Becoming functional unit- or department-based, rather than nursing unit-based.

In a declining length of stay in the old process, patients were handed off from one PI/UM specialist to another, up to three times depending on the level of care and the transfer of care. Instead, the PI/UM department wanted one specialist to follow the patient from admission to discharge wherever that patient went. "That would provide continuity among the case management program," Wassilchalk says. The "triad case management team," which consisted of social work, case management and PI/UM members, would be able to follow the patient based on the patient’s assigned service or functional unit. "This created better communication among all the involved members."

Improving communication with payers

Then the department looked for ways to improve communication between the hospital and its payers. The steps it took included:

• Adding cell phones for the staff and projecting length of stay.

Staff hated returning voice mail messages, Wassilchalk says. To counter this, the department distributed a matrix to all payers, which included phone numbers, beeper numbers and cell phone numbers of all of the triad members, sorted by functional unit or by medical staff department. At any time, payers could look at the matrix and know what treatment the patient was receiving, and be able to determine who would be the best person at Johns Hopkins to contact. "We were looking to provide the right information at the right place at the right time so we could avoid voice mails," he explains. The department also purchased InterQual criteria to allow the PI/UM staff to "speak the same language" with payers.

As might be guessed, the number of telephone calls regarding insurance questions increased quickly, up 24% from FY99 to FY00. On the positive side, the number of certified days increased 31%. "That meant we were approving more days on the front end," Wassilchalk says.

Staff, however, had difficulty meeting the demands of the telephone calls. The PI/UM department, therefore, instituted two new policies. One, staff would only make phone calls twice a week. Second, the department would press payers to approve days upfront based on either Hopkins’ critical paths or some published length-of-stay norm.

"We hope these practices will reduce the number of phone calls to an exception basis (to those inquiring only about patients who have exceeded the projected length of stay or patients who didn’t have a projected length of stay assigned," Wassilchalk says.

• Increasing the number of on-site reviewers.

The department decided to increase its number of on-site reviewers, too. At the beginning of FY99, the system had four payers on site. The number has now increased to 10. "We communicate on a routine basis throughout the week with the payers, and we work together to delegate reviews," Wassilchalk says. "We can reduce phone calls by having the payers on-site, and they find it is a good investment by being there. Physicians — the medical directors of the health plans as well as our attendings — appreciate them being on site, too, because information can be gathered and decisions can be understood in a timely manner."

Developing team payer management

With the savings and efficiencies it had gained, the PI/UM department created Team Payer Management. The team has two major functions:

• Manage on-site reviewers and assign one or two nurses in the department to the high-volume, problem-prone payers.

"This allowed the hospital to assure right-time, first-time information to the payers," Wassilchalk says. The double-digit denial rates for the top three problem-prone payers decreased by half in six months.

• Track, record, manage and follow-up on denials and appeals, and report this information routinely throughout the organization.

The department generates a lot of data on denials, Wassilchalk explains. Denial activity is tracked monthly by payer, department, reason, DRG (diagnosis-related group), physician and other variables.

Overall, Johns Hopkins saw its clinical denial rate decrease from 2.6% to 2.3% in FY99 and 1.8% this past fiscal year. On the administrative side, the rate decreased from 1.6% to 1.0%. "We are now looking at a combined denial rate of about 3%," he says. "The latest statistics show that the average denial rate for Maryland is 4.5%. Our staff is thrilled and proud."

The department not only had to work on claims currently being processed, but it needed to address denials and appeals that remained in limbo in the system. For example, when the department started this initiative in calendar year 1999, it identified $1.9 million in appeals dating back to January 1997 that had never generated a response from the payers.

The hospital decided to hire someone to focus on those old appeals. "It’s a matter of keeping the pressure on the payers," Wassilchalk says. Collections in FY00 for that effort total more than $900,000. Continuing into FY01, the hospital has already collected more than $1 million in old appeals.

The hospital next plans to address emergency department visits, where it hopes to capture another $250,000 in overturned denials. After that, the focus will turn to outpatient services.

In addition to the reduced denial rate and the collection of old appeals, Johns Hopkins also increased its appeal rates and recovery rates. The facility was only appealing about 40% of all of its denials. "You can’t win if you don’t play; we had to increase our appeal rate," Wassilchalk says.

In addition, the PI/UM department realized that staff needed to learn how to write a better appeal letter. "Our appeal letters were terrible in structure and content," Wassilchalk says. To help with the letters, Johns Hopkins consulted legal counsel and nurses from payer organizations to give their perspective on the way the provider’s appeals were interpreted. "We taught our staff to write a better letter and we saw our overturn rate double."

Recovered: $2.6 million

Wassilchalk did not want to burden his staff with the letter writing, however, because they were spending more time talking with payers. The department, therefore, began to outsource the appeal writing. "We went to the employee health office and found nurses who were injured and couldn’t work on the patient care units, but who could read a chart and write a letter."

The appeal rate rose to almost 70%, and the hospital’s overturned denial rate doubled from 10% to more than 20%. When the savings of all of the department’s efforts are totaled, more than $2.6 million has been recovered. Wassilchalk highlighted the success on a storyboard at the September conference of the American Health Information Management Association in Chicago.

Some of the money saved has been reinvested in software and other technology. Other funds were used to reward and recognize — through luncheons, picnics, and seminars, for example — everyone involved in the success of the project, Wassilchalk says. "That serves as the momentum for fueling continuous improvement."