Preparing for ICD-10's Impact on Your Revenue Cycle

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There is no better time to take a good look at your revenue cycle. Why? The transition to ICD-10 is coming soon, and it will mean big changes to your revenue cycle.

According to the Workgroup for Electronic Data Interchange, account receivable days may increase by 20 to 40 percent post-implementation through a transition period. Additionally, WEDI estimates that rejection and denial rates may increase by 100-200 percent during this same period.

As you have pondered ICD-10, you have probably thought about the need to remediate your information technology systems. You have, most likely, thought about analyzing the need for operational changes in documentation and coding, but you may not have seriously considered the significant impact to your revenue cycle and cash flow. According to the WEDI predictions, on Oct. 1, 2014, hospitals could experience significant delays in A/R, discharged not final billed, financial denials and other metrics that could negatively affect cash flow.

Let's do some simple math. A hospital, for example, may average $450,000 net revenue per day, and its days in A/R are 50. If the transition from ICD-9 to ICD-10 causes a 30 percent delay in A/R, the hospital's days in A/R move to 65 (A/R days x 0.30). Simply put, the hospital will accumulate a delay in receivables of $6.75 million (Revenue per day x increase in A/R days).

There is good news though! Your team can start working on the relevant processes now to improve your A/R, DNFB, denials and other pertinent metric outcomes. By getting a jump start on addressing ICD-10, you can gain the added benefit of improved outcomes now. You'll also be in the best position possible to face the unknowns that will occur on and after Oct. 1, 2014.

3 ways to jump-start your ICD-10 preparation

1. Take a closer look at your days in A/R. Then, determine an improvement goal. Generally, you would accept 45 days in A/R as quite reasonable, but now is the time to challenge the current assumptions and set a more aggressive target. Start with the question of "How can we cut 3-5 days in our A/R?" Then, assemble the team who has a stake in, and understands, the current process. Start looking for delays, gaps, duplication of work or rework. Remember, most people come to work with the intent of doing a good job, so make sure you challenge the processes, not the people.

You might consider the following weekly views of A/R for the assessment of impact from ICD-10:

·         Outstanding days

·         Zero to 30 days, separated by payer

·         Total A/R by payer

·         Daily and weekly revenue   

·         Net revenue as a percentage of gross                           

·         Days of cash on hand                            

2. Examine your DNFB. Historically, you may have been comfortable with your DNFB at six to eight days. In fact, your bill hold is five days because after all, your clinicians need time to get their charges into the system and to complete their documentation. This is the type of instance when the status quo needs to be challenged. Perhaps somewhere in your organizational life cycle, you became tired of correcting bills or even writing late charges off. As a result, you set some liberal bill hold parameters so that your clinicians could get their charges into the system, and complete notes and the discharge summary. It is time to revisit these time frames.

You now have more sophisticated systems and processes that should allow the clinicians, in general, to input their charges at or near the time of service. This principle also applies to outpatient/clinic visits. For many hospitals, outpatient revenue represents more revenue than inpatient. Thus, the ability to process your outpatient claims in a timely manner is imperative. Begin tracking the amount of time from service date to bill date in your outpatient/clinic services and begin looking at the underlying processes to reduce the time.

You might consider the following breakdowns for understanding DNFB and any impacts created by the transition to ICD-10:

·         Records in suspense

·         Records awaiting completion of clinical documentation

·         Records awaiting query response from physician

·         Aged backlog of Physician queries (0 – 3 days, etc.) 

3. Deny the acceptance of denials. We define denials as services that did not have the right structures, processes and systems in place for reimbursement.  Overall, you would like to see denials at less than 4 percent of the gross revenue.

There are a number of functional processes that currently have ICD-9 associated with them that must occur to produce a clean claim. Certainly, the authorization process, medical necessity determination and application of insurance plan specific edits include ICD-9. It is time to revisit the "denial log" and take a deeper dive into the root causes. Then, you can determine very specific actions to improve the outcomes.

You might consider the following weekly views of denials:

·         First pass resolve rate

·         Clean claim rate

·         Total dollar value of denials

·         Payer rule errors                     

·         Prior authorization                 

·         Utilization review denials                    

·         Medical necessity denials    

·         Pended claims from payers for additional information

·         Denials by reason codes likely to impacted by ICD-10

The bottom line
Revenue cycle is not new to hospital CFOs and patient financial services. Some are, in fact, quite good at it. The pending transition from ICD-9 to ICD-10, however, will bring new context and challenges to revenue cycle operations.

We believe that those who take a "wait and see" position could be putting their organizations at risk. We also believe that even if you currently have good revenue cycle outcomes, it is a perfect time to challenge your current assumptions and the status quo. In preparation for ICD-10 — recognized as one of the largest changes in U.S. healthcare in the last 25 years — now is the time to remediate your revenue cycle processes.

John Britt, RN, serves as a director with Kforce Healthcare Solutions. He has more than 20 years of experience in revenue cycle management and consulting, including assessment services for ICD-10 readiness.  

Deb McReavy, RN, also serves as a director with Kforce Healthcare Solutions. She has more than 30 years of hospital operations and consulting expertise, including more than 15 years of consulting work with Ernst & Young.

Kforce Healthcare Solutions can assist you with the completion of your ICD-9 to ICD-10 gap assessment, ICD-10 implementation planning and remediation, development of inpatient and outpatient clinical documentation improvement programs, Health Information Management process improvement and process improvement utilizing LEAN principles. Contact Kforce today to learn more. www.kforce.com.

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