5 Steps Toward Revenue Cycle Revolution
According to a study reported in Modern Healthcare, most health systems lose between 6% and 8% of their net revenue as a result of payment denials. Understanding that a focus on denials is an important, if not critical, component in managing hospitals (or) clinics revenue cycle. Whether that is moving denials to front-end departments, updating HIS/PM systems to have front-end edits that identify denial issues pre-bill, or including overall denial and write-off metrics in the revenue cycle dashboard, virtually all hospitals/clinics have a denials management initiative. Fewer, however, have a clear understanding of the precise levers to pull to not just control their denials, but to prevent a large portion of them from happening in the first place.
The fact is, denials remain a big problem. This is evidenced by the fact that, according to another study, the hospital/clinic average for initial denial rates is around 11%. This is significantly above an industry set best practice of 5%. And, the in-depth 2013 Payer View study of provider-payer relationships indicates that there is little, if any, change in year-over-year denials rates over the past three years, in spite of increased awareness and efforts related to managing denials.
While many hospitals/clinics have done an adequate (or even outstanding) job at appealing denials, few have made the transition toward a fundamental culture of prevention. In most aspects of our life, we manage problems by focusing on preventing them. Doing so allows us to mitigate our risk. Just like those hospitals/clinics that are revolutionizing the health of the populations they serve clinically by focusing on wellness and prevention, innovative providers are implementing key practices that revolutionize the culture of their revenue cycle by transitioning their focus from denial management to denial prevention.
5 KEY STEPS IN A DENIALS REVOLUTION
Denials occur throughout the entire revenue cycle, not just at the end when the payer adjudicates. The problem is most hospitals/clinics place much, if not all, of their denial resources on the backend of the revenue cycle to respond to the denials they incur. When they do address denials at the front end of the revenue cycle, they often don’t align the appropriate resources. As a result, the focus becomes a frantic effort to resolve the mistakes they made a month ago rather than creating solutions that avoid the chronic errors that are causing the denials, regardless of where they are happening within the revenue cycle. This creates a “doom loop” or circle of imbalance, as illustrated below.
In order for a hospital/clinic to move from the unbalanced to the balanced denials cycle, two critical things must occur:
- Focus additional resources at the backend to not just work denials, but to analyze each and every one of them. Capturing and deploying this relevant data drives front-end process improvements that will mitigate denials.
- Ensure that resulting process improvements are supported and resourced appropriately.
While this step may result in an initial investment to align or augment resources, the resulting data is fundamental in creating the balance necessary to improve cash flow and operational efficiency through decreased touch points.
Deploy the right resources at the right time.
Dedicating specialized clinical resources in the denial management process will not only significantly improve appeal rates; it results in accurate and actionable data collection. With clear policies and workflows in place, a quick triage of the denial will determine whether a technical or clinical resource is required.One areawhere Clinical resources are more appropriate than technical resources is in the area of prior authorization. Issues regarding prior authorizations typically fall into two categories: failure on the front-end to secure the authorization or there is a clinically-driven change in the procedure performed. The latter is most often the cause of chronic denials. To properly appeal the clinically-driven prior authorization requires an expert, credible clinical resource who is equipped to justify and communicate the change in care. Best practice organizations engage clinical review expertise in their denial prevention process.
Create a Data Plan.
As a part of their MAP (Measure, Apply, Perform) program, the Hospital Financial Management Association (HFMA) identifies seven key performance standards related to denials. The MAP program identifies 25 metrics that, when tracked using objective, consistent calculation, yield proven process improvement in the financial performance of a hospital. Whether under-resourced or a because of lack of accessible, only about 30% of hospitals can actually provide these simple metrics which include a denial rate based on total revenue and a write-off rate based on total revenue. Organizations focused on denial prevention not only track these high-level metrics, they assess them at a department and service line level, including root cause information. The focus of their denial prevention team on the back-end is to not only overturn the denial, but to analyze the resulting data in a way that drives clear action within appropriate revenue cycle departments or the clinical service lines. A service line dashboard should include the following:
- Late Charges. Presented in Total Charges as well as a Percentage of Total Revenue. While this is not a denial metric, it is a leading indicator that there are issues in the department’s revenue cycle processes.
- Denial Rates. In Total Revenue Denied as well as a Percent of Total Overall Revenue.
- Root Causes. Breakdown denials for the service line by root cause in a way that they create the opportunity for immediate action. For example, describing a denial as a registration error is not actionable, however, describing that the patient’s insurance coverage was termed is actionable.
It is important to show all metrics as discreet numbers and percentages. Discreet numbers help to create the environment where it is unacceptable to not be paid for any service provided to a patient. Percentages help to keep perspective and benchmark against other facilities.
Establish Personal Performance Plans.
In the early 2000’s there was a trend toward moving denials to the front-end departments in order to create a sense of accountability for the errors the department created by forcing them to perform the rework caused. As described earlier, this isn’t effective because it shifts daily focus of the front-end departments from the patients and issues presenting today, to fixing past errors. Best practice organizations create accountability through performance plans. Rather than holding department managers and clinical service line leaders to standard revenue and expense metrics, these leaders are also held accountable for key revenue cycle metrics such as denial rates and late charge rates.
Engage with Payers.
The last four best practices focused on the internal hospital organization. The last step includes engaging with the payer. The payer’s internal structures, limitations and processes have a direct influence on denials. Similar to payers looking to hospitals to better coordinate care to reduce healthcare costs, best practice providers are partnering with payers to reduce cost by relieving excessive administrative burden including denials. Working with payers to define performance metrics that include acceptable denial rates and limitations on the volume of audit requests is just one way savvy providers are engaging with payers to control denials. Unlike the traditional adversarial relationship between payers and providers, a sense of true collaboration is critical to this step. Open dialog, transparency, and engaging the payer in understanding the cost and the administrative burden that results from improper adjudication systems in place are key. This includes quarterly reviews of denial patterns as well as audit results.
This is an exciting time for the healthcare industry. Changes are taxing the resources of virtually every organization, making responding to the evolving dynamics even more critical. Whether it is responding to external regulatory changes, or identifying the internal system and process changes necessary to respond, the revenue cycle is filled with both risk and opportunity. The goal of an effective denial prevention structure is to mitigate risk by leveraging information to zero-in on where the true opportunities are with regard to denials, regardless of where they fall within the revenue cycle.