Advisory Board Company Leader: Time to Rethink Revenue Cycle in the New Healthcare

July 14, 2017
Dramatic changes in both public and private payment are shifting the landscape around revenue cycle management for physician practices and hospitals, says James E. Green, leader of the revenue cycle management practice at The Advisory Board Company

With the advance of developments related to the MACRA (Medicare Access and CHIP Reauthorization Act of 2015) law, including under the MIPS (Merit-based Incentive Payment System) program, and the potential for Medicare and Medicaid cuts to hospitals and physicians, particularly if the Affordable Care Act (ACA) is fully or partially repealed, U.S. physicians and hospitals face considerable impacts to their federal healthcare reimbursement. Meanwhile, private health insurers are becoming far more demanding and rigorous in their claims management, with outright claims denials accelerating now.

What do physicians and hospital executive need to do? In short, it’s time (or even past time) for anyone responsible for getting healthcare provider claims paid, to move forward rapidly to develop a comprehensive revenue cycle management (RCM) strategy, with effective tactics attached to that strategy, says James E. Green, a managing partner at The Advisory Board Company, the Washington, D.C.-based research and advisement organization. Green, who has spent 17 years at The Advisory Board, is the national partner in its Revenue Cycle Service Line. He spoke recently with Healthcare Informatics Editor-in-Chief Mark Hagland about the current moment in U.S. healthcare around revenue cycle management, and what it means for patient care leaders across hospitals and physician practices. Below are excerpts from that interview.

It seems as though there’s never been a better time to talk about revenue cycle management, with the entire U.S. healthcare system going through intense change right now, correct?

Yes, both on the public payer side and the private payer side. And the government has been getting all the attention, so it somewhat overshadows what’s been happening on the private side.

James Green

When you look at the federal payer side of this issue for hospitals and physicians, what do you see?

On the physician side, physicians are going to have to become savvier at managing their businesses. Physicians are realizing this, and they’re starting to entertain more partnerships with larger healthcare organizations. And they’re doing so for reasons that are obvious to me. Number one, physicians realize that the business of healthcare is far more complex now than it was 20 years ago. The procedures are more complex, the payment processes around office-based procedures is more difficult; and they’re doing more procedures outside of facilities than 20 years ago, when many of these doctors got into practice. And they’re realizing that if they’re not incredibly meticulous about their billing processes and revenue cycle around those procedures, they’re leaving tons of money on the table.

And historically, physicians in smaller practices didn’t even do revenue cycle management, really, correct?

That’s correct. And many procedures are now moving out of the hospital. So your typical PCPs [primary care physicians], who used to do checkups and lighter procedures in their offices, are now doing more actual procedures in the office. So running a medical practice now involves doing procedures that require specific documentation—not just symptoms, but diagnoses that match these procedures. And that’s far more complex than it was in the past, and they actually need revenue cycle expertise to manage that. And MACRA’s here now; and the majority of physicians really don’t know what payment model they should actually practice under. We did a poll at The Advisory Board, and asked physicians what they believed MACRA would do to their business, and nearly 80 percent said that MACRA would drive them to join larger organizations. And the main reason for that was that most didn’t understand how they would drive revenue through the MIPS program, and the APM proposition is even more formidable than that.

So in the typical old-fashioned physician practice with one or two doctors, historically, you had Dottie, the doctor’s wife, working as the office manager. She was very sharp, and could manage Medicare fee-for-service billing issues, as they stood before MACRA/MIPS. But that model of medical-practice billing and claims management just will no longer be sustainable under MACRA/MIPS, correct?

Yes. Just think about the reporting needed to improve practice performance. First of all, Dottie now has to have a full command of the EMR, and to be able to understand what data is going into the EMR. And she has to report that data out of that EMR to the Medicare program. So we have to understand hierarchical condition codes, HCC, and am I actually accurately reporting the HCCs from my visit? And then a risk adjustment factor score, a RAF score, is incredibly important. And the risk adjustment factor doesn’t apply this year, it applies next year. And if I’m not reporting correctly and getting all my RAF scores in alignment, I’ll be penalized next year.

So in other words, non-specialist-level revenue cycle management is simply no longer sustainable, in physician practice?

Yes, exactly. And that office management staff has to have a good command of how this works. They have to do a great job with back office performance, to make sure the right data goes to Medicare; that’s huge. And then the physician has to do a great job of documenting correctly, to get an accurate RAF score. It’s on the physician as much as ono their office. And if they don’t work together to get a good RAF score—as a physician, I may want to get into an APM [advanced payment model] model, but I can’t even get there if I can’t manage this under MIPS. So now I actually need a professional to make this work. And so I can turn to the health system I’m affiliated with, and lift a huge burden off my back. Now, there are pros and cons to that; I can off-load some of that administrative burden. But now, a health system may invest in my practice, but—hospitals are using that investment to say, I’m going to partner with you, but you’ve now got to leverage our specialties, via referrals. Now, of course, it’s illegal; but they’ll be under pressure to use their specialists.

So physicians in small practices simply won’t be able to do this, correct?

That’s right, the vast majority won’t be able to manage this on their own. They have to understand patient throughput, billing at a high level, and missing one step in many complex processes could literally cost me millions of dollars a year.

And what’s your perspective on what hospital executives should be doing right now?

Where do we even start? Hospitals are concerned about the ACA versus the AHCA [American Health Care Act—the bill that would repeal and replace the ACA]; and there’s a lot of uncertainty out there. But one thing that’s certain is that there’s going to be a payment model that leverages risk in the future. So every one of our members here are preparing themselves to manage risk in the future, if not now. And no one has a crystal ball clear enough to tell you how fast risk is coming, but they know it’s coming.

And, in terms of private health insurers, what is the landscape for revenue cycle management right now?

More and more private payers that are offering risk options to hospitals. Depending on the market, some risk-bearing contracts are taking off faster than others. But really, what we’re seeing on the private-payer side, oddly enough, is a more stringent stance towards contracts. We’re seeing claims denials skyrocketing across the board. We understand the pressure that the commercial payers are under. Many of them are also participating in exchanges, both public and private, and the exchanges aren’t turning out to be as lucrative as expected—and they weren’t expecting them to be that lucrative to begin with. So the level of denials is far higher now. We did a survey of our clients in which we looked at commercial write-offs for initial denials: 54 percent of denials were commercial in 2015, versus 58 percent in 2016. And that’s significant; four points is significant, when you think about it. This is the total percent of denials out of all denials. And we’re seeing initial denials ranging from 4.5 to 5.5 percent of net revenue on average. So for a typical $800 million organization, that becomes a substantial amount of money that you’re writing off.

What do staff support and consultant support look like now, then in revenue cycle management, going forward?

If you look at cost to collect—in 2015, it was at 2 percent, and today, it’s a whole point higher, at 3 percent, of net patient revenue. We’re defining cost to collect as all of the processes associated with patient access and billing in this particular survey. Coding, billing, collections, all those departments are elements in that. So we’ve been increasing the amount of resources you put into this. I have a case study to send you, but the case study here involves a $4 million per year for collection, for more precise coding, etc. So the bottom line is, in order to fix the problem, hospitals have been increasing their resources towards this. Traditionally, hospitals would increase resources towards a particular metric, like bad debt. It’s really labor that’s required for getting at that problem. But the insight we’re seeing from some of our top-performing members is that they’re focusing no longer on a specific metric, but on the constellation of issues around a problem.

So if you’re thinking about bad debt, the vast bulk of that is being driven by co-payments and deductibles, versus when it was based on self-paying patients. Now, it’s half-half [in terms of self-pay patients versus insured ones]. So I have to start thinking about the patient experience, and begin to address that, to manage it. So that’s something we’ve been calling the patient financial experience—and the clear and concise communication of out-of-pocket obligations; and what’s needed from an authorization and insurance and eligibility perspective, when you’re entering the hospital. And giving the patient an understanding of what has been covered and still needs to be covered. And here’s the understanding of what that actually means for them, and that the hospital is one source of their care, but other providers can be involved, such as anesthesiologists and radiologists, and their own admitting physician, who will have their own billing process. And you need a more consumer-friendly experience, where they consolidate the bill and can turn to one person to help them resolve their situation. And that’s just an example around bad debt.

So revenue cycle management has to be a part of hospital leaders’ preparation to take on greater levels of financial risk, correct?

Yes, it’s no longer just a financial decision, but rather, it’s an operational and clinical one. First, do I have the capability of taking on risk? What are the quality and outcomes levels I should be managing all along? Do I have case management and utilization review and case managers in the right setting, so that patients are in the right place at the right time, being served in the right setting, to manage costs?

And you ultimately need to professionalize your organization’s revenue cycle management cadres, correct? Just as CIOs and other senior healthcare IT leaders have had to elevate themselves into higher levels of professional development.

Yes, that’s exactly right. Smart organizations have been hiring true chief information officers, who are strategic and who understand the business of healthcare. In RCM, people are starting to realize that a good clinical EMR doesn’t necessarily make for a good revenue cycle process. Often, organizations are actually using two EMRs, with a separate one to manage financial processes. For example, Vendor A is my EMR, and they’re great; but I cannot bill appropriate with this particular vendor, so I’ll have a different vendor, Vendor B, for my patient accounting system. And I’ll do that if Vendor A doesn’t give me the capabilities I need to operate in a risk-based environment. So I’m seeing many updates from the big four EMR vendors, and they’ve developed better patient accounting systems. The problem is that you still can’t get data out of those systems on a day-to-day level, to better manage the revenue cycle. So you need an internal revenue cycle IT expert to help get the data out of the system, to manage the entire process systemically.

So you’ll find that hospitals are hiring a CIO who handles the strategic partnership with their vendor, and they need an EMR that’s as capable on the clinical operations side and the hospital accounting side, and will manage that component; but they’re also making sure that revenue cycle has its own support. That leaves you with two options: either your organization’s vice president of revenue cycle management will have support inside his or her organization, or IT will devote a person to support the revenue cycle management people. Most of that is about getting data out of the patient accounting system, to manage revenue cycle management more appropriately.

Is there anything you’d like to add?

Yes, I’d like to add a couple of things, in terms of the really big priorities involved. We started off talking about the physician enterprise, and there are two big priorities when it comes to the physician enterprise from the revenue cycle performance side. First, physicians are going to need to improve patients to appointments; patients want appointments right now, and smart organizations are managing access and more entry more efficiently. And that then dovetails with the second priority, which is directly related to revenue cycle, and centers around communicating patient financial obligation well and clearly. And the doctor has to do his or her part by clearly and precisely documenting everything that s/he does in the clinical setting, so that the back office can accurately and effectively report the data for reimbursement.

Meanwhile, hospitals are working in what I call revenue-cycle schizophrenia. They’re almost universally gearing up to take on more financial risk, especially in urban areas, and they have to manage that world appropriately; but their fee-for-service world really remains important, and the level of denials management is going up among payers. And we would argue that denials prevention, rather denials recovery, should be job number one for hospitals right now, as they move forward into the risk-based payment world.