Bridging the Revenue Gap

Despite progress throughout 2021, healthcare providers are still working to recover from pandemic-induced financial declines. At the same time, the longstanding drive to reduce costs through value-based care continues. Mounting effective responses to these challenges requires finance and revenue cycle management (RCM) to harmonize their processes.

This eBook examines ways to bridge today’s revenue and profitability gaps. The report identifies major financial imperatives and various barriers to achieving them. A three-step comprehensive payments strategy is then offered as a path to success.

Current Financial Imperatives

Two imperatives demand rigorous financial attention: speedy near-term economic recovery and strengthened market competitiveness for long-term health.

NEED FOR RAPID REVENUE/FINANCIAL IMPROVEMENT

COVID-19’s fallout has affected revenue, profitability and liquidity in different ways.

Revenue

Through August 2021, hospitals had reached a 6% gain over the equivalent pre-pandemic period for gross inpatient revenue and 10% for outpatient.¹ While encouraging, volume was still down: 5% for discharges, 1% for OR minutes and 11% for ED visits. These numbers do not bode well for sustaining the growth trajectory.

A number of factors are constraining further revenue recovery. One is physical capacity. Additional waves of COVID-19 outbreaks continue to cause deferral of elective procedures and impede other ongoing care. These surges have also further taxed caregivers, particularly nurses, augmenting burnout, turnover and shortages. A recent survey demonstrated the impact of these workforce strains on a broad range of volume-related activities.² (Figure 1)

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Another staffing constraint arises from the extensive shift to remote work during the crisis. As healthcare providers contemplate permanent hybrid on-site/off-site work modes, revenue is a significant concern. In one study, 29% of healthcare executives rated the impact of hybrid work on revenue growth as a major challenge.³

 

Profitability

Margins have also been under assault during the COVID-19 crisis. Hospitals have improved their positions to just north of 2019’s level, with help from CARES Act subsidies.⁴ Fitch Ratings believes that the recent case surge and uncertainty about future variants will likely negatively affect margins in the near to medium term for many hospitals.⁵ Another analysis projects hospital margins being 11% below pre-pandemic levels at the end of 2021.⁶

COVID-19 patients are high acuity. A government report concluded that Medicare beneficiaries hospitalized with COVID-19 were treated for a wide range of complex conditions.⁷ Another study estimated $5 billion in total costs from preventable COVID-19 hospitalizations during summer 2021 alone.⁸ Many patients are requesting expensive monoclonal antibody treatment, taking up more staff time and facility availability.

Long-term sources of margin contraction include reimbursement changes that favor lower-cost and risk-based services over traditional fee-for-service and the continuing shift to greater patient financial obligation. Providers must collect more from patients than ever before, and the costs associated with those collections continue to rise.

Liquidity

Cash flow has been a bright spot. Fitch notes that liquidity remains at or near all-time highs across our rated portfolio.⁹ Continuing uncertainties related to the pandemic and impending operational needs make it imperative to maintain strong cash flow.

INVESTMENT FOR COMPETITIVENESS

As they pursue top line growth, health systems, hospitals and physician practices face increasing competition from an array of alternative retail providers who are technologically adept and consumer-savvy. Providers are responding with deployment of a convenient digital front door, remote monitoring and telehealth to create excellent patient/financial experiences. Stepped-up investment in technology, people and outside services becomes a mandate. For example, providers and life sciences firms are projected to grow spending on connected health technologies by 70% by 2023.¹⁰

Financial/RCM Barriers to Success

Two chief obstacles must be surmounted to meet the twin imperatives of financial recovery and competitive positioning.

HIDDEN COSTS

The headlines on healthcare costs are dominated by pharmaceuticals and other critical items. However, a significant expense burden is less visible — namely, numerous high administrative costs. Healthcare’s structural model based on health insurance reimbursement breeds complexity and necessitates a unique RCM element not found in most industries. RCM’s continued reliance on manual or partially automated processes creates inefficiencies. For example, fully electronic remittance advices still represent only half of total volume.¹¹ (Figure 2)

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Automation has certainly grown in recent years, but broad adoption is still lagging. Only 20% of hospitals as of 2019 were applying automation to more than one-quarter of their financial workflows.¹² (Figure 3)

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This lack of uptake comes despite the survey finding that nearly all the CFOs who have implemented significant automation cite substantial ROI.

RCM is making progress. A recent HFMA Pulse poll showed that 78% of respondents use or are implementing some automation tools for their operations.¹³ Here, too, automation remains partial or limited in many instances.

Hidden costs also arise from the often-limited communication between Finance and RCM. At many providers, coordination between the two departments is limited, resulting in inefficiencies. In addition, insufficient integration between the multiple information systems found at most providers creates data silos that introduce costly friction and error into RCM.

 

MISSED REVENUE OPPORTUNITIES

Given the myriad of external pressures and operational complexities they encounter, it is little wonder that provider organizations often miss revenue opportunities. Two notable gaps deserve attention.

Deferred care

Perhaps the most significant one is also the most difficult. Patients continue to defer care or avoid it altogether. An extensive analysis of hospital data through mid-2021 concluded that so far in the pandemic, the industry has not seen an increase in hospital admission due to pent-up demand for forgone care in the last year.¹⁴ Capacity constraints and fear of COVID-19 exposure contribute to this lack of rebound. Another substantial factor, one that existed pre-pandemic, concerns patients’ ability to pay. An affordability study saw anywhere from 16% to 37% of responding generational segments indicating they had delayed, skipped or declined treatment.¹⁵ (Figure 4)

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The pressure on consumers is not abating. A fresh analysis pegs 2021 out-of-pocket health spending at nearly $500 billion, an increase of 10% over 2020, and projects annual growth of 9.9% through 2026.¹⁶

Operational revenue sources

Frequently overlooked revenue opportunities exist in operations such as:

• AP processing. Paying suppliers with virtual credit cards carrying specific provider revenue-sharing features adds income with little risk or effort.
• Cybersecurity. Shoring up cybersecurity defenses can impact the top line. As Fitch Ratings observed, cyber-attacks may also hinder revenue generation and the ability to recover costs in a timely manner. This is particularly true if the attacks affect a hospital’s ability to bill patients when financial records are compromised.¹⁷

 

Building a Comprehensive Payments Strategy

CommerceHealthcare^® believes that bridging revenue/profitability gaps while also forging a 21st century financial operation necessitate a comprehensive payments strategy. A holistic and integrated approach should supplant piecemeal efforts in order to optimize RCM. Automation is a cornerstone of the strategy.

The process starts with analysis to identify and quantify inefficiencies and lost revenue. Various data sets can be evaluated. In AP, a thorough spend file analysis can uncover virtual card and other income opportunities. In remittance processing, reconciliation statistics can be a gold mine of information on the detriments of lack of automation. Small-balance refunds to patients is often an area ripe for savings. Providers lacking resources to devote to intensive assessments can obtain help from outside advisors.

A framework for discovery and prioritizing investments is helpful. A classic decision matrix, such as the one shown in Figure 5, can capture the balancing of a solution’s ease of implementation and ROI/value-added. This grid accounts for the provider’s state of readiness and planning horizon. Some health systems are able to take a longer view and seek enterprise-level integrations that favor advanced technologies and AI-driven solutions.

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Solutions: Three Steps to Success

Three core strategies lie at the heart of a comprehensive approach (Figure 6). The three work in conjunction to maximize returns. The following sections highlight specific programs and tactics, all of which share vital success characteristics:

• Ease of implementation.
• Integration with core solutions and systems (EHR, ERP, etc.).
• Optimal blend of technology, programs and services.

 

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CORE STRATEGY #1: AUTOMATE MAJOR REVENUE CYCLE AND FINANCIAL PROCESSES 

Most RCM processes should be standardized, repeatable and predictable. Achieving that state requires reduction or elimination of both manual actions and variation in individual practices. A recent survey found 53% of health leaders are seeking to be less dependent on employee institutional knowledge by determining where automation and other digital investments may be best deployed.¹⁸ High-return targets for such automation include:

Receivables management

Remittance processing has benefited from technology that enables paperless, automated workflows for insurance and patient receivables. Cloud-based solutions electronically manage payment posting, unbundling of aggregated remittances and reconciliation. Two synergistic outcomes result:

• RCM’s many routine, high-frequency actions are consolidated in one fully automated process rather than executed across multiple departments.
• Staff are freed to work on the exceptional cases and issues. The software assists staff with features such as automatic work routing, online access to correspondence and documents for research, and ability to tag items quickly for proper handling. Workload can be significantly reduced.

Payables management

Supplier payments are typically high in volume and heterogeneous in mode (credit card, ACH, check, wire and specialty). Centralized invoice automation can alleviate many of the manual and paper-based issues that plague this area. Software is available that stores supplier information, consolidates individual payables into a single file and generates scheduled or one-time payments. Integration permits direct transmission of a reconciliation file to existing accounting and ERP systems. Streamlining the supply chain in this way is important in the revenue equation.

Patient financial experience

Lack of automation in workflows related to the patient financial experience adds cost and induces frustration. Fortunately, automation is making inroads:

• Online financing applications and charity identification.
• Digital payment options. Patients today expect choice of traditional and digital payment methods. Providers using ACH and mobile wallet options along with automated posting to patient accounts can decrease cost-to-collect.
• Digital patient refund management. A similar situation obtains with patient refunds, which have been growing in tandem with rising pre-service collections. Up to 15% of patients receive a refund according to one estimate.19 Automated refund solutions eliminate paper checks and disburse refunds electronically, giving patients faster access to their funds while further streamlining operations.
• Technology-enabled communications. Providers can use email and text to deliver automated alerts, payment reminders and to confer with patients about billing. Message links enable patients to view online statements and schedule and initiate payments in a human touchless environment.
  
  

CORE STRATEGY #2: CAPTURE ADDITIONAL REVENUE

A second set of initiatives seeks to boost revenue directly. Two opportunities stand out in the financial/RCM arena.

Patient financing

Robust financing programs are among the most effective ways to engage patients in their financial journey and overcome patient affordability barriers. Offering an expansive slate of financing is challenging for many providers. They often struggle with managing payments from individuals rather than insurance companies, and they are not generally equipped to assume the role of a bank. In addition, extended loans can compromise rigorous days, outstanding targets, and be labor intensive from an AR management perspective.

Working with a strong financial institution, health systems, hospitals and physician practices can offer flexible and effective financing, featuring:

• Automatic credit approval based on either preservice estimates or post-service charges. The former is very important as patients face a critical decision point and increasingly want to know their costs in advance.
• Open credit lines with 0% APR or low variable rates. Unlike specified loans, credit lines for significant amounts provide sufficient room to cover any variances between estimates and actual as well as follow-up procedures that may be required. Some patients also require longer-duration credit lines.
• Blend of recourse and non-recourse financing. Recourse programs are often overlooked, but they can significantly expand the range of individuals qualifying for long-term, no-interest packages.
• Credit servicing by a bank. Banks are highly skilled at consumer loan management and can relieve the administrative burden from inhouse staff.

Such clear and substantial financing gives providers upfront payments and patients immediate peace of mind that helps them proceed with care. Expanded support also promotes vital health access and equity goals.

Vendor payments

Additional income can be generated by making supplier payments via a virtual credit card containing a revenue-share component. As just one example, a CommerceHealthcare^® client hospital with under 250 beds has generated almost $500,000 in incremental revenue since inception of its virtual card program.

The key to strong revenue gain is maximizing card transaction volume through broad acceptance by the provider’s vendor/supplier base. Consider suppliers not only to inpatient, ambulatory, home health, DME, pharmaceutical and other core health operations, but also those related to non-care functions such as construction and maintenance. Many providers welcome payments by card for the speed and paperless efficiency. Vendor relations are strengthened, helping maintain a strong supply chain to undergird revenue streams while organizational resources managing payables are freed to support other job functions.

CORE STRATEGY #3: ENHANCE THE GAINS

The third integrated strategy depicted in Figure 6 offers a multiplier effect to the other two. As automation and revenue enhancement tactics deliver profit and cash flow, reinvestment of these proceeds opens potential for earning additional returns. Alignment of RCM and Finance promotes a seamless execution of this practice.

Investment strategies should be tailored to each organization’s needs and risk profiles. Reaching for added return encompasses options such as bond laddering, increasing portfolio allocation to higher risk assets, retiring some debt and others. Previous and forthcoming articles from the CommerceHealthcare^® investment team are a source of further ideas.

Financial management can power revenue increases in another way. Accessing attractive bank credit facilities can jump start investment in growth initiatives. A recent CommerceHealthcare^® case study illustrated how a large group practice effectively used startup financing, leasehold improvement loans and lines of credit to fuel significant growth over many years.

Bank as Partner

A well-capitalized, full-service financial partner possesses the resources needed to implement the automation, revenue growth and investment programs and patient financial engagement delineated in this eBook. Banks fulfill this role particularly well. The banking sector has extensive experience with automating the flow of funds — a core competency. Having a one-stop solutions portfolio helps health systems, hospitals and physician practices proceed with confidence at their preferred pace of change and anticipate future RCM needs.

Benefit-Rich Strategies

The rationale for pursuing a comprehensive payments strategy is compelling, because it offers:

• A multi-pronged antidote to the financial pressures wrought by the pandemic.
• Movement beyond the patchwork, incremental approaches that often thwart desired change.
• Agility to respond to dynamic market changes.
• Opportunity to consolidate financial vendors by working with a strong banking partner with a full solution set.
• Ability to engage and educate patients within their financial journey.

Properly executed, the plan suggested in Figure 6 creates a virtuous circle. Automation contributes to revenue growth and cost control. Added income feeds investment opportunities that offer the chance for further income growth. In turn, these enhanced assets provide capital to bolster automation efforts.

Conclusion: The Time is Now

As a recent article concluded, experts agree that the roller coaster of revenues history during 2020 and 2021 has shown hospital leaders how incredibly important it will be to absolutely optimize their revenue cycle management processes during a period of financial instability.²⁰ The statement represents a call to action. This eBook helps leaders by sharpening focus on financial imperatives, crystallizing the important barriers to change and proposing a comprehensive path forward. The three strategies — automating RCM/financial processes, adding new sources of revenue and investing the resultant gains — constitute a roadmap that is flexible and easy to implement. The approach is ready-made for the current times.

Resources

1. Kaufman Hall, National Hospital Flash Report, September 2021.
2. McKinsey & Company, Increased Workforce Turnover and Pressures Straining Provider Operations, July 2021.
3. PwC, US Pulse Survey: Next in Work, August 2021.
4. Kaufman Hall, National Hospital Flash Report, September 2021.
5. Fitch Ratings, “Surge in Coronavirus Infections Pressures NFP Hospital Margins,” Fitch Wire, August 27, 2021.
6. Kaufman Hall, Financial Effects of COVID-19: Hospital Outlook for the Remainder of 2021, September 2021.
7. U.S. Department of Health and Human Services, Office of Inspector General Data Brief, September 2021.
8. Peterson - Kaiser Family Foundation, “Unvaccinated COVID-19 Hospitalizations Cost Billions of Dollars,” Health System Tracker, September 14, 2021.
9. Fitch Ratings, “Surge in Coronavirus Infections Pressures NFP Hospital Margins,” Fitch Wire, August 27, 2021.
10. IDC, Futurescape: Worldwide Health Industry 2021 Predictions, November 2020.
11. CAQH, 2019 CAQH Index, 2020.
12. Black Book Research, 2019 Black Book CFO and Financial Leadership Survey, June 2019.
13. HFMA, Pulse Survey, conducted May-June 2021.
14. Peterson–Kaiser Family Foundation, “Early 2021 Data Show No Rebound in Health Care Utilization,” Health System Tracker, August 17, 2021.
15. Accenture, “Digital Adoption in Healthcare: Reaction or Revolution?” 2021 Accenture Health and Life Sciences Experience Survey–US Findings, August 2021.
16. Kalorama, Out-of-Pocket Healthcare Expenditures in the United States, 5th Edition, July 12, 2021.
17. Fitch Ratings, “Relentless Cyber Attacks to Pressure NFP Hospitals’ Operations,” Fitch Wire, July 22, 2021.
18. PwC, US Pulse Survey: Next in Work, August 2021.
19. Aite Group, U.S. Patient Refunds: A Market Sizing, November 2019.
20. M. Haglund, “Is AI in Revenue Cycle’s Future? Experts Say the Answer is a Clear ‘Yes, But’,” Healthcare Innovation, September 20, 2021.