Many factors are driving the growth of healthcare spending. The number of insured individuals has grown – in large part due to the Affordable Care Act – with an additional 16 million Americans having access to compensated care since passage of the law.
In addition, baby boomers reaching retirement age are pushing the number of Americans age 65 or older to an all-time high. As utilization of health services increases dramatically after age 65, the result of an aging population on top of already increased numbers of insured has projections of healthcare spending reaching close to 20 percent of our gross domestic product.
Who’s spending this money? Increasingly, it’s the healthcare consumer. Out-of-pocket costs for premiums and deductibles doubled to nearly 9.6 percent of household income between 2003 and 2013, according to data from the Commonwealth Fund. Despite the rise of consumers’ out-of-pocket costs, hospital leadership still want and need to to control costs. Hospital operating margins are slim – according to a 2014 article the average is 3.1 percent – so eliminating waste and inefficiency is vital.
Clearly, the way we provide and pay for healthcare must evolve. Historically, a fee-for-service system has meant that hospitals perform the procedures considered necessary to ensure best outcomes. Hospitals must charge more for more procedures, striving to at once realize best outcomes and greatest reimbursement from this volume-based approach.
But this fee-for-service model doesn’t always work. It doesn’t necessarily follow that providing more and more scans, tests, and treatments results in better outcomes. And as healthcare spending approaches 20 percent of our GDP, a revolution is not only necessary but urgent.
The response to spending growth
In an industry that has seen decades of continual change – not all of it orderly or predictable – it’s hard to build a long-term strategy for success under these circumstances. In recent years, driven by the factors previously listed, some major trends are shaping the industry enough to look at a new strategic approach to success.
Both CMS and private payors realize that costs can’t rise forever. Thus the rise of new reimbursement models rewarding value over volume. In these models, providers failing to meet quality and cost outcomes will be penalized, while those delivering to defined measurements of value will be rewarded.
This movement from fee-for-service to pay-for-performance will require meeting the challenges of population health, consumer-directed healthcare purchasing, and new reimbursement models. Addressing any one of these three is daunting, but together they present not only enormous risk, but also enormous reward for systems that can build a strategy to evolve and succeed in this new world.
Managing population health means committing to gathering huge amounts of demographic, clinical, and financial data. Beyond this, providers will need to build processes and systems to analyze and then act on these data sets in a way that supports strategic success.
Even as this challenge is addressed, employers have in the last several years responded to their rising burden of insurance costs by moving more responsibility to employees. High-deductible health plans have taken on a significant role in driving consumers to do more self-directed research on their health and more comparison shopping. With patient financial responsibility a vital revenue source, and consumer choice critical to success, providers will continue to look at innovative ways to provide healthcare that’s at once efficient and affordable, making medical malls, aligning clinics with retail pharmacies, and using telemedicine and mobile technologies.
Finally, there is the shift to new reimbursement models, spurred in large part by the U.S. Department of Health & Human Service’s January 2015 announcement that Medicare would be “tying 50 percent of payments to these [value-based] models by the end of 2018.”1 Suddenly, delivering value took on a new level of importance.
A closer look at the revenue cycle
In this new value-based world, revenue is still vital to success, and a well-managed revenue cycle will always be a critical part of a provider’s ability to provide care to its community.
Every provider wants to provide this care at the best possible cost, but quality and cost – the components of value – are the result of countless complex interactions across every department in a provider system. Especially when reimbursement is added to the mix, these interactions must be coordinated closely. From patient engagement to materials management, pharmacy to staffing, discharge to billing and beyond, every part of an episode of care is affected by – and affects – quality, cost, and revenue.
Successfully managing care will require financial, operational, and clinical data to be collected and analyzed to understand how quality care is delivered, as well as whether the cost of delivering that care exceeds reimbursement. These data sets cannot be addressed as separate concerns. Instead, they must be managed as components of a single larger process.
Building a solid foundation for this new process will be vital to sustained success. But where does a provider start? The revenue cycle is a smart place to begin, by analyzing the information contained in the chargemaster, where every charge associated with every outpatient procedure is stored.
With its wealth of relevant data, the chargemaster is the linchpin of not only the revenue cycle but also a provider system’s value cycle. Key data sets that will help build understanding of the value cycle include:
- Service codes: The unique numbers created by a facility;
- Charge descriptions: The unique descriptions of a procedure, drug, or supply created by a facility;
- Revenue codes: National Uniform Billing Committee (NUBC) – representing the type of bill you are submitting on the claim;
- CPT or HCPCS codes: Standardized coding systems used primarily to identify products, supplies, and services not included in the CPT procedural codes. A CPT code is a five-digit numeric code used to describe medical, surgical, radiology, laboratory, anesthesiology, and evaluation/management services of physicians, hospitals, and other healthcare providers; and
- Prices: The charge a patient is billed for a service, drug, or device.
From here, the revenue cycle can be used to start optimizing every opportunity to achieve best outcomes for the best cost.
The value cycle
Value cycle describes the full life cycle of optimizing every opportunity to achieve the best outcome for the best cost. It includes traditional revenue cycle components, such as pricing, charge capture, claims performance, and compliance, but also addresses additional dimensions, such as:
- Quality of care;
- Patient satisfaction and engagement;
- Clinical outcomes;
- Operational efficiency; and
- Risk management.
Managing this process will require visibility into and understanding of cost, revenue, and quality data across the value cycle. Without this, a provider system will risk its patients’ satisfaction, its own profitability, and its regulatory compliance. Once risks are discovered, a value cycle approach will mean converting those risks into opportunities for improvement in cost, revenue, and quality. Finally, the value cycle will require optimizing these improvements, turning them into sustainable processes.
Five financial keys to a value cycle approach
It’s easy to understand that providers must make margin in order to fulfill mission, but starting a value cycle approach requires equal measures of planning and passion across an organization. While every provider is different, there are some common factors that can help a value cycle approach succeed. Obviously, delivering quality care is critical to success, as is managing the cost of facilities, personnel, and supplies. But there are five steps you can take, largely within your revenue cycle or revenue integrity department, that can positively impact your value cycle.
- Get leadership on board. Without clinical, financial, and operational leaders in agreement on the need for a coordinated strategy to deliver value through clear goals and processes, an organization risks continuing to be siloed, with different and sometimes competing demands for resources.
- Perform a comprehensive audit of the chargemaster to give a baseline of what your services encompass and where reimbursement problems and opportunities lie. When a charge doesn’t exist in the chargemaster, there is ultimately no reimbursement – and chargemaster and charge capture errors lead to significant lost revenue and compliance risk. Making sure your charge capture processes are optimized will help minimize financial uncertainty as you optimize the rest of your processes.
- Look at your supplies and pharmacy charge capture. Are there gaps in pharmacy data between your purchase history, formulary, and chargemaster? By syncing drug purchase history, formulary, chargemaster, and up-to-date regulatory reference, providers can address the revenue gaps that sabotage efforts at cost reduction and delivering quality care.
- Review your pricing, from both a margin and a competitive perspective. This is a critical part of building a value cycle approach. With consumers looking for value, are your prices where they should be?
- Look at your admission processes, from eligibility to medical necessity to billing, for quality of the experience and quality of data. Patient engagement is a key part of the value cycle. For example, patients’ experiences in the billing process are critical to their overall satisfaction, and simple medical necessity errors can lead to costly denials. When a patient’s bill gets wrapped up in a hospital’s internal issues with medical necessity and denials, patient satisfaction is risked even if they have received excellent care otherwise.
Overall, discover, convert, and optimize. In order to succeed in the new value-based world, the revenue cycle must evolve to become part of a larger value cycle that connects cost, reimbursement, and outcomes, helping providers meet their mission and margin.
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