Solving the revenue cycle paradox: What options do struggling hospitals have?

Some financially distressed hospitals know they need to invest in an updated revenue cycle management system to stay in business. But when a hospital is already struggling financially is investing in an upgraded system a smart move?

The shifting healthcare environment is putting a strain on hospitals as they deal with the demand to invest in next generation revenue cycle management tools. The pressure to update RCM systems is strong, and hospital CFOs, especially those at finically distressed hospitals, are definitely feeling the heat. In fact, according to a Black Book survey, 61 percent of CFOs that self-identified their hospitals as struggling foresee being fired by 2016 because revenue cycle management, staff and solutions were stuck in fee-for-service mode too long.

Without the ability to work with multi-provider bundles, shared savings or other complex payment models, hospitals with dated RCM systems are at a significant disadvantage. Trying to use antiquated RCM systems to add the new data sources and analytics needed to validate inbound revenue in the new healthcare environment is like "trying to deliver the functionality of a modern EHR using a typewriter," says Jay Sultan, strategy consultant at Edifecs, a health IT company.

"Payment reform is driving CMS, Medicaid and commercial payers to alter the revenue cycle, with a larger portion of provider revenue driven by performance elements outside of a traditional RCM system's capability," he says.

Although the need for updated RCM systems is clear, what options are available for struggling hospitals?

Outsourcing is a growing trend
The demand for large end-to-end outsourcing vendors for RCM is growing, as many hospital leaders have realized revenue cycle management needs to be one of their organization's core competencies.

The revenue cycle management market is expected to grow at a compound annual growth rate of 7.2 percent from 2014 to 2019, and it is one of the functions healthcare providers outsource the most, according to a MicroMarket Monitor report.

Many financially distressed hospitals are outsourcing their RCM because it lets them avoid the capital cost of updating their system and instead allows them to use the vendor's updated system.

Making the decision to outsource often comes at a time when a hospital is at a crossroads. According to a Black Book poll, 21 percent of CFOs who changed to RCM outsourcing said their organization was absolutely facing bankruptcy within the next four years if either state-of-the-art software or outsourced services were not implemented immediately.

Additionally, 90 percent of CFOs who changed to RCM outsourcing said they didn't have access to the capital or the corporate approvals for new RCM and analytics software technology when they made the decision to outsource.

The choice to outsource has had a positive financial impact on many healthcare organizations. Eighty-three percent of hospitals with more than 200 beds that outsourced all or most of their RCM operations attributed 5.3 percent of their revenue increases to the decision to outsource, while 78 percent of hospitals with less than 200 beds attributed 6.2 percent of their revenue increases to the decision to outsource all or most of their RCM operations, according to the Black Book poll.

Although beneficial for distressed facilities, outsourcing RCM operations isn't just for hospitals in financial peril. Most hospitals today, even those that are performing well, outsource some part of the RCM process. Although end-to-end outsourcing is more likely to be used by struggling hospitals, outsourcing presents advantages to financially healthy hospitals as well. Outsourcing allows those hospitals to let specialty vendors handle particularly difficult claims, including motor vehicle accidents, according to Joel Gardiner, Principal at Deloitte Consulting, who serves as the company's National Practice Leader for revenue cycle management services.

As the financial leader of Colorado's primary safety-net institution, Denver Health CFO Peg Burnette says widespread outsourcing hasn't proven to be efficient for her organization so far, but Denver Health does outsource certain "specialized" functions such as out of state Medicaid management and third party collections related to legal action.

Realizing it needed an upgrade, Denver Health is in the process of replacing its current RCM system, which is over 10 years old, with an Epic RCM in conjunction with Epic's EHR system. To stay current in the meantime, Denver Health has programmed applications internally as well as utilized "bolt-on" applications to maximize the revenue cycle, says Ms. Burnette. "In every case a return on investment analysis is conducted before proceeding with purchasing new technology and a review is completed to ensure the ROI is achieved," she says.

Although RCM outsourcing is a trend set to expand, there are disadvantages of outsourcing, which according to Mr. Gardinar are "cost, quality and control." When a hospital outsources its RCM operations it gives up control, and the outside vendor may not be able to get the results they promise, which can compromise quality. Also, because most vendors are for-profit, outsourcing is going to cost more than updating or maintaining an RCM system in the long run, according to Mr. Gardinar.

Should struggling hospitals put off the RCM investment?
Hospitals should prioritize technology investments based on bottom line impact. In some hospitals, "current RCM technology and the processes that it drives are so antiquated that maintaining the system costs more than the revenue assurance/enhancement it delivers," says Mr. Sultan.

If a hospital's RCM system is so dated it is impairing bottom line performance, and the hospital doesn't have the capital necessary to update the system or outsource, there are few options available. Rather than allowing an RCM system to wreak havoc on a facility's finances, "They would be better off shutting it down, reallocating the employees, simply submitting their claims and trusting the payer," Mr. Sultan says.

The reasons hospitals lack the capital to invest in updated RCM systems vary. However, many times clinical technology investments are winning out over financial investments such as revenue cycle upgrades. In fact, the CFOs surveyed by Black Book identified health IT as the primary reason for their RCM issues, with 40 percent of CFOs saying they were forced to postpone revenue cycle software transformation due to a misjudged EHR, health information and portal expenses.

Even if EHR investment and implementation goes as planned, Mr. Sultan says, "It is a bad choice to have an EHR or population management system that looks great in presentations but is not impacting the bottom line performance, when capabilities like RCM and cost accounting are impairing bottom-line performance."

When upgrading or outsourcing RCM operations isn't enough
When a hospital is struggling financially and considering extreme measures such as filing for bankruptcy, sometimes updating or outsourcing its RCM system may not be enough to keep it in business.

RCM improvement can have a positive effect on a hospital's bottom line if sustained. By fixing denials and improving charge integrity documentation, among other things, upgrading a hospital's RCM system can provide for a potential pickup in operations from 1 percent to 4 percent at poorly performing hospitals, according to Mr. Gardiner.

However, even improving RCM isn't going to solve some struggling organizations' problems. "These hospitals generally have a lot of deferred capital expenditures and are typically not strong in the market," says Mr. Gardiner.

Many distressed hospitals that fall into the bottom quartile need a more significant change. There is a massive race to consolidation among these struggling hospitals, says Mr. Gardiner. Consolidation can have a positive effect on both parties, as it allows large health systems to expand their market presence, while allowing struggling hospitals to gain financial sustainability.

Concerning revenue cycle, generally the acquired hospital would switch to the acquiring system's RCM system. However, a health system may purchase a distressed hospital and run the struggling hospital's RCM system for three to 18 months as it migrates onto the acquiring system's program.

Looking forward
Investing in updated RCM systems will continue to be a vital step for hospitals as they move from a fee-for-service world into a value-based one with complex payment models at its core. Although distressed hospitals continue to feel the squeeze of these investments, a hospital's failure to update its RCM system could spell the end of business. With competing financial pressures, the paradox of RCM is a difficult one for financially distressed hospitals. However, by taking the plunge and upgrading their systems, choosing to outsource or even to take a more extreme path and consolidate with a financially stable system, struggling hospitals can adapt to the shifting healthcare environment.



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