Achieving Positive Medicare Margins: 5 Strategies for Hospitals
Dr. Flyckt began the presentation with a survey in which participants identified what they expect to have the largest effect on revenue over the next 10 years. Reimbursement pressure received an overwhelming 67 percent of respondents' votes, compared to the minority responses for population growth, demographic shifts, coverage expansion and coverage shifts.
Dr. Flyckt identified the following five fundamental levers to improve Medicare margins, discussing each in greater depth.
1. Revenue cycle management. Increasing the payor yield, reducing self-pay impact, improving cash collection, optimizing charges and cutting costs are the mainstays of revenue cycle management. This strategy has received more attention in the past five to 10 years and Dr. Flyckt says it will only become more important as co-pays and deductibles increase over time. As a result, hospitals should identify additional opportunities for clients to enhance their collection efforts. "It's essentially collecting on what you've already earned," says Dr. Flyckt. "This is all about driving collections to the bottom line."
2. Operations. This includes the practice and behaviors driving throughput, data-sharing practices and the mindset and culture of staff and leadership. Unlike revenue cycle management, operations have received considerable long-term attention. "Virginia Mason Medical Center was one of the earliest to bring Lean principles to hospitals," says Dr. Flyckt. Still, most internal operational efforts tend to fail, he says. "It's easy to identify issues, but focusing to make sure you're addressing the right ones can be a challenge. Implementing and sustaining an impact is difficult."
3. Labor and productivity. This includes a hospital's skill mix, turnover management, professional development and growth opportunities and overtime utilization. "External benchmarks exist, but can be difficult to apply," says Dr. Flyckt. "Any hospital finds it easy to say how they're distinct from benchmarks. For that reason, internal benchmarks are more and more common." He recommends hospitals identify when they are working well and analyze what conditions allowed them their most productive times.
4. Materials management. This includes formulary utilization, vendor management and pricing optimization. Dr. Flyckt says materials management is the second major cost center for hospitals. "It's a discrete area that is often a quite high-performing function," says Dr. Flyckt. This area often has experienced teams, established processes and strong partners. "I'd say, in this area, there are typically pockets of opportunities in one or two areas opposed to opportunities across the board."
5. Clinical variation. This strategy is the "next frontier" for hospitals, due in part to the evolving relationship between hospitals and physicians. "You need a level of mutual trust and provide physicians with resources to reduce their costs effectively," say Dr. Flyckt, adding that physicians are more likely to act when armed with proper data.
Dr. Flyckt also said most organizations are only beginning to scratch the surface when it comes to reducing clinical variation. Strategies like listing physician preference items are common, but there's a wider range of processes that can crack down costs and present significant savings opportunities.
The presentation ended with a closing survey, in which participants identified the largest opportunity for margin improvement at their hospitals. These included:
• Clinical variation: 40 percent
• Revenue cycle management: 22 percent
• Labor productivity: 19 percent
• Operations: 10 percent
• Materials management: 8 percent
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