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Improving Revenue Cycles at a West Coast Public Hospital?

Ask an Advisor?


Mr. Johnson was the chief financial officer (CFO) of a 222-bed teaching hospital in southern California. Mr. Johnson recognized a lot of problems with the processes within the various revenue cycle departments he managed which impacted cash flow for the facility.  Mr. Johnson met with the hospital chief executive officer (CEO) to express his concerns and the fact that he felt his existing staff did not have the expertise to fix many of the problems they were facing.

Ms. Thomas, the hospital CEO, agreed with Mr. Johnson’s evaluations and concerns and the two prepared a package for the Board of Supervisors to submit a request for proposal to several revenue cycle improvement vendors.  This request was approved by the Board and sent to several vendors with known successful track records in this area.  During the next several weeks the responses were evaluated and a final vendor selected.

It was determined through a Revenue Cycle Performance Evaluation completed by the vendor prior to the kick-off of the engagement that the largest opportunity for improved cash would be to address the bottlenecks in the cash flow, the excessive days in accounts receivable, the backlogged accounts in denied claims and improved process through the entire revenue cycle at this public hospital.

When the engagement began, the net days in accounts receivable were 103 and the time from discharge to final bill was 33 days. The vendor was engaged for a four-year period to provide cash acceleration and revenue cycle improvement on a “pay for performance” [P4P] fee structure.  A historical review of the hospital’s financial data determined an average monthly collection amount (baseline) the hospital was achieving each month prior to the start of this engagement.  The P4P fee structure required the vendor to reach the baseline each month before the hospital was required to pay any profession fees for the services of the vendor.


What could the hospital do to realize immediate benefits with regard to:

– accelerated cash flow?

– reduced days in accounts receivables?

– streamlined revenue cycle processes?

– better trained existing staff?

– return on investment?

MORE: Rev Cycle Mgmnt


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2 Responses

  1. A Possible Solution

    The methodology used by the vendor was to initiate process improvement that incorporated best practices within the hospital’s billing, medical records, case management, and admissions/registration areas. The vendor brought in a project director to oversee all aspects of the revenue cycle; placed highly experienced revenue cycle consultants in interim management roles over patient accounting, patient access, clinical registration and medical records; and added additional consultants to focus on areas such as denial management, charge capture, case management, information technology, and system integration.

    Further, cross-training throughout the revenue cycle operations and a series of regularly scheduled meetings between the hospital department managers and the vendor staff improved the overall communications among the various hospital departments involved in the revenue cycle.

    The documented results of the engagement and the efforts of the vendor provided an improvement of $1,740,182 in monthly average cash collections, which equated to a 19% increase in collections.

    In addition, unbilled accounts receivable decreased from $27 million to just over $5 million. Net days in accounts receivable were reduced 39 days to 64, while the return on investment to the hospital was 564% and the hospital’s incremental cash improved $90,489,475 over the life of the engagement (see below).

    Return on Investment:

    Total Cash Collections Over Term of Engagement
    $ 366,489,475
    Average Monthly Cash Collections
    $ 7,047,875
    Total Engagement Incremental Cash
    $ 90,489,475
    Average Monthly Incremental Cash
    $ 1,740,182
    Vendor Performance Fee Rate 21%
    Total Engagement Performance Fee
    $ 13,081,529
    Average Monthly Performance Fee
    $ 251,568
    Total Management Fee
    $ 2,960,000

    Total Cost to Client (fees plus expenses) $ 16,041,529

    Client’s Return on Investment $ 74,447,946

    Return on Investment Percentage

    By forging a strong revenue cycle team with hospital staff and revenue cycle consultants while the hospital staff was being trained and developing improved billing and registration processes, the vendor guided the hospital to increased collections, better productivity, reduction in accounts receivable, a positive return on investment and increased cash collections within a few months.

    Ross Fidler


  2. How to successfully collect co-pays upfront

    It has been well-documented that co-payments should be collected at time of service.

    In fact, a pattern of waived co-payments can be considered fraud. In addition, federal requirements indicate that any refund processing should occur within a 60-day period.

    So, as the cost of healthcare shifts increasingly to the patient, upfront and accurate payment collections are more important than ever.


    PS: Excellent post and comments.



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