Given the lower margins and higher operating costs, health systems need to focus on managing payor relationships and optimizing payables. As the saying goes, you can't afford to leave money on the table.
Joe Kight, head of healthcare with U.S. Bank, shared his perspectives with Healthcare Innovation on where healthcare systems are with revenue cycle management optimization.
Kight runs the healthcare team within the bank’s Institutional Client Group. He manages the three healthcare segments: a large-cap for-profit segment, a large-cap, not-for-profit healthcare group, and a middle-market healthcare segment, both nonprofit and for-profit. Below are excerpts from the interview.
How prepared are health systems to deal with the different challenges of revenue cycle management?
I think prior to COVID, it was always a topic, but it wasn't something that had this real focus. I think COVID exposed some cash management issues for certain healthcare systems. It certainly exposed some of the difficulties around collecting patient payments and working through denial management.
U.S. Bank research shows that only 8 percent of patients believe healthcare payments are made easy today. We made an acquisition to address this several months ago with a company called Salucro. We branded that offering at U.S. Bank as MedEPay. What it's designed to do is to offer a bunch of different payment options…and consolidate all those payment flows for the system.
There's a big focus on how to manage denial management and speed that along, how to collect those payments faster, and do that under the backdrop of some degree of uncertainty around reimbursements right now.
Payers are trying to figure out how to work with the providers. The entire banking system is leaning into trying to help automate and move to a digital kind of presence.
Healthcare systems are evaluating different EHR systems, and they want to make sure that the banks can plug into those systems. It helps them with their cash forecasting. Managing that cash cycle becomes critically important. It is a very transformational exercise for these healthcare systems to do some of this stuff.
If you're a healthcare system and you're not focused on this, you are absolutely at risk of being left behind because patients are expecting this in terms of seamless payments and in terms of easy integration into portals.
What are the biggest challenges right now?
Healthcare systems having the internal resources to progress along those lines. It usually takes a pretty good lift from their internal IT, finance, and procurement departments. They all need to work hand in hand to help move the healthcare system into more of a digital environment. More recently, I've seen much better communication between those departments and how they work together.
In the past, as a bank, we would really focus on talking with CFOs. That was usually around capital structure. Do you have the necessary liquidity in place? What are your capital plans going forward? How can we be of assistance there? And now we have those conversations and talk to the cycle management department. Then, we'll have additional conversations with procurement because they may be evaluating certain vendors for different solutions. Then that has to all kind of work together. Finance needs to be aware of what vendors are being brought on board. Revenue management needs to know how this will drive better optimization.
When you look at staffing and capabilities, do you notice any big differences between large and small health systems?
You're certainly seeing bigger challenges in the rural, smaller healthcare systems. They're stretched very thin. Utilization rates for hospitals are much higher than through COVID. They came to historical lows. Now they've bounced back.
Labor costs ran up significantly over the last few years. That's leveled off, but that's not coming back. Staffing is always a challenge. When you're thinking about some of the smaller systems, their cash flow cycles can get very, very stressed. Moving to that outpatient model is critical for them. They're trying to balance collecting patient payments. They're trying to balance collecting reimbursements from the insurance companies and the payers. And they're trying to balance their various overhead costs and staffing costs.
Some of the bigger systems out there already have a bit more resources and a more sophisticated internal setup. They're able to prioritize IT departments. They have a very good roadmap on exactly what they want to accomplish.
It seems that CIOs are currently not giving more money for tech upgrades. How do you see that play out?
The technology spent on some of these projects can be very big. In conversations with healthcare systems, we tell them there's financing available for these kinds of technology upgrades. Denial management is a key focus for these healthcare systems. We provide trends around what we're seeing in the industry.
It's pretty easy to log into a portal. It's pretty easy to have an app on your phone that you can pull up, and you can make those payments. We're seeing that being prioritized.
If you're looking at organizations that are doing things right, what are they doing in terms of technology?
They're really forward-thinking. What I mean by that is that they are not just looking at what's available today, but they're also looking to make sure that they're building an internal system that can scale with them and embed AI. Everybody knows AI is going to add value. I think some are still trying to figure out what value that will ultimately add.
Data privacy becomes paramount. Do I have the right technology stack in place that can evolve with me as the systems get bigger and more complex. How will AI play a role in that? How will it help with identifying fraud? How will it help with denial management? How will it help notice payment trends?
They are asking the question, how well is this all going to fit together? They don't want a bunch of bespoke technological pieces that don't integrate well together.
Could you explain supply chain financing?
It's really focused on reducing DSOs (Data Sales Outstanding). It's a metric that companies will use to understand how fast they are able to collect money. If you think about the healthcare system, they're collecting money from several different sources. What we're able to do is offer the healthcare system the ability to finance their receivables. We base the discount factor on the risk of those outstanding receivables. A large pharmaceutical company may owe them money, and that pharmaceutical company may have a really good credit rating. Once we take them over, we are now collecting from the pharmaceutical company. With that good credit rating, it becomes an attractive opportunity for the healthcare system to speed up its collections. It allows healthcare systems to take advantage of any early collection discounts.
It's not actual financing for the healthcare system. The financing is done to the obligors or the receivables, the companies that owe the money. And that's how we evaluate.
I have not seen widespread adoption yet; I think we're in the very early innings of it for healthcare systems.
