Healthcare providers deal with insurance companies constantly, but it's rarely a painless relationship.
Providers must wait while claims wend their way through numerous layers of insurance company approvals — often only to receive denials — and then must identify why and start the process again. Accordingly, providers struggle to get paid in a timely manner, creating turbulence within their business models while they wait for revenue.
Because of this, healthcare providers need to ensure their revenue models account for these cash flow undulations in order to avoid their negative consequences. For example, one of our clients faced more than $100,000 in outstanding bills. The company blamed slow payments from insurance companies for its cash shortage, but an analyst was able to uncover a different story by digging into the data.
Multiple process errors prevented revenue from coming in: Medical codes were recorded incorrectly, administrators were misspelling patients’ names, doctors were waiting several days to put patient information into the system, and a host of other issues were slowing down reimbursements. Many payments had come back weeks earlier as denials, but no one had followed up with the insurance companies to uncover the problem, which left potential revenue on the table.
Providers are starting to realize that diligent monitoring of revenue cycles is crucial in order to operate smoothly. That’s why revenue cycle management systems, which can help providers organize and track their billing, have taken off: Research and Markets expects the RCM industry to be worth more than $90 billion by 2022, up from $51 billion in 2017. Yet healthcare providers still struggle with unpaid patient debt, increasingly frequent denials and up to $54 billion each year in challenged revenue from insurers. If providers don’t track and plan for these disruptions, they’ll put their financial models at risk.
Here’s how providers can create step-by-step revenue plans to remain solvent while waiting for claims:
1. Analyze accounts receivable.
Segment accounts receivable data by time frame. Figure out which collections are missing between zero and 30 days, 31 and 60 days, 61 and 90 days, and 90-plus days. After the accounts are organized, look for trends: Are certain patients or insurers consistently behind in payment? How could you change the process to encourage patients to pay on time?
Most insurance companies should be making payments between 40 and 50 days. Prioritize collections in that time frame, and write off what’s too old to collect.
2. Identify common reasons for payment lags.
Using the data from that analysis, review the organization’s billing process in detail. Many delayed payments might arise because of errors in client names or code entry, for example. If so, encourage (and incentivize) employees to spend more time making sure these are correct upfront, saving hours of follow-up time and tens of thousands of dollars in potentially written-off revenue.
Because so much of the revenue collection process falls outside a provider’s control, it’s crucial to make sure your internal processes are as error-free and efficient as possible. In a study on medical billing errors and inconsistencies in 2014, NerdWallet estimated that American hospitals lost more than $50 billion to uncompensated care.
3. Enforce a process to even out cash flow.
Institute processes to reduce coding and other errors, and include checks and balances to ensure proper implementation. For example, a mandatory checklist or standard form for the organization’s billing process can help with accuracy. Evaluate what additional resources will be necessary to put the new process in place, including potential incentives for employees who adhere to new processes.
This is where adopting an electronic billing platform can keep the process running smoothly. According to the 2016 Council for Affordable Quality Healthcare Index, switching from manual to electronic processes for tracking transactions could save providers an overall $9.4 billion annually.
4. Examine contribution margins and overall revenue strategy.
In a healthcare CFO survey by Kaufman Hall, nearly half of respondents said their organizations did not closely track targets needed to meet financial goals — even though more than half of respondents said reporting and analysis to help with decision-making was a top priority.
To make better big-picture decisions on revenue strategy and to assess automation and process development, a financial analyst will provide data that breaks down how much revenue the organization is not collecting or writing off and why. For instance, if billing errors are your organization’s biggest problem and you are writing off more than $100,000 in revenue each year, a CFO can then make an informed decision about whether it's worth paying a percentage of your billing total to have an outside medical billing company handle the task. Or if one insurer is rejecting the majority of your organization’s claims, you could address your contribution margins and examine whether you should continue to take all types of insurance. Analyzing the data will be crucial to evaluating your overarching revenue strategy.
Healthcare providers can’t always count on receiving timely payments, but they can safeguard themselves against debt brought on by unpredictable billing cycles. Factoring regular fluctuations into your business strategies can certainly help you ride out the ebb and flow of the approvals process, but you can also decrease those fluctuations by bringing in a fresh set of eyes to help you refine processes. Whether it's tracking how claims are sent, brutally monitoring processes, or establishing checks and balances to decrease internal errors, an outside perspective can be incredibly helpful to ensure you're evaluating every possible avenue to hit your revenue goals.
Michael Burdick is the CEO of Paro, the alternative employment model for the future of finance work. Paro’s purpose is to empower people to do what they love.
This piece was co-authored by Prateek Gupta, a financial analyst in Paro's network who has deep knowledge in the healthcare space.