Monday, January 26, 2009

High Margin Revenue Cycle Strategies

In this deepening economic crisis, growth strategies may seem less important than defensive strategies and cost reduction. But not to the CEO's of most healthcare organizations.

Stephen Forney is the guy CEO's have turned to, to go find the money. His talent for digging out dollars and doing so quickly has established a national reputation. His track record includes multiple success stories increasing net revenue and EBITDA by double-digits. You've got to love his current job title at Ardent: VP Margin Development.

His recent article (co-author Bill Phillips) on the "10 Critical Growth Strategies Healthcare Executives Must Know" was just published in the January issue of Healthcare Executive by the American College of Healthcare Executives. The growth strategies include:
  1. Acquisitions
  2. Unique Customer Services
  3. Practice Services
  4. Margin Development by Physician and/or Product Line
  5. Transfer DRG Underpayments
  6. Medicaid Eligibility
  7. Noncontract Claims
  8. Motor Vehicle Accident and Workers' Compensation Claims
  9. Managed Care Denials
  10. Managed Care Underpayments
Stephen graciously lent his insights to Healthcare Technology News.

HTN: The article talks about about three different stallers or stoppers that are signals that new growth strategies should be employed: 1) Shrinkage or shift in the profit pool; 2) Direct threat from a competitor with a new business model; 3) Growth simply stalls out. Which of these represent the greatest impact or threat to most healthcare organizations?

STEPHEN FORNEY: The scenario representing the greatest impact or threat to most healthcare organizations is that growth simply stalls out. This situation can have myriad causes. An organization can have constraint issues (i.e., not enough resources to handle growth), a community can see demographic shifts/declines, or broader economic trends (e.g., the current recession) can curtail growth.

HTN: What are some of the unique innovations in Customer Service that you think are particularly powerful in today's market?

STEPHEN FORNEY: Single call scheduling and pre-authorization programs are particularly powerful customer service enhancements in today’s market. There are many steps required to make sure a patient is ready for service (especially in a managed care environment), but most of these steps should be transparent to the patient. Information gathering should be complete to ensure proper scheduling/authorization/billing and minimize additional patient contacts. Best practice organizations are allowing on-line scheduling from patients and physician offices which greatly minimizes the back-and-forth phone calls typical in this process.

HTN: Building practice services based on best practice capabilities is an easy lever to throw. Whenever HCO's integrate, the first thing to get integrated is laundry services and maybe IT. Many times that's as far as it goes. Which practice services are most successful and most likely to generate a meaningful return?

STEPHEN FORNEY: The most beneficial services for HCOs to integrate are patient financial services (PFS) functions, materials management, transcription/coding, and managed care contracting. These areas can most easily benefit from economies of scale in an operational perspective and from increased leverage in a negotiating perspective. Additionally, internal /external best practices are easiest to adopt across organizations in these areas due to their non-clinical nature. Finally, these areas represent significant control over an organization’s cash flow, which provides an environment in which even small improvements can yield large returns.

HTN: You argue that healthcare leaders "need to review service margins for individual physicians, practices and departments to identify patterns and see where imporvements can be made." What are some of the resources that can help healthcare executives to integrate margin analysis into their physician and service line management?

STEPHEN FORNEY: The primary resource that would help healthcare executives integrate margin analysis into management practice is a formalized process for decision making that includes margin analysis. While advanced information systems can certainly assist in measuring physician/service line margins, too much emphasis is placed on such systems when trying to make financial decisions. There are many organizations with relatively unsophisticated information systems that have well developed processes for margin analysis. These organizations simply place an appropriate emphasis on margin analysis as a decision making tool.

Additionally, contract management and product line analysis systems are now readily available at multiple price points and levels of sophistication. Excepting the smallest facilities, most organizations would benefit from investing in such systems.

HTN: Are many HCO's aware of the opportunity with Transfer DRG underpayments? It seems like such low hanging fruit. Can you walk us through this strategy?

STEPHEN FORNEY: The opportunity with Transfer DRG underpayments does not enjoy a high degree of awareness with HCOs. In summary, Medicare reduces payment for any inpatient stay falling under a transfer DRG when that patient is transferred to a PPS post-acute facility before they have incurred a length of stay equal to that DRG’s GMLOS minus one day. These patients usually are transferred to a SNF or Home Health environment.

However, a significant percentage of patients transferred to these environments do not receive the designated level of care within the window defined in the Medicare regulations (three days). The payment for these patients should be the same as if they were discharged home. Medicare does not have an edit in place with the fiscal intermediaries to disburse underpayments relating to such transfers (they do have an edit for overpayments). This annual impact can easily run into six to seven figures for medium to large health systems.

HTN: Assisting patients to apply for Medicaid coverage eligibility is a public good and a great revenue producer. However, there is a growing hospital payment shortfall relative to costs for Medicare and Medicaid. Properly executed, this strategy exacerbates this public policy issue. Where do you think this is headed?

STEPHEN FORNEY: I think this could definitely contribute to a higher Medicaid spend than might exist otherwise and this could be problematic for a state that cannot generate appropriate revenues to cover the additional expense. In all likelihood, states would compensate over the long term by modifying Medicaid benefits or raising taxes.

HTN: You argue that HCO's can increase noncontract claims revenue by 100%, which is 10-15% of total claims volume. That's real money that the payers are not going to give up on easily. What's your experience negotiating to eliminate third party discounts from payer contracts?

STEPHEN FORNEY: My experience with eliminating third party discounts is that it is possible and that “rental networks” have little leverage with providers. Such networks do not steer business and, therefore, have no ability to affect a provider’s volumes. In effect, the discount being given is being listed as “in-network” with a payor. Given the absence of steerage, this benefit is of dubious value.

The sole value of these networks is to provide a framework for multiple small volume insurers to pay a provider. This warrants a small discount (5-10%) if coupled with appropriate prompt pay language. However, all such agreements should be at the same discount. Third Party Administrators (that represent small volume insurers) will have access to multiple networks and will access a provider under the most advantageous terms.

HTN: Motor vehicle accident and workers' comp claim requirements can differ by state. You suggested that sufficient resources be allocated to ensure this is handled correctly due to the substantial volume represented by these claims. What kinds of technologies and services are available to support this state-by-state claims management?

STEPHEN FORNEY: There are numerous outsource vendors that provide expertise in managing MVA and Worker’s Compensation claims. Utilizing a vendor to provide this type of service can be cost effective for some organizations. The alternative is to develop appropriate expertise in-house by hiring experienced, or training, personnel.

HTN: You identified 5 common reasons for denials including lack of pre-authorization, ineligibility, bad information including codes, uncovered services and claims not timely. There are services and software to address these issues. So how can denials management continue to be in such sorry shape across the healthcare spectrum?

STEPHEN FORNEY: Denials management remains problematic across the healthcare spectrum primarily because healthcare systems do not place sufficient emphasis on securing complete, accurate information prior to the provision of patient service/discharge. Most of the issues relating to denials can be resolved by developing solid Patient Access processes (including a QA function) centered around pre-registration, pre-authorization, and insurance verification. In addition to the processes, success requires absolute commitment from Senior Leadership in a facility/organization. Frequently, Senior Leadership inadvertently supports a breakdown in these processes by placing too great an emphasis on throughput at the expense of gathering complete information.

HTN: You've found that periodic auditing and the use of a "belt and suspenders" approach - - a second contract module - - can help to drive recovery of managed care underpayments. In your experience, is this sustainable?

STEPHEN FORNEY: There is a small level of sustainability with a second contract module. Presumably, an organization would modify the configuration(s) in its first contract module after finding recoveries with a second contract module. Each successive iteration would decrease the impact of the second contract module. However, it would continue to provide a check on new/revised contracts and is relatively low cost.

HTN: So where to begin? It's sure to be situational. But where have you had the greatest success?

STEPHEN FORNEY: I have had the greatest success by focusing in on margins by product line and looking at managed care processes for opportunity. These areas represent the potential for significant savings / incremental revenue in a short period of time. They also require an in-depth review of processes within an organization that can lead to other significant areas for margin improvement.

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