Articles

What your Payors Know about your Patients

Posted on: August 9th, 2009

What Payors know that Hospitals don't!

We all keep hearing the phrase, “revenue cycle management” as the current “elixir of the Gods” in attracting and retaining membership within the competitive sphere of GPO service delivery. Everyone wants it, yet everyone seems to have a different definition of exactly what it means and what the best ways of packing and delivering it are.

These services are designed to work with individual facilities to aid them in evaluating the greatest opportunities for cost savings and cash flow management and then translating the findings into practical solutions that deliver clear financial results. The bottom line of these services is the economic theory that: “it is far better to capture maximum revenue from activities already performed than to have to perform even more activities to offset lower per activity revenues”. The days of healthcare being able to prosper with a “contribution to overhead” economic theory based on losing: procedures, billing/collection practices and procurement habits are either already extinct or in their last season on earth.

And . . . none of this is new. Every trick of the trade for maximizing revenue cycle has been discovered, uncovered and mastered in decades gone by. It’s burgeoning attraction is based not on a newly discovered paradigm but rather on the increasing pressures forcing most healthcare organizations to become healthier and fit.

There is an analogy I learned for revenue cycle management from a gentlemant named Frank Hunter in the mid 80’s. Frank at the time worked as the head of DST Systems, a Kansas city fund management company that dealt with financial decisions in the 100’s of millions of dollars. The anaogy follows:

“The avereage American business can be best understood as a parallel to a man sitting in a bathtub of hot water in the middle of a windswept field in northern Minnesota on a below 0 February day. As long as the man (company leadership) is mostly submerged in that hot water (cash flow/available cash level) he will avoid freezing to death and can even go about the busines of business (such as hair washing, etc . . .).

Unfortunately, things happen. The plug has somehow been kicked out of the bottem of the tub (changing market conditions, increased competitive pressures, changing payor mix, shrinking reimburesments, etc . . .) and while still with soap in his eyes (normal business activities) he begins frantically searching for the plug (stop cash from leaking out – IE Revenue Cycle Management).

The man is panicked (organizational leadership), and why shouldn’t he be – afterall – if the water drops too low he will freeze to death. So the cost cutting and reactive policy development begins. People are blamed, cuts are made, and staff are asked to do more . . . with less. Anything to stop the water level from going down further.”

The unfortunate truth of this analogy is how frequently it is an accurate description of actual decisions made by healthcare leadership in the face of increasing difficulties. The reality is that pure “revenue cycle management” is only half of the real solution and not necessarily the right first step. Taken by itself, this type of reactive intervention can be a detriment to healthy cultures and the perception of care about staff and patients (America’s ultimate customer).

The rest of the story . . .

Most organizations view revenue cycle management as “cost recovery solutions” that emphasize respectful and professional communication with patients. Which is a lot like hunting for the plug after it has already slipped out of the bottom of the tub. The better the program, the faster the “plug” is found and the less cash is lost to the organization. In some exceptional cases, effective automation of these services can even lead to “anticipatory” decision making which begins to resemble “planning” rather than “intervention” – a much more effective tool for creating outcomes.

But . . . most of the time these services never evolve beyond “plug hunting”, but what if your organization could do something different?

What if instead of just hunting for the plug, an organization could turn on the faucet in order to keep the water level constant and then systematically, through their traditional efforts begin searching for the plug?

Lessons from Charlie Sampson – the smartest man I ever met

In 1994 I met and became very well acquainted with a man named Charlie Sampson. Charlie was a retired Marine Colonel who was leaving the payor side of healthcare (as the regional VP for MetraHealth mid-Atlantic) on his way to being the SRVP of Managed Care for BJC Corporate in St Louis. Over time, Charlie introduced me to the hidden, never discussed “other half” of revenue cycle management – how to turn on the faucet.

In spite of my being “completely full of crap” as he was fond of reminding me in my mid 20’s, he did more to help me understand the in’s and out’s of the practical side of the relationship between money and processes than anyone before or since. What I’m about to describe in less than 2 pages is the summary of 100’s of hundreds of hours of his patient explanation.

“For years, healthcare has been in an economic state in which there are only 2 classes: the haves, and everybody else. The “haves” are the payors: the HMO’s, PPO’s, Traditional Indemnity firms, and other insuring bodies. Anybody providing care is, well . . . you know.

There are some fundamental reasons why there is such an acute distinction between the “haves” and everyone else:

The “Haves” are not mission driven, they are financially driven
The “Haves” are run by business people, not care givers
The “Haves” always did understand the value of information and own nearly all of the important industry data
The “Haves” don’t have the luxury of endowments
The “Haves” are always for profit
The “Haves” know how to negotiate to their advantage

The “Haves” routinely rake everyone else over the coals because of their propensity to plan and execute more effectively in negotiating the terms of their relationships They utilize information that providers don’t know exists and plan brilliant strategy for conceding "only what doesn’t matter" in return for gains in "what does".

A traditional negotiation

It’s time for renewal of your payor agreements (whether capitated, fee for service, or blended). Your friendly neighborhood payor provider relations representative has arrived fresh and shiny and negotiations begin. You think you are prepared. He knows he is prepared. You have your negotiating points ready to be articulated. He does too. But by the time you sit down, you have already lost – you have begun welding the faucet shut. Why . . .

What he knows/has access too

His case rates and margins for every procedure
The number of procedures per member population (including those members who currently go somewhere other than your organization for care)
Outcomes data that tells him which portions of his member population risk a descent into “more expensive” care conditions over time
Which care plans/procedures to “cave in on” in order to gain concessions in others

Example: His 200,000 members had 100 bypass surgeries last year. He pays you a flat rate of $35,000 per bypass. You need $50,000 per bypass in order to cover your costs. He knows that 12,800 of his members are mildly-to-moderately hypertensive right now. The outcomes data he paid $100,000.00 to AHI to buy tells him that 80% of those 12,800 members will need cardiac catheterizations or pacemakers within 7 years. He is negotiating a 10 year agreement. His goal is to give you what you want in bypasses (a $15,000 per procedure raise) if you will cut your rates a mere $1,000 for each catheterization (which you do almost none of for his members right now) and $4,000 for each pacemaker implant (which you also do very few of). You agree.

You just gained - $15,000 on 100 procedures per year for 10 years. = $15,000,000.00
You just gave up – $1,000 per cath procedure done an average of 3 times on each of 6140 patients in a ten year period of time = 18,420 procedures = $18,420,000.00
$4,000.00 per pacemaker done 4,096 times over 10 yrs = $16,384,000.00
So you traded $34,804,000 in lost future revenue for $15,000,000.00 in revenue enhancements now.
You not only gave up that possible revenue – you lowered your negotiating base on the very procedures your payors are most likely to approve most often for treatment of heart ailments (they will only approve for treatment what is financially beneficial for them).”

Why does this happen? It happens because one side is negotiating based on past experience and the other based on the knowledge of likely future events. One side has more information and therefore makes better decisions. What happens if hospitals and other providers negotiated case rates with 10 payors this way?

But this is only part of the story. There is an entire chain of failure in healthcare revenue cycle management. It certainly starts with losing negotiations but it doesn’t stop there. Here is the entire process chain. Each step includes opportunities for major revenue enhancements (Millions and Millions worth).

Payor Contract Stinks – terms and conditions are unfair
Contract terms not translated into Changes in Chargemaster/billing procedures
Wrong Procedure choices are made (physicians don’t know terms) – might be better to perform a bypass than a cath/pacemaker
Supply chain choices are not reconciled with Chargemaster/billing procedures
Wrong Supply choice made
Wrong coding of procedure/supply (Coding personnel are not informed of contract terms and are very low paid – not a ton of initiative there)
Wrong procedure followed for submission
Poor follow up for resolution/collection

Only the first item of this would be considered a “front side” error. The rest is clearly “back side”. GPO’s focus primarily on “order to cash” /”backside” revenue cycle enhancements. As far as I know, only one of them even mentions “front side” stuff - but as you can see from a single example of a single “PRE -front side” item (having the right data before negotiations and negotiating support for payor contracts), there is far more to be gained on that side and more attention should be paid.

Figuring out how to manage the “mess” after the fact has enormous value – but is a little like closing the barn door after the horses have already gotten out!

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