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With the long-awaited rollout of the ICD-10 coding system at hand, surveys suggested that larger providers were nearly ready for the conversion, but smaller organizations were not and likely faced claims and cash flow disruption.

The code set conversion, though a major story, is only the latest evidence that many community providers, including safety net hospitals, haven’t adequately addressed fundamental challenges in the revenue cycle created by health payment reforms, vast changes in the insurance markets and the rise of healthcare consumerism.

The challenges abound:

  • Affordable Care Act payment system reforms include value based purchasing, bundled payments, population health management and penalties for medical errors and re-admissions.
  • Reimbursement cuts include Medicare disproportionate share hospital payments, set to fall by $50 billion annually by 2019, and annual market basket reductions for most organizations. This is of particular importance to safety net hospitals, which already face operational challenges such as the medical, behavioral and social health status of their patients, aging plant infrastructure and labor issues. Further financial challenges for safety nets include the payer mix of the population served (Medicaid, uninsured) and less profitable service line offerings, such as neonatal intensive care, burn care and emergency mental health.
  • Insurance market changes, including Medicaid expansion and new Medicaid managed-care entities; high-deductible health plans in both the individual and employer-sponsored markets; narrow provider networks, with huge cost differentials between in-network and out of network providers; increasing authorization requirements; and expanded review of medical records/clinical documentation.
  • A new coding system, ICD‐10-CM, which debuted October 1. Some consider this to be the biggest challenge since Y2K. ICD‐10‐CM consists of more than 68,000 diagnosis codes, compared to approximately 13,000 diagnosis codes in ICD‐9‐CM. The implementation of ICD‐10 will require retrained staff, education of physicians, additional coders and much more time per care episode.
  • Internal limitations, including a lack of staff expertise on these issues, a lack of experienced coders, deficits in revenue cycle software and/or redundant programs and a lack of organizational focus on revenue cycle.

To be sure, revenue cycle management remains a core function in healthcare, but it only grows more difficult as traditional payment models shift to alternative arrangements and financial responsibility shifts to the patient.

One of the authors of this article is the CEO of Norwegian American Hospital, an inner-city safety net hospital in Chicago that has had success in optimizing the processes that increase cash collections, decrease accounts receivable, reduce bad debt write-offs and improve days’ cash on hand. The other author has led revenue cycle operations for inner-city healthcare organizations but now runs a revenue cycle management outsourcing company.

The core piece of revenue cycle can be done well in-house, but only if an organization has employees who know what they’re doing and good management that knows how to train the employees and manage processes in patient access services, billing and collection. Maintaining measurable and quantifiable goals, which are frequently communicated to the team, have further increased collections and reduced days in accounts receivable.

Areas that Norwegian American Hospital has outsourced include coding, collecting the self-pay portion of a patient’s bill, pursuing patient insurance coverage and completing government cost reporting. It requires monthly vendor performance reports, which are measured against the organization’s collection goals. Quarterly meetings are held to insure performance meets the organization’s collection objectives and to account for any change in the local environment or corporate strategy.

However, more organizations are taking another look at outsourcing core revenue cycle functions, including billing, collection and follow-up, patient access, registration, scheduling and insurance verification. These providers have found that internal resources are lacking, employee talent too difficult to acquire or other priorities are taking precedence.

Whether revenue cycle is done in-house or through a vendor relationship, it is a largely untapped source of revenue for cash-strapped providers. Hospitals have cut staff and trimmed services in recent years to keep costs under control. Lately their last best hope seems to be using the Lean Six Sigma approach to eliminate waste from processes. And yet, for many hospitals, it’s easier today to find a dollar of revenue then it is to find another dollar of expense to cut.

In subsequent articles over the next few weeks, we will explore these revenue opportunities in greater depth, including:

  • ICD-10 preparedness, by Dennis Price, CFO of PolyClinic, Seattle, and Jennifer Swindle, Salud Revenue Partners’ Vice President of Coding Solutions
  • The challenge of patient self-pay, by Michael Karpf, MD, Executive Vice President for Health Affairs, University of Kentucky HealthCare, and Jesse Ford
  • Revenue cycle readiness: When and why do you outsource? By Alan Channing, former CEO of Sinai Health System, and Jesse Ford

For now, some highlights.

Patient self-pay. The statistics are stunning, as this issue leaps to the forefront of healthcare leaders’ concerns. Employees in 2015 cover 43% of the total cost of care in employer-provided PPO insurance coverage, or $10,473 annually, according to the Milliman Medical Index. That represents an 8% increase to employees (overall) and a 5% increase to the employer over last year. The $10,473 amount is divided over two categories ‒ out-of-pocket expenses incurred at the point-of-care ($4,065) and premium costs through payroll deductions ($6,408).

Nearly 37% of those under age 65 with private health insurance coverage were enrolled in a high-deductible plan, the National Center for Health Statistics reported in June. Nearly 20% of consumers have unpaid healthcare bills, the Consumer Financial Protection Bureau reported last year. Fully a quarter or more of provider revenue now comes directly from patients, various analyses have found, up from just a few percentage points less than a decade ago.

And yet, in 2014, 39% of providers said that they did not know the amount of consumer responsibility during a patient visit, and 72% said that it took more than one month to collect from a consumer, the payment portal provider InstaMed said in a study, Trends in Healthcare Payments Fifth Annual Report: 2014. Some 58% providers surveyed said that their primary revenue cycle concern was related to consumer collections.

Patients are beginning to expect the same clear and concise information about – and control over – their medical services and financial options as they receive in banking and other consumer activity. Hospitals should be on the front lines, counseling patients at the point of service, assessing their financial capacity, and finding creative, engaging ways to help them pay.

We believe the first interaction with a patient with high out-of-pocket insurance coverage is an opportunity to share financial policies, gain patient commitment for their payment responsibilities, provide financial counseling and develop a payment plan, thus avoiding bad debt. Develop a brochure that details in plain language details about when to make payments and how, especially using an online patient portal address that gives patients the ability to check their balance, make payments and ask questions. Encourage revenue cycle staff to follow up with patients after they receive the packet, and ask patients if they have questions about the financial policies.

ICD-10 conversion. Although there is considerable debate about just how much disruption this new coding system will cause, two things seem clear:

  • Coders will slow down because of the demand for greater specificity. This will create demand for additional coders to avoid under-coding and claims denials, and the prospect of a shortage. This may feed the movement toward outsourcing the coding function.
  • A key to success remains educating physicians because their documentation directly supports accurate code assignment in ICD-10. Training resources for physician education and follow up may be another area where resource augmentation makes sense. Even after rollout, working with staff and referring physicians on greater specificity in documentation and providing links to resources such as the American Medical Association’s ICD-10 Center are of critical importance.

Outsourcing: Two recent reports show outsourcing of various aspects of revenue cycle management is on the rise – and why.

One study, by research firm peer60, is Healthcare Revenue Cycle Management: 2015. It examined how 122 hospitals and medical groups were contending with Affordable Care Act payment models. Many respondents said these new models have increased their interest in outsourcing some of their revenue cycle management. The top item providers will consider outsourcing is collections, which was chosen by nearly 46% of respondents. Twenty-five percent will consider outsourcing contract management and denial management, 22% will consider outsourcing claims and 16% will consider outsourcing eligibility and benefits.

A recent survey report from Black Book, a firm that produces comparative analyses of technology vendors, showed that 21% of hospital CFOs who chose to outsource their organization’s revenue cycle management functions said that they would have been facing bankruptcy within the next four years if either state-of-the-art software or outsourced revenue cycle services were not implemented.

The same report, based on a poll of 2,250 CFOs, CIOs, business office managers, technology and financial services staffers, found that 83% of hospitals over 200 beds that moved to outsource all or most of their revenue cycle management operations have attributed revenue increases of 5.3% year-to-date in 2014 to a turnaround in post-outsourcing revenue cycle management proficiencies. About 78% of hospitals under 200 beds that were new to outsourcing revenue cycle also reported average revenue increases of 6.2% in 2014.

Even with all of the challenges of a changing payment environment, opportunities abound in optimizing revenue cycle management, as we will see in coming weeks.

Click here to read the article originally published by Becker’s Hospital Review.

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