Winning Under Reform: Strategies to Optimize your Revenue Cycle in 2013 HFMA Kentucky Chapter March 15, 2013 PNC Healthcare Advisory Services
Today s Presentation Goals 1. Provide some background on U.S. healthcare economics 2. Review the timeline, provisions, and impacts of healthcare reform 3. Explore revenue cycle strategies for improvement 4. Developing and reporting key performance indicators (KPIs) 5. Learn something new and have fun!!! 2
SOME ECONOMICS OF AMERICAN HEALTHCARE 3
U.S. Leads in Health Expenditures Per Capita $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 The U.S. spends more, per capita, on health than all other OECD countries; it is ranked first in health expenditures at $8,233 which is more than double the OECD average of $3,268. Total Expenditures Per Capita, 2010 US Dollars $3,000 $2,000 $1,000 $- Source: Organization for Economic Co-operation and Development (OECD) Statistics 4
National Health Expenditures per Capita 20.0% National Health Expenditures per Capita and Their Share of Gross Domestic Product, 1960 2011 $10,000 18.0% $9,000 16.0% $8,000 14.0% $7,000 12.0% $6,000 10.0% $5,000 8.0% $4,000 6.0% $3,000 4.0% $2,000 2.0% $1,000 0.0% 1960 1970 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $0 National Health Expenditures as a Percent of Gross Domestic Product National Health Expenditures Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; and U.S. Bureau of the Census. 5
Breakdown of US Health Care Expenditures National Health Expenditures as a Percentage of Gross Domestic Product and Breakdown of National Health Expenditures, 2011 Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 9, 2012. 6
Uninsured by State Average Percent Uninsured by State, 2011 16% of the population is uninsured RI 12.0% DE 11.5% DC 11.3% < 10.0% 10.0% - 14.9% 15.0% - 19.9% 20.0% Source: U.S. Census Bureau, Current Population Survey, 2009 to 2012 Annual Social and Economic Supplements. Data released June 2011. 7
Uncompensated Care Cost to Hospitals Cost (Billions) % of Total 7% $45 6% $40 $35 5% $30 4% $25 3% $20 2% $15 $10 1% $5 0% $- Source: American Hospital Association, Uncompensated Hospital Care Cost Fact Sheet, Jan 2013 8
Hospitals Already Face Public Underfunding Hospital Payment Shortfall Relative to Costs 1997 2010 Medicare (Billions) Medicaid (Billions) $10 $5 $0 -$5 -$10 -$15 -$20 -$25 -$30 -$35 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -$40 Source: American Hospital Association Annual Survey data, 2010 9
Public Funding Continues to Grow as a Source National Health Expenditures by Source of Payment ($Billions) 12% 42% 35% Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 6, 2011. 10
Current Hospital Revenue Cycle Environment 2010 Profit Margins (all hospitals) 63% Negative 37% Positive Source: Thomson Reuters Action OI database 45% of medium & large community hospitals Over 12 billion major transactions Huge fragmentation o o More than 2,000 payers 30,000 contact points Cumbersome processes lead to revenue write-offs Unenforceable standards (HIPAA standardization) Excessive reliance on paper or proprietary gateways Disjointed IT systems Constantly changing payment protocols Abnormally high and accelerating costs of billing and collections Reimbursement and market pressures reducing resources available for overburdened and understaffed administrative functions 11
NOW ADD IMPACTS OF HEALTHCARE REFORM 12
A New World Patient Protection and Affordable Care Act (PPACA) signed into law March 23, 2010 Aimed primarily at decreasing the number of uninsured Americans Sweeping changes to healthcare possibly largest since the creation of Medicare and Medicaid program in 1965 Implementation and effects to be seen over the period of 2010-2019 Upheld by the Supreme Court on June 28, 2012 13 13 13
Healthcare Reform Timeline PAYMENT CUTS & COST SHIFT PROVISIONS Cadillac tax 40% tax on employer-sponsored health plans that offer policies with generous coverage levels. P4P & PENALTIES FOR POOR PERFORMANCE PROVISIONS GEOGRAPHIC PYMNT ADJ PROVISIONS TRANSPARENCY PROVISIONS COVERAGE EXPANSION PROVISIONS Doughnut hole coverage gap in Medicare prescription benefit is entirely phased out. Seniors expected to pay 25% of drug costs until the threshold for Medicare catastrophic coverage is met. DELIVERY SYSTEMS PROVISIONS 10 Yr Federal Revenue Estimates ($ billions) $835.9 $111.0 Medicaid DSH Payment Reduction Independent Payment Advisory Board(IPPS Hosp exempt until 2020) Medical Device Tax Medicare DSH Payment Reduction Hospital Acquired Conditions Penalties Disclosure of Industry Payments to Physicians and Teaching Hospitals Medicaid Expansion Insurance Reforms (Preexisting conditions for adults, premium limits Individual Mandate and Employer Pay or Play State Exchanges Bundled Payments Pilot $262.7 $393.4 Hospital Productivity Adjustments PhRMA Tax (Ranging from $2.5B to $4.1B annually) Hospital Value- Based Purchasing Hospital Readmission Payment Reductions Comparative Effectiveness Research Accountable Care Organizations Center for Medicare and Medicaid Innovation $3.8 $42.7 CMS Hospital Behavioral Offset relating to IPPS Hospital Market Basket Reductions Hospital Wage Index Geographic Variation Bonus Waste, Fraud, and Abuse Provisions for Medicare and Medicaid (RAC & MIC) Disclosure of Standard Hosp Charges Insurance Reforms (Pre-existing conditions for children, no annual lifetime limits, children on parents insurance until 26) $22.3 14
Changes of Healthcare Reform CEOs report every year that their top concern is how their hospitals will continue shouldering the financial burden of caring for the uninsured. 1 For the first time ever, a majority of the nearly 49 million uninsured in the U.S. will have access to health coverage. More employers will provide health insurance to workers. Medicaid eligibility will be expanded in participating states starting January 1, 2014. Health insurance marketplaces (exchanges) will open in every state starting October 1, 2013 to enable uninsured Americans to enroll in health coverage. Consumer polling shows that 78 percent of uninsured Americans are unaware that coverage will be available to them. YIKES! 1 ACHE Survey Top issues Confronting Hospitals survey, 15
Impacts of Healthcare Reform Hospitals stand to lose 10% of their reimbursement over the next 10 years. Getting the uninsured enrolled in health coverage is going to be a challenge. Don t be fooled: There will still be self pay! 16
The Provider Challenge Providers need to work harder than ever to ensure they secure payment for service revenues rightfully due. Providers face rising demands to drive down costs as public funding declines and pressures on margins increase. Providers will need to take an active role in helping uninsured patients and their families enroll in coverage in the new reform environment in order to reduce uncompensated care costs. Providers must make serious efforts to address quality in their organizations, especially as P4P provisions and poor performance penalties go into place. Bottom Line: There s no room for error or inefficiency in today s healthcare marketplace! 17
Revenue Cycle the Tip of the Iceberg 18
And now a Demotivational Thought 19
REVENUE CYCLE STRATEGIES FOR IMPROVEMENT 20
The Pillars of Success in the Era of Reform Optimizing Revenue Cycle Performance 21
Key Principles for Success Measurement Patient Access Revenue Integrity Business Office Reimbursement Scheduling/ Pre-registration Charge Capture Billing 3 rd Party Contracting Ins. Verification/ Authorization Clinical Documentation AR Follow-up & Management Denials Management POS Collections Chargemaster Management Payment Posting Contract Management Financial Counseling Coding Customer Service Pricing Strategy/ Fee Schedules Registration HIM Throughput Collections/ Agency Management Revenue Recognition Accountability Discipline 22
Measurement We ve all heard it: you can t manage what you don t measure. Measurement aids in identifying problem areas. Sets the stage for setting goals/targets and working toward them. It is also a proven principle that: When performance is measured, performance improves. When performance is measured and reported, the rate of improvement will accelerate beyond mere measurement alone. Other principles to keep in mind: Ensure that what you are measuring is accurate and meaningful. Use a standard data source. Use metrics instead of just data reporting standardized and widely used metrics will facilitate comparison. Determine the appropriate frequency of measurement. Automate the measurement process as much as possible. 23
Accountability Accountability must start with leadership. A waterfall without a source is just a cliff the source of accountability must be with leadership, then it can flow to the rest of the organization. Establish accountability for every process of the revenue cycle. Ensure that every revenue cycle process reports to the right person the right people in the right seats on the bus principle. Accountability is enhanced when coupled with measurement. Every metric being measured should be tied to an accountable leader. All staff level employees should be accountable to at least one quality and one productivity metric. 24
Discipline Process discipline = a standardized approach: Define each task within the revenue cycle very clearly, then stick to that definition each time the task is performed to improve overall revenue cycle performance. You don t have to be a six sigma black belt to identify areas and ways in which a process can be improved and where process discipline can be implemented. If you talk to different employees who perform the same task and they give different answers on how the task is done, you know you have a problem. Develop tools such as workflows, scripts, and training sheets so staff can easily follow the standard approach. Identify or create a process champion someone who performs the task (or is willing to) in the best manner and utilize him/her as an example/role model/trainer for others. 25
DEVELOPING & REPORTING KEY PERFORMANCE INDICATORS 26
Developing KPIs What to measure? Develop indicators for each process at the department/ functional level as well as overall RCM indicators Develop a baseline - where are you today? Where have you been? Trending information is more valuable than one point in time Calculate values for the previous 12 18 months Track a 3 6 month rolling average Where do you want to be? Use industry resources for best practice benchmarks Try to find benchmarks more specific to your type of facility and geographic region Look for opportunities and create your own target 27
KPIs by Functional Area PATIENT ACCESS REVENUE INTEGRITY CLAIMS MANAGEMENT REIMBURSEMENT OTHER MANAGEMENT Pre-Registration Rate Days Gross Revenue in Discharged-Not- Final-Billed (DNFB) Days Gross Revenue in Final-Billed-Not- Submitted (FBNS) to Payer Initial Denials as a % of Gross Revenue Cash Collections as % of Net Revenue Insurance Verification Rate Days Gross Revenue in Discharged-Not- Submitted to Payer (DNSP) Clean Claim Submission Rate Final Denials Write- Offs as a % of Net Revenue Bad Debt Write-offs as % of Gross Revenue Insurance Authorization Rate Late Charges as % of Total Charges Net Days in A/R Overturned Denial Rate Charity Care Writeoffs as % of Gross Revenue Uninsured Inpatient Conversion Rate 3 rd Party Billed A/R >90 Days Charity Care to Uncompensated Care Point-of-Service Collections Rate Days Gross Revenue Held in Credit Balances Cost-to-Collect Days Cash on Hand 28
Patient Access KPIs Indicator Calculation Things to Consider Target Pre-Registration Rate Number of patient encounters preregistered All scheduled encounters pre-registered prior to date of service. A scheduled encounter is considered prior to day of service. 98% Number of scheduled patient encounters Insurance Verification Rate Total number of verified encounters Total number of registered encounters All scheduled patient encounters where eligibility/insurance is verified prior to date of service and non-scheduled encounters verified within one day of service/admission date. 98% Insurance Authorization Rate Number of encounters authorized Number of encounters requiring authorization Authorization is defined as required approval from the 3 rd party payer for the services ordered. 98% 29
Patient Access KPIs Indicator Calculation Things to Consider Target Uninsured Inpatient Conversion Rate Number of uninsured patients converted to a payer source Payer source can include COBRA, Medicaid, workers comp, other insurances such as motor vehicle, and other government programs. 10-20% Total number of uninsured patients Point-of-Service (POS) Collections Rate POS Payments Total Cash Collected Defined as patient payments collected prior to or up to seven days after discharge/date of service for the current encounter only. 2-3% 30
Revenue Integrity KPIs Indicator Calculation Things to Consider Target Days Gross Revenue in Discharged-Not- Final-Billed (DNFB) Gross dollars in A/R not final billed Average daily gross patient service revenue Include inpatient and outpatient, and exclude in-house claims. 4 6 Days Days Gross Revenue in Discharged-Not- Submitted to Payer (DNSP) Gross dollars in DNFB + gross dollars in FBNS Average daily gross patient service revenue 5 7 Days Late Charges as % of Total Charges Charges with post date >3 days from service date 2% Total gross charges 31
Claims Management KPIs Indicator Calculation Things to Consider Target Days Gross Revenue in Final-Billed-Not- Submitted (FBNS) to Payer Gross dollars in FBNS Average daily gross patient service revenue 1 Day Clean Claim Submission Rate Number of claims that pass edits requiring no manual intervention 85-90% Total claims accepted in to billing scrubber for editing Net Days in A/R Net A/R Average daily net patient service revenue Should exclude credit balance accounts and any nonpatient service A/R 45 55 Days 32
Claims Management KPIs Indicator Calculation Things to Consider Target 3 rd Party Billed A/R >90 Days 3 rd Party Billed A/R > 90 days Total 3 rd Party billed A/R Should only include debit balance of 3 rd Party accounts aged from discharge date. 15 20% Days Net Revenue Held in Credit Balances Dollars in credit balance accounts Should not include accounts in preadmit or in-house status. 2 Days Average daily net patient service revenue 33
Reimbursement KPIs Indicator Calculation Things to Consider Target Initial Denials as a % of Gross Revenue Sum of denied claim amounts Include denied claims received from 3 rd party payers with denial codes on the remittance advice. 4% Gross patient service revenue Final Denials Write- Offs as a % of Net Revenue Sum of final denial writeoff amounts Net patient service revenue Include all net account balances written off within the month resulting from un-appealable denials. Do not include contractual allowances. 2% Overturned Denial Rate Number of appealed claims paid Number of claims appealed and finalized or closed Include all appealed claims (in response to a denial or take-back) that were closed/finalized within the month due to a receipt of payment. 40 60% 34
Other Management KPIs Indicator Calculation Things to Consider Target Cash Collections as a % of Net Revenue Total cash collected Average collectable net patient service revenue Total cash collected from patient service accounts. Exclude any non-patient service cash. ~100% Bad Debt Write-offs as % of Gross Revenue Bad debt write-offs Gross patient service revenue 2-3% Charity Care Write-offs as % of Gross Revenue Charity care write-offs Gross patient service revenue 3% 35
Other Management KPIs Indicator Calculation Things to Consider Target Charity Care to Uncompensated Care Charity care write-offs Total uncompensated care (charity care + bad debt) This should be monitored to track any significant trends or variations. ~50% But varies depending upon the mission of the organization and state regulations. Cost-to-Collect (HIM excluded) Total revenue cycle cost (patient access, business office) Total cash collected Should include all Patient Access departments costs, including the functions of: scheduling, preregistration, eligibility/insurance verification, admissions, registration, and financial counseling. Include all Business Office departments costs, including the following functions: billing, A/R follow up & collections, cash posting, customer service, and denials/underpayments management. Include costs for any outsourced functions. 2 3% Days Cash on Hand (Cash on hand + market securities) Include all cash and other liquid assets as reported on the balance sheet. >150 Days [(Total operating expense - depreciation expense)/365] 36
Your KPI Reporting Process Determine how you will display and track KPIs Charts, graphs, dashboards, spreadsheets, etc. Decide which indicators will be tracked daily, weekly, monthly, quarterly Put someone in charge of collecting the data Automate data collection where possible Hold regular meetings with the CFO and revenue cycle leadership team to review indicators Give updates on current initiatives, identify new opportunities and create action plans Results in common goals Hold individual department meetings that include director, managers, supervisors & leads 37
Examples of Measurement ABC Health System Revenue Cycle Indicator Report - Patient Accounts Patient Access HIM Patient Accounts Key Performance Indicator Target Overall pre-registration rate of scheduled patients >98% Overall insurance verification rate of scheduled/pre-registered patients >98% Registration accuracy rate >98% Successful attempts for collection of elective services deposits prior to service 100% Successful attempts for collection of inpatient self-pay deposits prior to discharge >65% Successful attempts for collection of ED self-pay deposits prior to departure >50% Days of gross revenue held in Discharged-not-Final-Billed status <4-6 days Physician documentation completion deliquency greater than 30 days <5% Final-Billed-Claim-not-Submitted backlog <1 A/R day Billed insurance A/R >90 days from service/discharge <15-20% Bad debt write-offs as a % of gross revenue <3% Charity care write-offs as a % of gross revenue <3% Total cash to net-collectible revenue (60 day average lag) ~100% Cost to collect (HIM excluded) <2-3% Net A/R days <45-55 days Point-of-service collections as a % of total cash collections >2-3% Outsourced bad debt netback ([collections-fees]/placements) >7-11% Indicators Latest 6 Mo Variance from Benchmark / Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Avg 6 Mo Avg Goal Cash Collections Patient Cash Collections $ 21,645,675 $ 21,177,353 $ 21,789,764 $ 22,200,622 $ 22,212,567 $ 20,137,661 $ 22,356,080 $ 710,406 >Cash Target Collection Target $ 22,031,836 $ 22,348,863 $ 20,870,367 $ 22,059,912 $ 22,204,781 $ 21,212,728 $ 23,494,365 $ 1,462,529 Cash-to-Net Collectable Revenue (60-90 day avg lag) 98.3% 92.2% 100.0% 100.6% 100.0% 94.7% 102.3% 4.0% Avg 100% Cost to Collect $ 0.030 $ 0.038 $ 0.043 $ 0.022 $ 0.023 $ 0.031 $ 0.026 $ (0.00) <$0.025 Billing Average Days from Discharge to Bill Drop 7.1 7.2 7.2 6.1 6.6 8.2 7.6 0.5 7-10 Days IP 7.5 7.8 8.6 6.7 7.2 7.5 7.1 (0.4) OP 6.7 6.0 6.4 5.8 6.0 8.5 7.7 1.0 ER 8.2 10.6 9.0 6.8 7.9 7.7 7.4 (0.9) Avg Days from Bill Drop to Send 2.2 3.0 2.0 2.0 2.0 2.0 2.0 (0.2) % of Billed Claims Error Free 92.6% 93.0% 91.6% 87.4% 94.0% 96.2% 93.5% 0.9% >95% AR Management By Category (captured at end of month) In-House $ 14,196,303 $ 15,063,218 $ 12,395,790 $ 12,367,993 $ 14,174,342 $ 15,411,277 $ 15,765,196 $ 1,568,893 DNFB $ 17,904,086 $ 17,820,628 $ 17,684,323 $ 14,190,157 $ 15,971,800 $ 24,169,729 17,587,879 $ (316,207) Outpatient - Unbilled $ 16,861,280 $ 17,710,269 $ 15,300,590 $ 15,186,325 $ 16,218,883 $ 18,504,256 18,247,357 $ 1,386,077 Billed $ 42,083,626 $ 40,372,631 $ 41,359,073 $ 44,805,752 $ 41,461,281 $ 42,359,305 $ 42,143,715 $ 60,089 DNFB (last Friday) $ 26,122,870 $ 29,128,625 $ 21,071,349 $ 25,288,091 $ 25,500,701 $ 31,076,180 $ 24,672,277 $ (1,450,594) Days Revenue in DNFB (last Friday) 6.8 7.5 5.5 6.7 6.8 8.1 6.3 (0.5) <5 Days Denials Overall initial denials rate (% of net revenue) <4% Clinical initial denials rate (% of net revenue) <5% Appealed denials overturned rate 40-60% KPIs, Dashboards, and Graphs, oh my! 38
Putting it All Together Implement the principles of Measurement, Accountability, and Discipline and live them every day Identify which measurements relate to the area you desire to improve Utilize measurements to assess where you are now compared to where you want to be Identify gaps and quantify opportunities Good Performance Better Performance BEST PERFORMANCE Prioritize opportunities based on financial and operational impact Current Performance Assign accountability to each measurement and process so that everything is tied to an accountable individual Develop and implement standardized, disciplined approaches for each process to be improved Continue to measure and report to monitor progress Celebrate successes 39
Our Message to Hospitals: Don t Keep Doing The Same Old Thing! 40
Thank You! PNC Healthcare Advisory Services Dan Bergantz - Director Susan Cobb - Director daniel.bergantz@pnc.com susan.cobb@pnc.com 801-755-4628 214-732-1249 41