I’m going to change gears a little bit for this episode from what we’ve been doing over the past few weeks. We have been talking about the mechanics and the how-to portion of creating your reportopia.
Today, we are going to be focused more on the benefits, or a case study. And specifically, we’re going to be focused on healthcare revenue cycle management optimization. Now, not everybody’s in healthcare, I understand that, so we’re going to do a little bit of background here, so that everybody can at least track what we’re talking about. I really hope that, as we go through this example, that it helps us just think about how we can analyze these processes and really think about them strategically so that we can identify those points in the process that can be improved through reporting.
That’s really the goal here; to try to improve a business process, stop the loss of revenue, increase revenue, reduce risk, cut expenses. Those are the things that we’re trying to accomplish.
Healthcare revenue cycle management is just prime pickings. It’s just a complex process, there’s a lot of areas within this process that can go wrong. And it’s really important that it doesn’t go wrong. The healthcare providers out there are oftentimes working on small margins. And if claims are not processed accurately, it really can make a big difference in the result. So, let’s just talk a little bit about revenue cycle management in general here for a minute, and then we’ll jump into the details.
First of all, the simple revenue cycle that we’re all familiar with, when we go and purchase something at a store, is very simple. You’ve got a buyer and you have a seller. At the time of the sale, the transaction happens, and the buyer gives the seller some money, and the seller takes that money and gives the buyer a product. Both parties are happy because they both feel like it was a good deal, and the transaction is done. There are a few other things in there. You might have credit card processing or payment processing. You have to deal with returns and all that sort of thing. But in general, it’s a straightforward process.
Now, healthcare is not so straightforward. And the first thing to think about is the parties that are involved. You have a patient, first. This is the person that needs some type of procedure or some type of product. And the provider, that’s the actual physician that’s going to be providing the service. And of course, that provider may be part of a provider group, they may be part of a hospital, or a group of any kind.
So you got that provider side of the equation, and then you have the payer side of the equation. Now, the payer in this case could be the patient themselves, but often, depending on the type of procedure, of course, but most often when we think about healthcare. We’re looking at insurance payments, which could be any of the insurers, such as Aetna or United Healthcare, or any of these healthcare insurance providers.
Now another type of payer is the government payer, such as Medicare or Medicaid. So, you have a few different parties involved, which does make this process more complicated. So, what I want to do is just kind of walk through a simplified version of a revenue cycle and talk about the areas of opportunity where I’ve seen our clients use reporting to improve these processes.
Let’s start out at the very beginning. If you’re a patient again, you initiate this process by calling a provider or scheduling an appointment in some way, whether it’s online or through a call center. That’s the very first thing that happens. And right there immediately, there’s going to be some opportunities to improve that part of the process. Let’s just say, you’re calling a call center. The call center immediately must figure out where their capacity is. In a simple scenario where you only have one doctor’s office, you might be calling the doctor’s office. And there’s one person there doing scheduling and they’re scheduling for one doctor.
Let’s just assume that’s the case. Well, that’s a simple scenario, but even that scenario can have some complexities when it comes to scheduling. Typically, what happens here is the physicians have certain amount of capacity for various types of procedures each day. Again, on a simple case, one provider has one type of procedure they’re going to do, and they’re going to do it all day long. Well, that’s very simple.
In a more complicated scenario, you’ve got a whole group of providers across various parts of the country, and they’re all doing different things throughout the day. And often you have interdependencies. One provider can’t do something unless another provider is available to do something first or in correlation. So, there’s scheduling complexities right up front.
Reporting, right there, can make a big difference. Simply giving that person, ultimately, the information they need to really understand what capacity is available, can make a big difference. They can schedule more effectively, which ends up getting you to a higher utilization rate on your providers, which is a good thing. You’re able to serve more patients, the practice is more successful.
Another thing that happens right up front is insurance verification. Typically, the office is going to want to verify insurance before you show up for a procedure. And there’s a lot that goes into this as well. It’s a whole other process, but in the end, what must happen is the practice needs to make sure that the patient’s insurance is valid, but also what are the benefits of that insurance? It’s important that the doctor’s office and the patient understand those benefits before the patient shows up. There are no surprises once they get there, if the patient’s expecting X, but they don’t have X, they got Y. Well, if that type of communication can happen beforehand, that’s going to be a good thing as well.
A lot of this is kind of, transactional type things, where you receive an explanation of benefits and figure out if that fits the type of services being requested. But there’s also opportunities right there for reporting. What types of benefits are we seeing that are not supported by these different policies that are commonly coming into a practice? Maybe that should be used whenever contracts are negotiated next year, or when you’re looking for different types of insurance carriers to work with. So just simply compiling and understanding that information can be beneficial to the practice.
After Insurance verification happens, eventually the appointment is going to occur. So, the patient’s coming into the office, and at that point, we have another process and that is your copays or whatever the over-the-counter payment might be. So here you have a person in an office making a payment, a cash payment of some type to the practice. Are those payments being collected correctly and accurately? Does the practice understand what the payment should be? It may seem like a simple thing to do, because as you have an explanation of benefits, but there’s complexities here as well. And there are software packages that can help with some of these processes. But, even if you implement these packages that help you determine, or collect payments, at time of service, you still need to know, “Are those packages worth what you’re paying for them? Are they providing the benefit that they propose to provide?”
So measuring the over-the-counter payments is also important. Now I want to take a little bit of a sideline here and talk about some dependencies. All this reporting that we’re talking about is dependent on your systems of record. In this case, we’re talking about over-the-counter payments. If your system of record, the application that you’re actually using to run your business, if that system is accurately collecting the information we need, in this case, identifying a payment as an over the counter payment, very clearly, then this is going to be a much simpler process to figure out whether or not over the counter payment was collected at the time of service.
But if it’s not clear, which it can very easily not be clear, then reporting becomes a lot more complicated and complexity, it adds cost, it adds risk. So, these dependencies on the source systems are real. It makes a lot of difference. The different business applications that you choose to use and how they’re configured makes a big difference on how cost effectively reporting can be created on top of them.
After the over-the-counter payment is collected, then we’re going to have the procedure conducted. And there’s another set of things that must happen here. Usually, the actual physician is going to record the individual procedures that were done. And this takes a lot of different paths at this point. But at some point, that procedure is going to be recorded in some electronic health record system.
And that procedure needs to be coded. It needs to be identified as a standard numbering system; so that on a standard, we can know what exactly was done. And that code needs to match up to the benefits that we talked about earlier, that the patient is entitled to. So that process right there of coding, and maybe more importantly, the information that the doctor records within the electronic health record system, can also be optimized through reporting. Not so much on impacting what was done, that’s a whole different area here. What was done, the doctor’s going to do what needs to be done to benefit the patient in the best way, but often how that information is recorded can make a big difference in the claims that we’re going to be talking about in a minute.
So looking at things across a practice, if you see that one physician is recording two procedures on average per appointment, or encounter, and others are doing three, or others are doing one, why is that? Are there differences in how these positions are recording these procedures that are being completed? And that ultimately is going to mean that you have different coding, different numbers of procedures being sent out in claims. So, analyzing that part of the process is also important.
Now, after the appointment is complete, we go into this claims process. This is a complicated process. Again, if we go back to the individual that goes and buys something from a store, it’s very simple. You make a purchase, you get your product, the vendor gets the payment, we’re done.
Here that’s not the case. The patient went into the office. The patient already has an agreement with a third party, that the third party is going to pay for this procedure. It’s not the patient that’s going to pay for it, it’s going to be the third party. At least most of the procedures going to be paid for by the third party.
So now the question is, well, how do we get that information to the third party? And that’s done through a claim submission process. I think 837 is the standard that we use here. But what must happen is the practice has to tell the third party who conducted the procedure. Who was the patient? When was it done? What was the procedure? Those codings had to be sent over in the form of an electronic submission.
Whenever that happens, or before that happens, we can measure some other things. How long is it taking between the time that the procedure was conducted, and the claim was submitted? That’s very, very important, because a lot of these contracts have maximum amounts of time that can elapse before, basically, you’re just not going to get paid for that claim. So, these things must be done timely or else you’re going expire that benefit. Measuring that process is also important. How quickly are we getting those claims out? What are the bottlenecks? What are the slowest pieces within that part of the process? And how do we resolve them? Measuring those individual pieces of the process is very important.
So once this claim goes out to a payment process or a payer, then the payer is going to analyze a claim, and ultimately, they’re going to send back some type of remittance. This is going to be in the form of an 835 in the healthcare industry. It’s going to say here’s what we’re paying for, and here’s the reasons we’re not paying for things that you’ve requested.
Now, let me back up to the claim itself. There’s a couple of other things that go on here and that is the difference between the actual amount that’s being billed and the amount that the payer’s going to pay. The payer, insurance company already has a contract with the provider to pay a certain amount for certain procedures and that’s called the allowable amount. But the provider is not going to change their fee schedule, let’s just say, to match any individual payers allowable amount, because, again, there may be a number of payers involved in this process. That provider might be working with Aetna and Cigna, and they may also take Medicare, Medicaid, there’s all types of different payers involved. That’s not as if there’s one amount that’s being charged for a particular service.
So the difference here between the allowed amount that the payers contractually required to pay, and the amount that the provider is charging for a service, has a pretty big difference. Let me just try to give an example of this situation. If someone comes into the office and let’s just say, they have a broken leg. That procedure involved would be doing an x-ray, for example. The x-ray process has a certain allowed amount by the patient’s insurance company. That’s the amount that the provider and the payer have agreed to. That’s all that payer is going to pay. But the provider is still going to submit a claim for more than the allowed amount, in most cases. They may submit a claim for $500, but the allowed amount might be $100. So, part of that remittance that comes by from a payer is going to explain why the claimed amount was, or was not, paid. In this case, they’re going to say, “We’re going to deny $400 of that claim due to your contractual obligations.” So, that $400 portion of the claim is the provider’s responsibility and the $100 is going to be paid.
So here again, we have another opportunity for improving this process. When the remittance comes back, it’s going to be one big check. That check is going to cover all sorts of different payments. And along with that check, we’ve got this remittance advice, 835. So, it’s up to the practice now to figure out how to apply that check to all the individual patient procedures that occurred, or that were related to that payment.
You can imagine that this is also not always the simplest of processes. There are automatic ways of doing a lot of these things, but what has to actually happen is that check amount is going to go into some big unapplied bucket. The money is being received by the practice, but it’s not yet been applied to any individual patient encounter.
Then that money must be, line item by line item, applied to each individual procedure. In our example, one small piece of that check needs to be applied to the x-ray procedure for this individual patient.
This brings into the picture a couple of other things, and that’s this unapplied concept. You always have unapplied payments. You always have this process going on through time. And it’s important that these payments are applied quickly. You don’t want to have a bunch of unapplied money out there because that again is slowing down the process. It’s also not great for the patient. If they’re trying to figure out if they owe money to the practice. It’s important that we’re able to apply these payments quickly and measure how quickly that’s happening. And if there are errors happening in that process, why are there errors happening? Why do we have these discrepancies between what electronic health record system says? The claims processing needs to line up accurately there.
Another thing that needs to happen right here is, adjustments. We’re going to basically say “We submitted a claim for $500. We received $100 in an actual payment. Then we’re going to do a contractual obligation adjustment for the remaining $400. Now we have a zero-balance line item.” Great. We’re done.
Well, not exactly, because it’s not quite that simple. A lot of patients will have multiple insurance companies. You have various payers that are responsible for any point in time. That payment that came in might have been the primary payer, but there very possibly could be a secondary, tertiary, or even further. You could have several different payers involved. And it’s the remaining balance that goes to the next responsible payer. In this case, the $400 remaining balance wouldn’t get adjusted off if there was a second payer. Instead, that $400 would be sent off to that second payer to see what that payer might pay on the claim.
Then we go through the process. We get the remittance advice, and we look at that. Then we go to the next payer. Ultimately all the insurance companies and government payers are going to be exhausted, and the remaining balance is going to be the patient’s responsibility.
At this point, we kind of enter a different scenario. The patient responsibility, when it comes to healthcare, is handled, several different ways depending on the type of procedure that we’re talking about. When it gets right down to it, a patient often isn’t going to be able to pay a hundred thousand dollars bills in the case of an emergency or something like that. So often that’s just simply going to be written off in the end, but we still must go through a collections process. In some cases, I guess, elective type procedures, it is going to be actively collected. The patient is going to be responsible for paying for those procedures, if the primary and secondary, all the other payers have been exhausted.
So here we enter more of a collections process. How do we explain to that patient, first, what they’re paying for and why they’re paying for it? Because when the patient gets a bill, they often are thinking, “Well, I thought my insurance was going to pay for this. Why didn’t they pay for it?” There must be some explanation there of why the patient is being billed for a procedure, that maybe they thought initially that they weren’t going to be responsible for.
That brings us all the way back to the pre-appointment and the insurance verification process. If that’s done well, that really helps with this part of the process. Now, what’s the opportunity here? Well, we want to limit the number of surprises at this point. If we’re finding that we’re having a lot of unpaid patient responsibility invoices, why is that? Was the patient not informed, initially, that they were possibly going to be responsible for this payment? What is exactly the cause of that thing? To understand we must know what’s going on and that’s where measuring how many payments, the quantity, and the amount of those payments. How many of them are actually reaching this point of the process where it’s hitting patient responsibility and some indication of where an unexpected patient responsibility was.
Now, if the patient doesn’t pay, of course, or the claim is going to go to a collections agency. Then the collection agency is going to try to collect on that payment. That brings another process into play because the collection agency is going to have some type of an agreement. I’ve seen these done in a lot of different ways, but maybe the collections agency is just going to simply get a percentage of all payments that are collected. That’s the most common way of doing this, and you must look at it actually better for these patient responsibility invoices to be sent off to collections, and for the practice to take the hit on the percentage of the ultimate collections that are going to be taken by the agency that collects? Or should the practice just do that themselves?
Even though they won’t do it quite as well, they may not do it quite as aggressively, maybe that still works out better because they may be collecting a lower percentage. That lower percentage may represent in a higher end number, because they’re not having to share so much of it with the collection agency. That’s something where reporting can help quite a bit as well. All these variables can be compiled together to give you a clear indication of what are you paying the collection agency? What is your internal success rate on collections?
Once the collections agency is done, assuming it goes to collections, then you end up with a balance that’s unpaid. And then now you have a write off situation where you must actually say, “Well, this is uncollectable amounts, and we’re going to actually write them off entirely,” so that we get to a zero balance on the encounter.
The write offs, again, that’s another area where we can inject reporting. Why are we reaching the write off? Are we having to write this off because of denials that we could impact, such as I mentioned earlier, where we’re taking too long to file claims and that’s resulting in write offs? That’s important to know. If the write off is related to a denial type that we can impact, we need to understand that and get that information in front of someone, so that process can be monitored aggressively.
When it gets down to the end of this revenue cycle management process, this whole credit balance thing, depending on the type of practice and how a practice collects payments, could end up that there is actually credit balances for individual patients. That credit balance might not be applied to a procedure that that patient has received.
If a patient goes in, and for some reason they prepay something or overpay something, now they get a balance on their account. In the future, when that patient comes in and they have another procedure done, there must be something that says, “Take that patient credit balance and apply it to the patient’s current procedure,” which you don’t want to do that until we exhaust all of the other benefits that that patient might have come. We want to use the other payers before we ask the patient to pay.
Tracking credit balances and understanding how much credit balance you have, which is a liability on the books, is important as well. All of this must come together to give a practice an understanding of their accounts receivables. They’ve got to understand how long does it typically take for us to collect on a procedure? From the time that we submit a claim, how long is that going to be outstanding? Looking at that through time is important. Understanding which responsible payer is important. So having accurate reporting that ties all these pieces together to give a practice an accurate view of their accounts receivables is critical.
That’s what’s going to tell you which payer is paying in an acceptable amount of time, or they’re paying faster, or they’re not. That all ties into future contract negotiations, or even deciding whether you want to support a particular payer or not.
The other piece of this that’s quite important is to give the actual providers the information they need to understand what’s the results of all of this revenue cycle management process. So, given the provider some type of dashboard or report that says, “This is what you did in the past month. This is the number of encounters. This is the number of procedures. These are the categories of procedures you did.” Just the basic counters of the activity.
What’s the resulting financial impact of that. Here’s the amount that of revenue that you generated in the past month. What’s the resulting payment activity? Here’s the number of payments that were collected. Here’s the number of adjustments that were done. Here’s the amount of write offs that were done. Ultimately that gets to the point where the provider can stay abreast of what’s working well, because the provider is really a key part of this process. They are the ones that are seeing the patients and they are the ones that are entering the procedures into their health record system. That’s kind of initiating this process. Keeping them informed about what’s the result of all this process is critical as well.
Keeping that simple is also important because the provider’s not someone that needs to be sitting there looking at reports and trying to reconcile individual payments. Maybe in smaller practices, they might do that, but it’s not really the provider’s role to do that sort of thing. Making it simple is important, but this isn’t a simple thing. The payments are just one complexity. The payments that come in this month are not necessarily related to the procedures that were done this month. When you say what were your payments this month? You’ve got a number there and you say, “Well, here’s the revenue generated this month? Here’s the payments you generated this month.” It’s not apples to apples. It must be presented in a very clear way, so that the provider understands what they’re looking at. Otherwise, it just can result in even more confusion.
Revenue cycle management is not a simple thing. It’s quite complicated when it comes to healthcare, and it has all sorts of opportunities to be improved by injecting very carefully designed reporting, at very focused parts of the process. All the way from the beginning. All the way starting at that call center that takes a call and schedules of the appointment, all the way through to writing off a remaining balance or getting the account to a zero balance. All of that has the opportunity to be improved through accurate reporting.
It’s a holiday week here. So, I do wish you all the happiest of holidays. We’ll see you next week. Thank you so much for listening.