Method to the madness of RCM improvement: 4 questions with Plumas District Hospital CFO Caleb Johnson

Revenue cycle management has become more difficult for hospitals as traditional payment models shift to alternative arrangements and patients take on more financial responsibility. RCM improvement is a priority for all hospitals, regardless of location or size.

To work with multi-provider bundles, shared savings and other complex payments models, many hospitals are investing in next generation RCM tools. However, investing in new technology isn't the only way hospitals are achieving RCM improvement. Sometimes it's as simple as clearly defining the problem or giving employees the support they need to take action.

With more than 50 percent of its patient receivables over 120 days old, Plumas District Hospital needed an RCM revamp. CFO Caleb Johnson knew the hospital needed to improve collections and worked with his team to set a series of RCM-related goals in January. By the end of May, the critical access hospital had already met and exceeded many of its financial targets. 

Mr. Johnson recently spoke with Becker's Hospital Review about the revenue growth the hospital has experienced and the steps he took to improve collections.

Note: Responses have been lightly edited for length and clarity. 

Question: What first piqued your interest in healthcare and set you on the track to becoming Plumas District Hospital's CFO? 

Caleb Johnson: I fell into healthcare and once I discovered how challenging it is for a rural hospital to survive, I was hooked. 

My introduction to healthcare was as purchasing manager for Mayers Memorial Hospital in Fall River Mills, another critical access hospital serving a population whose density is less than 11 persons per square mile in far northeastern California. Within two months, I learned that our hospital was facing the threat of bankruptcy and/or closure, which set in motion a series of actions to reduce expenses, and rapidly. Over the next six months we went through two rounds of layoffs, restructured our short-term debt to long-term debt via an AP bond, ended several business relationships costing the hospital more than it could afford and witnessed the departure of the CEO and CFO. By the end of my first year, expenses were under control and the hospital began to heal.

From there I moved laterally to the revenue side of the income statement by taking on the compliance officer role. As such, I worked with my clinical coworkers and facilitated a comprehensive chargemaster review that revealed more than $1 million (or 5% of the operating budget) per year was left off the table due to missing, underpriced and/or poorly documented charges. Once those changes were implemented, I was then given the opportunity to serve as project co-manager of the campus-wide EHR implementation, making me and one other individual in the hospital responsible for the ultimate success or failure of the project. I'm proud to say we succeeded in implementing the EHR on time and on budget, and the system is working for the hospital (instead of against it) to this day.

Because of my exposure to the revenue cycle in a rural hospital in California, as compliance officer and as project co-manager for EHR implementation, I was approached (along with my CFO colleague) by the CEO of Plumas District Hospital, another critical access hospital struggling to make ends meet. For reasons unrelated to qualifications, my CFO colleague at Mayers declined to move to Plumas, and I accepted.

Q: Plumas District Hospital recently set a one-month revenue record. What were the main drivers of revenue growth?

CJ: Over the last several years, Plumas District Hospital has been experiencing an increase in utilization across all service lines and corresponding increase in gross revenue, so breaking the record was inevitable. In fact, two months after we broke the record, we broke it again. This is happening despite our population either stagnating or trending downward. 

While it's difficult to confirm exactly what event (if any) is responsible for this achievement, it does point to growing trust in our hospital by our community. In April 2014, a highly respected and well-liked doctor assumed the role of CEO. Since then, Dr. Jeffrey Kepple, MD, has made significant strides in improving employee morale, in recruiting and retaining high quality providers (contrary to prevailing trends in rural California), and in reviving community relations. His focus on our health needs, based on 20 years' experience in primary care, and on growth to fill those needs was arguably instrumental in the increase in utilization and gross revenue that we've enjoyed over the last several years.

Q: Under your leadership, Plumas District Hospital's accounts receivable over 120 days old has decreased significantly. How did you and your team achieve that result?    

CJ: First, we evaluated, determined and communicated what work needed to be done, and what its financial impact would be. In our case, over half of our patient receivables were over 120 days old, yet our revenue deductions model predicted that those old receivables were as collectable as receivables younger than 30 days. Everyone who's been in this business for a week knows that's not true. So, this created an environment where collection efforts were focused on new accounts, and difficult accounts that would not resolve timely would age out and reinforce the problem. The cycle needed to be broken and the board needed to know the reality of our situation before we could take action.

Next, we provided a framework, guidelines and tools to those doing the work, and made sure enough resources were assigned. We have a responsibility to our hospital, our patients and the taxpaying citizens of our district to appropriately address and resolve every patient account with high integrity. That means defining when a balance should be rolled to the patient or not, or what backup is necessary to support a non-routine write-off. When accounts are mismanaged for a long period of time, it's not surprising how difficult it can be for a biller to navigate each one and do the right thing. And if they're unsure, it's easier not to take action.

Lastly, we set a goal and a deadline, and kept it on the forefront of our minds. Once the board was made aware how little life was left in the accounts over 120 days old, and our team was primed and ready to tackle the issue, all that was left was showing them the road to travel down, and its destination. This one thing — setting a goal — was the most powerful key to breaking the cycle. Once our team had their eye on a prize, we not only saw a decrease in accounts receivable over 120 days old, we also experienced an uptick in cash collections.

Q: What advice do you have for other hospital CFOs who are interested in improving revenue cycle management?

CJ: I'm a strong believer in the DMAIC quality strategy for improving processes. That is, to define the problem, measure your processes' performance, analyze their root causes of variation, improve process improvement by addressing/eliminating the root causes, and control the improved process to avoid future/further variation. The revenue cycle can be overwhelming or unwieldy at times, with so many critical inputs whose variations may cause unexpected, harmful results. The DMAIC structure helps put method to the madness, and convert words and intentions into actions and positive results.


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