On Hospital Revenue Cycle Opportunities

Posted on August 10, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Do They Still Exist in Today’s Healthcare Milieu?

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For a decade now, healthcare providers have been challenged to deliver quality patient care in an environment of shrinking profit margins. Total margins and operating margins have followed the same trend. Analysts report that an operating margin of less than 5% leaves an organization without the resources to invest in new technology and capital projects, and will eventually force the facility to close or merge. With rising labor costs, a poorly performing economy, and an aging population, these numbers are not likely to improve soon.

Bar code use in hospitals may save lives

Industry Status

Although the industry has seen an overall improvement in accounts receivable days and bad debt for an extended period, it appears that many facilities have reached their peak in addressing these areas, particularly given current demands to reduce staff and other operational costs. So, where is the next major opportunity for reducing costs or maximizing revenue opportunities?

The Experts Opine

According to private consultants Ross J. Fidler and Karen White PhD, revenue cycle improvement still seems to be a promising and popular area today. And, PriceWaterhouseCoopers recently listed five areas to reinvent the revenue cycle:

1) organizational / accountability;

2) process/workflow improvements;

3) information systems/management reporting enhancements;

4) quality assurance mechanisms; and

5) department and staff productivity measurements.

Assessment

A thorough re-examination of the revenue cycle process will typically uncover cost drains and revenue opportunities.

Conclusion

To succeed in enhancing hospital revenue streams, for example, we commence with patient access through HIM to PFS, by applying optimal organizational structures, benchmarking, and technology adoption. Only then will outcomes trend toward higher performing revenue cycles.

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Are Hospitals Auctioning Debt?

Posted on July 1, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Understanding Modern Cash Flow Strategies

By Ross Filder

By Karen White PhD

www.HealthcareFinancials.com

As a sign of the contracting economic times, some struggling hospitals are using a new method to collect revenue: the Internet. It has become a channel to cut write-offs and bad debt ratios, which lower stock prices if publicly held.

Rather than simply hiring agencies to collect patient bills, hospitals have begun to put their accounts receivable (ARs) up for auction online. Bidders on the debt include the same agencies that serve the hospitals, some of which provide guaranteed payments to hospitals in exchange for access to the debt. 

Strategy Attractive to Buyer and Sellers

The auctions are also attracting other companies that buy the debt outright. For example, one method that a facility based medical practice used to auction debt was for the hospital to determine the criteria it would use for selecting the debt to be auctioned. The criteria generally focus on ARs that are a certain age, but demographic regions, legal accounts, and monthly payment accounts were also be considered.

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Request for Proposal

Once the criteria are determined, a listing of accounts is generated and supplied to potential buyers along with a Request for Proposal that asks each potential buyer to provide information on their experience in servicing hospital-type ARs, as well as details of their expertise, collection techniques, references, and price. 

Usually the winning bidder will pay a flat price for the entire AR.  It is important for the hospital to understand that when auctioning ARs the winning bidder owns the accounts and their collection tactics will not necessarily comply with the hospital’s standards for collections.

Automation

Automation can lead to decreased paperwork, process standardization, increased productivity, and cleaner claims. In 2004, Hospital & Health Network’s “Most Wired Survey” [1] found that the 100 most wired hospitals — including three out of the four AA+ hospitals in the country — had better control of expenses, higher productivity, and efficient utilization management. These numerics are much higher today. Additionally, these top hospitals tend to be larger and have better access to capital.

Assessment

The positive return on investment in technology increases allocation of funding to technology. This correlation is important because it begins to link the investment in information technology with positive financial returns in all areas of a hospital’s business, including the revenue cycle.

Conclusion

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References:

[1]   See http://www.hhnmostwiredsurvey.com. The Most Wired Survey is conducted annually between January and March to “promote the effective use of information technology in achieving clinical and operating excellence.”

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On the Cash Conversion Cycle for Healthcare Organizations

Posted on February 7, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

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Understanding Why Cash Flow is King

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

The manager, administrator or COO of a hospital’s working capital, or physician executive of a private medical practice, strives to optimize the amount of cash on hand to ensure daily operations. Too much cash generates little return, while too little may jeopardize the healthcare enterprise, incur borrowing costs or cause missed investment opportunities.

Also, the extent to which current assets cover current liabilities, determines whether the entity is considered liquid and thus able to meet its payment obligations on time.

The Balancing Act

When faced with the management balancing act of current assets and current liabilities, the alternative with the highest net present value (NPV) and internal rate of return (IRR) is typically selected. This is often a difficult balancing act since providing healthcare services generates little immediate cash, and then cash receipts are variable depending upon payers or other third parties.

Yet, each hospital or practice distribution transaction requires immediate liquid cash for employees, vendors, debt holders, and investors in the form of dividend payouts or retained earning disbursements. The cash conversion cycle (CCC) length measured in days is composed of two ratios:

  1. The first is the average inventory holding period (ending inventory divided by revenues per day),
  2. The second is the collection period (ending ARs divided by revenue per day). For both ratios, faster is better.

CCC Averages

Sample CCCs for an industry-average hospital (45 days average-non-electronic) are:

1. hospital admission to patient discharge (5 days);

2. patient discharge to hospital bill completion (5 days);

3. hospital bill completion to insurance (third-party administrator or TPA) payor receipt (5 days);

4. receipt by TPA to mailing of hospital payment (25 days);

5. payment mailed to receipt by hospital (3 days); and

6. payment receipt by hospital to bank deposit (2 days).

Assessment

Naturally, healthcare managers, administrators, physicians and hospital executives should be interested in motivating changes in the behavior of staff such that processes within the control of the enterprise can be streamlined and completed in less time.

For example, a day or two reduction in the amount of time it takes from patient discharge to hospital bill completion, as achieved with the use of electronic charts and medical records systems, can significantly increase cash flow. Likewise, the use of electronic funds transfers and/or lock box collection mechanisms can reduce the amount of time it takes for an account receivable to make it into the bank.

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Conclusion

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