Healthcare providers have long relied on conventional revenue cycle management practices to drive and ensure financial performance, yet most are not collecting all the revenue to which they are entitled. This disparity – the gap between the amount of revenue providers are entitled to and the amount of reimbursement eventually received – is called revenue leakage, and it’s a significant problem. Vast amounts of reimbursement are lost daily due to inaccurate pricing, charging, and coding of services and supplies related to patient care. Most healthcare organizations realize they’re missing revenue, but are unable to detect the source or extent of the leakage. What’s needed is a comprehensive program for identifying, addressing, and preventing revenue leakage.
In today’s healthcare environment, optimal financial performance requires more than cost reduction strategies, random audits, and denial management. Recent studies suggest that 92 percent of hospitals lose money on outpatient services – the fastest growing segment of hospital billable services – and the rework of medical necessity denials costs some hospitals more dollars than they ultimately receive in collections.1 This adds up to lost revenue contributing to the negative margins experienced by nearly one-third of hospitals. Moreover, today’s financial and labor market forces are dictating that healthcare providers do more with fewer resources. At the same time, they must deliver the outstanding quality care their communities deserve, while abiding by the government stipulations designed to protect and regulate the industry.
Revenue leakage is missed or “lost” revenue – the gap between the amount of revenue providers are entitled to and the amount of reimbursement eventually received from government, insurance companies, and direct payors.
So how do you effectively identify, address, and prevent revenue leakage? While improved revenue cycle management is a vital part of the solution, the focus on revenue integrity opens a new dialogue – a better way of managing the business of providing healthcare – one that is gaining momentum as providers seek more effective ways to increase profits and meet regulatory requirements.
What is revenue integrity?
As a holistic concept, integrity is characterized by consistency of actions, values, methods, measures, principles, expectations, and outcomes. Furthermore, the integrity of organizations can be measured in terms of the ability to achieve their own goals. Applied to the healthcare industry, revenue integrity is the achievement of operational efficiency, compliance, and legitimate reimbursement. Revenue integrity can be achieved only with the proper processes, tools, and related expertise aimed at effectively pricing, charging, and coding for services and supplies related to patient care.
Revenue integrity can be achieved only with the proper processes, tools, and related expertise aimed at effectively pricing, charging, and coding for services and supplies related to patient care.
Suzanne Lestina, revenue cycle technical director for the Healthcare Financial Management Association (HFMA), takes it a step further. “Revenue integrity means right revenue, right delivery, and right protocols to ensure right [accurate] reimbursement and compliance. Revenue integrity doesn’t begin with a charge.” Lestina suggests that the process is much broader, encompassing both clinical and financial efforts to provide quality care and improve financial performance through:
- Process efficiency – people and technology
- Compliance – following rules of engagement
- Correct payment – proper pricing, charging, coding, and documentation
Industry Needs – Business Drivers – Making the Case for Revenue Integrity in Healthcare
What is driving the implementation of revenue integrity solutions?
With rising costs and declining revenue, combined with decreased access to capital, where will providers find funding for advanced clinical and financial systems? Sustaining a viable healthcare organization requires more than cutting costs. Those who focus only on decreasing costs lose out to those who focus on optimizing revenue. According to a recent Thomson Reuters report, the most profitable hospitals derive more of their advantage from enhancing revenues than from controlling costs, spending more for supplies, drugs, and other direct expenses than their less profitable counterparts.2 And, they pay higher salaries and benefits, but have more productive employees, offsetting higher compensation levels. At best, reducing costs represents a small fraction of full revenue potential. A comprehensive revenue integrity program is needed.
Historically, healthcare organizations had to focus primarily on whether reimbursements were accurate. Even now, some are still struggling to get accurate claims out the door with little time or resources for meeting new challenges. Mounting concerns about rising costs, compliance requirements, and reduced reimbursement are further complicated by the increased number of auditing entities. For example, The Patient Protection and Affordable Care Act has created an additional Recovery Audit Contractor (RAC) program for Medicaid with the goal of identifying and recouping over- and under-payments in that program. Hospitals must be prepared to receive inquiries – from multiple audit entities from federal, state, and commercial programs – that will increase their operating costs and burdens.
“As a result, the business office is turning its focus from accurate payments to fighting to keep money received,” says Cynthia Fry, vice president of revenue for Catholic Health East in Newtown Square, Pennsylvania. “Finding the resources to justify receiving accurate reimbursement is an administrative burden. New strategies are needed – technology, education, collaboration, leadership – to create and sustain an integrated revenue integrity program.”
To address revenue leakage, Fry advocates shoring up systems on the front end, combining automated tools and people processes to identify issues when and where they occur. “Finding and fixing on the back end is not an effective or efficient means of stopping and preventing leakage,” she says. “Revenue leakage is unacceptable. As margins shrink and revenue drops, there can be no leakage.”
A New Way of Doing Business
While healthcare was once presumed to be fairly impervious to financial downturns, the industry has been significantly impacted by the financial crisis. Both providers and patients are feeling the strain. On the provider side, capital for advanced technology, facility upgrades, and budget for hiring qualified personnel are more difficult to obtain. When patients choose to postpone elective procedures, routine exams, diagnostic services, and treatments, demand for these more profitable services declines. And, as more of the payment burden is shifted toward patients by employers and insurers, different self-payment business processes are required. In addition, U.S. Healthcare Reform brings a new range of compliance challenges.
“Hospitals have to move away from the status quo,” HFMA President/CEO Richard L. Clarke, DHA, FHFMA, said as he opened HFMA’s Virtual Conference and Career Fair 2010. “But it’s not just sweeping legislative changes that hospitals face – market forces are already driving change. In addition to integration pressures, hospitals are coping with increases in the cost of capital, payment decreases, and increased regulation and enforcement. Above all, hospitals must make a commitment to change in order to create a more rational healthcare system.”
Faced with unprecedented capital demands, healthcare organizations are being forced to look beyond cost cutting and traditional revenue management solutions to sustain their business. The first step toward creating a culture of revenue integrity is an assessment of the main challenges.
The sources of revenue leakage are numerous, pervasive, constantly shifting, and often hidden within an organization. Providers report a broad range of issues including: a high rate of incorrect codes on claims, insufficient access to code changes and compliance regulations, inconsistent assignment of CPT codes, missing codes, lack of communication between clinical and financial staff, pricing that doesn’t cover costs, inefficient internal processes, and more. Without effective means to identify the sources of these leaks – then address and prevent them – sustainable revenue integrity is unattainable.
Achieving defensible pricing and greater pricing transparency are growing priorities in the healthcare industry, driven by regulatory requirements, consumer-directed health plans, the need to remain competitive in one’s market, and patient expectations. Inappropriate pricing can be one of the most difficult revenue cycle problems to overcome. Examples include: pricing that doesn’t cover costs, pricing too far above and below the competition, pricing inconsistent with payors’ reimbursement agreements, inefficient procedures for providing estimates, and inability to efficiently update pricing markup formulas as costs change.
Defensible pricing means the ability to clearly demonstrate that prices are set in accordance with hospital pricing policies and industry markup guidelines. Significant missed revenue can be attributed to pricing outside established markup guidelines.
This is often caused by outdated pricing algorithms, and inconsistencies with published state and national rates. For example, prices often fall out of compliance with established guidelines when acquisition costs change, resulting in items priced significantly above or below the hospital’s approved pricing policies – a clear indicator of pricing problems. These types of issues prevent hospitals from being able to demonstrate that they are pricing appropriately.
For patients and hospitals, charge estimates based on sampling techniques from random bills are no longer adequate. More and more, patients expect accurate estimates prior to receiving services, so that they can make self-payment plans for their portion of the bill. The need to provide accurate estimates is motivating hospitals to implement consistent estimation processes. Clearly, the ability to provide accurate, understandable estimates protects patient satisfaction and boosts hospitals’ competitive advantages by promoting upfront payment, cash flow, and compliance.
In an environment of complex transactions managed by multiple IT systems and individuals within various departments, the potential for error is extremely high. The sheer number of handoffs between systems and departments is a serious challenge and a key driver of risk. Given the gravity of big-picture challenges in the healthcare industry, establishing internal control points often becomes a lower priority. When this happens, financial performance and compliance suffer. Internal controls are most effective when they are closest to the transaction. Proximity to the transaction improves the chances that errors will be identified and addressed promptly where they occur.
Consider the chargemaster, the central and potentially most effective control point in the revenue cycle, and the most important tool for ensuring compliance and optimal reimbursement. Every revenue transaction goes through the chargemaster before being posted to a patient’s account. Errors due to absent or incorrect information, such as missing supplies or outdated codes, are often identified downstream, well past the point of the original transaction. And, without the visibility to identify the specific sources of errors and address them at their source, reimbursement can be delayed, reduced, or denied altogether.
With up to 40,000 or more line items in a hospital’s chargemaster, the potential for costly errors is high, and likely to result in lost revenue, rework, fines, and penalties. A hospital with annual revenue of $300 million can easily lose $3 million to chargemaster and charge capture errors per year. Identifying the source and extent of leakage is essential to achieving revenue integrity.
Due to the magnitude of change in the chargemaster, the potential for error is a risk factor that organizations cannot afford to overlook. Each year, there are thousands of changes to coding rules. A hospital can have up to 40,000 or more line items in its chargemaster, each with related data elements. With this degree of detail and complexity, maintaining consistent accuracy using manual processes is nearly impossible.3
One of the most common sources of revenue leakage is related to improperly captured or incorrectly billed charges for procedures and supplies. Hospitals may know they’re losing revenue, but fail to realize the extent to which incorrect charging and coding contribute to the problem. Further, most hospitals lack the ability to see into their charge capture business processes and data in a way that empowers them to identify the specific sources of revenue leakage – where their actions are out of alignment with industry best practices – and then to stop the leakage at its source. The greatest charge capture risks exist in high-volume, large revenue-producing departments, and in areas with complex coding requirements such as cardiology, radiology, and pharmacy.
Pharmacy is a prime example, where the root of the problem lies in the gap between the pharmacy spend data and the chargemaster data. Possibly the greatest potential for leakage occurs when reimbursable medications are missing or miscoded in the chargemaster. A single erroneous code can cause every transaction entered against that code to be wrong, resulting in potentially millions in lost revenue. A single coding error can be caused by something as simple as a typo in a dispensing cabinet. There is no way to detect such a typo without comparing the pharmacy spend data to the chargemaster data and looking for specific products being purchased but not successfully billed.
According to an April 2009 HFMA survey, nearly 50 percent of participants believe that using automated tools to recognize patterns of error and measure performance is the best approach to improving charge capture. Yet, over 26 percent continue trying to solve issues with process mapping and staff education, while 18 percent depend on external consultants, and almost 7 percent rely on random audits.4
Most hospitals lack an effective means of monitoring ever-changing CMS regulations to ensure both ongoing compliance and proper reimbursement. Changes to rules and regulations directly related to charge practices are received on a weekly basis. Managing the volume and complexity of regulations is an increasing problem that requires consistent controls within a fluid environment. Outdated reference information and manual processes inevitably lead to errors and inaccurate reimbursement. Preventable compliance issues result from the gap between current regulations and those coded in the chargemaster, and a lack of reporting on discrepancies.
Keeping track of constant changes to CMS regulations, while at the same time ensuring an adequate internal audit trail to defend revenues received, is an ongoing challenge for healthcare organizations. Given the complicated regulations governing the industry, opportunities exist for interpreting rules and regulations differently, thereby increasing financial and compliance risk. Todd Craghead, vice president of the revenue cycle organization at Intermountain Healthcare based in Salt Lake City, affirms the need for automated tools to ensure accuracy, efficiency, and consistency. “Otherwise, we’re forced to enlist armies of people to interpret regulations and defend ourselves, which increases costs and translates into how we charge patients.”
Denials and Repayment
The practice of finding and fixing issues on the back end of the revenue cycle (downstream) results in excessive reworking of claims to fix the same errors repeatedly, as well as a greater volume of denials and delayed payments. In addition to lost revenue, efforts to resolve these issues represent a significant drain on workflow and financial resources. Repayment of revenue captured incorrectly leads to substantial loss. If an organization is not consistently and completely compensated over time, serious financial liability ensues. “We’ve learned firsthand the importance of making sure charges are accurate the first time around rather than having to rework and defend claims on the back end,” says Craghead.
Moving forward with a more systematic means of identifying and addressing errors is often met with resistance. How do you migrate from a less efficient “find and fix” approach that you know and trust to a more effective approach? A sensible solution requires a fundamental shift from quantifying return on investment (ROI) based on errors found downstream, to a process that ensures industry best practices are followed from early in the revenue cycle all the way through to the measurement of real-time transaction accuracy. Making a successful transition depends on a high level of commitment toconsistency, evaluation, accountability, and a proactive plan for achieving these best practices.
Creating a Culture of Revenue Integrity
Revenue integrity must embrace the entire organization, ensuring that all stakeholders understand their roles and the impact of their work on improved financial performance and patient care. Achieving full reimbursement begins with proper pricing and depends on the quality of preregistration and insurance verification. Technology can capture data about patients, but clinicians must be responsible for making sure the right service and supply charges are captured at the point of service. Establishing effective connections between clinical processes and charge capture tools is key to achieving accurate documentation for charging and coding so that an organization can receive all the reimbursement they deserve.
Moving to automated revenue integrity solutions is part of a culture change. You don’t just purchase and install software. You must have a process in place to manage new technology so it becomes your culture – embedded in your way of doing business.
Intermountain Healthcare’s Craghead and his colleagues responsible for revenue integrity initiatives recognize the valuable role of clinicians. “We can capture, charge, code, and bill, but the ability to be reimbursed properly is driven by documentation. Integration with the clinical side is critical,” he says. “Clinicians must collect information in ways that translate to a charge. If a service is not documented, it didn’t happen. The result – missed revenue.”
Revenue integrity touches all points of care – from the moment the patient comes through the door, to the final collection of payment – and oversights at any point hurt margins and compliance.
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