How to Cope in This Economic Climate: 4 Thoughts From Elkhart General CFO Kevin Higdon

With all of the requests and requirements associated with commercial and governmental payors, hospital CFOs may sometimes feel like they are juggling chainsaws — one small slip or lapse in concentration in this economic climate, and it could mean a serious cut.

Kevin Higdon, CFO of Elkhart (Ind.) General Hospital, explains there will always be these types of pressures in the healthcare setting — not with chainsaws, per se — but there are four areas hospitals can focus on right now to make the juggling act a little less tense.

1. Be proactive when it comes to RACs. Several hospitals across the country have witnessed ramped up efforts from regional Medicare recovery auditors (RACs), and Medicaid RACs are going to sprout up starting Jan. 1, 2012. EGH has seen this increased activity from Medicare RACs firsthand. Every 45 days, EGH receives a request from a Medicare RAC to pull 85 to 100 charts for inpatient and outpatient cases to ensure its billing on governmental insurance programs is compliant. Mr. Higdon says that all of the costs associated with pulling files and maintaining correspondence with the RACs probably adds another full-time equivalent staff member.

Hospitals need to prepare for this activity by trying to mirror CMS' policing attitude toward compliant Medicare billing. Mr. Higdon suggests that hospitals spend the time and make the effort to make sure all governmental claims have the necessary information and are coded correctly. Additionally, to save some time and money in the process, hospitals should take advantage of the ability to send the requested charts and documents electronically. Copying the paper records and mailing it to CMS is a burden that should be minimized if possible, he says.

2. Stay persistent in finding ways to offset rising Medicaid enrollment and costs. The Elkhart-Goshen metropolitan area in which EGH resides is no stranger to high unemployment rates. Out of the 372 metro areas the Bureau of Labor Statistics covers for that statistic, Elkhart-Goshen ranked 327th with an unemployment rate of 11.1 percent as of Sept. 2011. The higher-than-average unemployment rate has led to a surge in Medicaid patients for EGH, which already treats a high proportion. Currently, Mr. Higdon says Medicaid represents 15 percent of the hospital's payor mix, up from the 10-11 percent it saw before the economic collapse in 2008. Medicaid also only covers roughly 60-70 percent of the costs associated with the treatment.

Mr. Higdon says as Indiana cut fees amidst its Medicaid budget crisis in 2010, the hospital has searched out ways to help get the uninsured and underinsured covered at the hospital. Indiana started the Healthy Indiana Plan, which covers uninsured state adults who earn less than 200 percent of the federal poverty level. Although the state eventually capped the program, Mr. Higdon says it was a great way to both help patients and help the hospital recoup costs that would have most likely turned into bad debt. Other hospitals also need to stay abreast of the programs and options states offer when it comes to treating the uninsured.

3. Embrace ICD-10. EGH is well on its way to transitioning to ICD-10 and plans to be ready by the Oct. 1, 2013. Mr. Higdon says for the several hospitals that are still in the infancy stages, now is the time to get on board because "ICD-10 is something that every hospital will have to deal with."

Hospitals that are struggling to find a starting point should set up an ICD-10 timeline, which EGH is in the midst of ironing out. Mr. Higdon estimates that it will cost $300,000 to $400,000 each year, starting next year, to implement ICD-10 and train the physicians, nurses, coders and others on the floors. Due to the large investment, hospitals must stay focused on its outlined plan to make sure the money is well-spent and to mitigate the potential of backlogged claims once ICD-10 goes live. "Make sure you follow that timeline," Mr. Higdon says. "[ICD-10] adds so many codes and activities from the coding aspect, and it's going to increase what the coders have to know."

4. Implement lean management principles. Lean management principles are centered on finding and eliminating wasteful steps and byproducts within a process. The Toyota Production System was one of the trendsetting models of lean manufacturing, and Mr. Higdon says hospitals should be engaged in these sorts of processes.

EGH has taken its lean management to four specific areas, resulting in $2 million to $4 million in annual savings. "Revenue cycle, inpatient care operations, pharmacy flow and supply and surgery are the four main ones that we've focused on in the last two years, and the revenue cycle has generated the most savings," Mr. Higdon says.

The hospital was able to save millions because it found ways to reorganize those areas. For example, within the revenue cycle, Mr. Higdon says they've streamlined scheduling, certification, pre-registration, registration and collections by upgrading technology and making sure more work is done on the front end (i.e., collecting deductibles at the point-of-service). He adds EGH also has concentrated on its denial management. "Try to hammer down denials when they come in, and make sure you get clinicians involved," Mr. Higdon says. "We try to make sure coders and clinical documentation specialists are more efficient from the patient billing aspects."

Related Articles on Hospital CFOs:

6 Challenging Components of Managing a Hospital's Finances

Finances in the Era of Population Health: Q&A With Kevin Lang and Steve Mohr of Loma Linda University Medical Center

7 Ways Hospitals Can Trim Their Labor and Operational Costs

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