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Mastering Revenue Cycle Management

April 22, 2011
by John Degaspari
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Two Strategies for Tightening up the Revenue Stream


Having a good understanding of the billing process, whether through internal workflow audits or employing a software solution to make sure a hospital is being reimbursed for every service it provides, is crucial to maximizing revenue streams.

Now more than ever, hospitals, regardless of their size, are being asked to produce more with less. This has prompted healthcare leaders at many organizations to take a hard look at their operations, in an effort to minimize revenue leakage as well as to help ensure they are getting reimbursed for all of the services that they legitimately deserve.

To reach that goal, having a good understanding of the billing process is absolutely key. But hospital leaders nationwide are pursuing widely diverse strategies to achieve their goals. What follows are two case studies of hospitals that have taken two different routes to stopping revenue leakage and maximizing reimbursements in their organizations.

In one, the physicians practice group of a large academic center applied internal audits, in the form of activity-based management, to identify workflow problems in its billing department, and came up with relatively low-cost solutions that have improved its revenue performance. The other example is offshore, in a small hospital that is part of a national health system, which has used a software solution to gain a better understanding of its pricing structure to maximize reimbursements.


University Physicians Healthcare (UPH) is a 450-member physician group that is part of the University of Arizona Health Network, a two-hospital academic system and health plan based in Tucson. UPH made national headlines in January as the level-one trauma center that treated Rep. Gabrielle Giffords after an unsuccessful assassination attempt outside a local supermarket. UPH is the only hospital in southern Arizona that treats major trauma, and its location some 50 miles from the Mexican border means that it receives many patients who do not have adequate means to pay. Both factors contribute to financial pressures for the hospital.

With that said, the health system's physician practice group lagged in days in receivables, the performance measure of how long an organization takes to collect a dollar of revenue. According to Dan Klaber, director of central business operations with responsibility for the physician providers, prior to 2008, his group's performance was at an average of 53 days, compared to the standard for academic medical practices, of 38 to 40 days. He established a goal for his group of 35 days. His challenge, he says, was to align his staff to collect the invoices in an effective manner. “In truth, it wasn't being done very effectively,” he says.

To tighten up the group's collections process, Klaber called in a consulting firm, Atlanta-based Tatum. Its strategy was to put in place an internal auditing procedure, known as activity-based management, to analyze who does what in terms of revenue cycle management tasks at the hospital. What is notable about the strategy was not only that it identified gaps that were resulting in revenue loss, but that the solutions were both effective and relatively low-cost.

John Ortiz, partner at Tatum who was involved with the project, calls activity-based management a foundation for six-sigma, a business management strategy, long used in manufacturing, that is used to identify causes of defects. As applied to the healthcare industry, activity-based management is used to understand particular activities and, just as important, what resources are being applied to perform the activity, Ortiz says. In the case of UPH, it was used to identify what Ortiz terms cost drivers, which were not only costing the organization, but also were not delivering.


Ortiz notes that the activity-based management audit revealed significant gaps in the billing process, which lent themselves to relatively low-cost solutions.

The billing department had a high number of claims submitted to the insurance company that were being held up, until medical records that support the service could be sent to the insurance company. An emailed request sent to the appropriate source had an average turnaround of 45 to 60 days, Klaber says. The analysis revealed that there were 26 different sources for the documents. To address it, Klaber created a two-person team whose entire job was to handle the documentation, and gave it access to all 26 sources through a single desktop computer. The team was also given a Web tool that allowed them to track how long it took to get the required documentation. The result: turnaround from 45 to 60 days to two days.

Klaber also discovered that his personnel were not using all of the features of the billing system in a consistent manner, or not at all. For example, claims with the insurance companies were not being followed up in a consistent manner. (The supervisor actually printed out lists of claims that needed follow-up, and handed them out the staff.) Steps were taken to make sure that everyone had the right tools to capture documentation, standardize their tasks, and use the full functionality of the billing system, according to Ortiz. The solution, which was already in place in the billing system, was a system of “tickler” reminders on claims that needed follow-up. The billing department had been working under unrealistic goals of handing 100 accounts a day. That goal was eliminated, and replaced by a new set of measures based on reimbursement rather than the number of cases handled.

The billing department also made adjustments to the claims processed based on the payers. According to Ortiz, different payers have different payment criteria and tools for payment. Those differences call for different procedures for follow-up, he says. “Medicare will pay in 21 days if you send them a clean claim to begin with,” Klaber says. “The timeframe you can accelerate with Medicare is different than UnitedHealth and some of the other commercial payers, he says, which is a reason for tiering of the timeframe.” Changes were also made to system aging, reducing from 45 days to 28 days, allowing the billing department to follow up on accounts sooner.

Klaber acknowledges that some barriers exist that prevent reducing the turnaround time further. Many of the records are still paper-based, for one thing. Also, within the physician practice there are 14 specialty groups, each of which has operated as its own shop; and a physician practice often extends its reach to other hospitals and clinics in the area. That will be mitigated somewhat as the health network moves to a new electronic health record (Allscripts, Chicago), Klaber says. According to Ortiz, integrating all of the doctors under the same medical record platform will allow the health network to reduce the turnaround time to obtain documents even further.

In Klaber's view, the steps his department has taken, between the summer of 2009 and January 2010, have paid off. Since then, it has reduced its account receivable days from 53 to 37. “For every day we reduce our account receivables, we are putting $350,000 in the bank one day sooner,” Klaber says. On top of that, it has increased the amount of cash it is collecting rather than writing it off as bad debts, Klaber says. Klaber puts his collection rate-the percentage of money it collects compared to what it is entitled to collect-at 93 percent. It has increased that percentage by two or three tenths of a percent during the last three years, in effect not creating any additional bad debt, he says.

Says Klaber: “In operations management, it takes three things to be successful: technology, people, and process. Too often, technology is seen as the ultimate answer. I am all for technology, but the primary concern has to be process, and how technology can support the process.”


Dale Sanders, CIO of the Cayman Islands Health Services Authority, has an interesting perspective on revenue cycle management. He works at Cayman Island Hospital, a 124-bed hospital in Grand Cayman. As part of a national health system, Cayman Hospital is not obligated to follow U.S. revenue cycle processes, although it is heavily influenced by the U.S. healthcare industry, he says.

Reconciling the two has been a challenge for the hospital, which uses an enterprise health information system from Kansas City-based Cerner Corp. The hospital is still heavily influenced by the U.S. model because the insurance companies that serve the Cayman Island health system use third-party adjudication rules that are U.S.-based. A big part of the challenge is working with these products and under the influence of U.S. systems “by making all of the vendors that are U.S. influenced that we have a national system of our own and we don't have to follow those rules,” he says. He adds that the Cayman Island Health System has had success in convincing the third-party adjudication service organizations, which are U.S.-based, to understand that they have to rewrite their adjudication rules for Cayman's claims.

One challenge for the Cayman Health System has been to establish a repeatable, transparent pricing methodology. When Sanders came on board in 2009, he found that the hospital was using a manual, labor-intensive, and error-prone process. To help update its pricing structure, Cayman used the Chargemaster Toolkit solution (supplied by Craneware Inc., Atlanta). “With this tool we were able to quickly identify gaps in the completeness of our revenue cycle charging. Now our departments are charging appropriately for services that, in the past, we were basically giving away for free,” he says, referring to medications, procedures and, to a lesser degree, supplies.

In the past, he adds, Cayman operated on the assumption that the cost of the supplies and the cost of the medications were rolled up in the price of the service. In addition, Sanders says it has also helped the hospital reduce the time to produce a charge master from six to nine months to a few weeks, and the charge master has fewer errors and is repeatable, Sanders says.

Sanders acknowledges that as a national health system, Cayman has different financial motives than commercial hospitals in the U.S. As a national health system, where revenue is actually viewed as an expense by the ministry of health, Cayman is motivated to keep its costs as low as possible, not generate as much revenue as possible, Sanders says. Nonetheless, he says that tightening up its revenue cycle, by gaining a better handle on pricing, has been effective in stemming revenue leakage. The health system, which has a modest operating budget of $82 million, made a profit of $2 million, making a profit for the first time. (It ended the prior year $6 million in debt.)

According to Sanders, having better control of its pricing structure has allowed the Cayman Health System make sure it is charging the minimum amount required to deliver the best care. For the most part, Cayman is a procedure-based fee-for-service health system. Starting next year, it is moving to a capitated diagnosis-based reimbursement model. Under that system, Cayman will cover a patient for a flat fee, guarantee quality of care, and return the unspent difference to the Health Ministry.

As Cayman makes the transition, it is focusing on complete clinical documentation on the front end to make sure that is capturing all of the services it is delivering. The health system is building order sets and clinical documentation templates to support both evidence-based medicine and proper billing. If clinicians don't document for what they did, it will result in massive revenue leakage. That advice is as true for a national health system as it is for a U.S.-based healthcare model.

Healthcare Informatics 2011 May;28(5):30-33

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