Shubham Singhal, the global leader of consulting giant McKinsey's healthcare practice, recently proclaimed,
“The imperative for [healthcare] companies that seek to thrive in coming years will be scaling up innovations much more quickly than they currently do.”
In a climate where many management services organizations (MSOs) are pivoting strategic focus from inorganic growth to operational value creation, some are relieving labor costs and improving cash flow by leveraging innovation in revenue cycle technology. By automating processes once carried out by staff, RCM solutions cut through the noise of files and Excel spreadsheets to pinpoint exactly where:
- revenue is leaking
- payers are shortchanging them
- patients need support in understanding and carrying out their financial responsibilities
- opportunities exist to improve EBITDA margins, net revenue, and cash flow
The results are beginning to roll in.
When Deloitte recently asked 479 executives about automation’s impact in their “Global Intelligent Automation survey, respondents reported an average cost reduction of 32 percent.
Similarly, in a Black Book survey of 1,302 healthcare organization financial professionals, participants who deployed revenue cycle automation software achieved a 27 percent decrease in cost-to-collect. Net patient revenue increased by six percent.
When the 2022 National Association of Healthcare Revenue Integrity’s State of the Revenue Integrity Industry Survey asked respondents to rate automation’s impact over the past 12 months, 85 percent said automating revenue cycle processes had a positive impact on their revenue.
As the statistics above indicate, many healthcare and management services organizations have started or are in the process of implementing some form of revenue cycle automation to improve operational efficiencies. Still, healthcare has a way to go.
Without technological assistance, healthcare leaders miss some significant opportunities for value creation. Vice President of RCM Valerie DeCaro of DOCS Dermatology, explains that,
“One of the biggest problems in the revenue cycle today for MSOs is the lack of catch-up in healthcare around using automation and technology. We have many archaic workflows, and we still use fax machines regularly. Some practices still operate on paper systems. We're not anywhere close to where other industries are. Take air travel. You can check in at an airline on your your phone, pay for your bag, print your tag, do all of that before you even get to the airport.”
Here, we uncover the revenue cycle spots that MSOs miss when it comes to building efficiencies via RCM technology.
Value creation opportunities most MSOs today miss
Pursue payer underpayments
Struggling to streamline operations post-pandemic, many MSOs have difficulty finding the time to examine how payer reimbursements fall short of contracted rates.
Payer underpayments are widespread. A study published in Becker’s Hospital Review found providers lose one to three percent of their net revenue annually due to commercial payer underpayments. Other researchers believe the figure could be as high as 11 percent.
And payers are underpaying by hefty amounts in some cases.
Recently, a Florida three-judge arbitration panel concluded that UnitedHealthcare paid ER group TeamHealth clinicians just 30 percent of fair compensation for care provided. The payment of $10.8 million brought the group’s total recovery from UnitedHealthcare to nearly $500 million.
"like many insurance companies across the United States...[Molina] refused to negotiate fair reimbursement with emergency medicine physicians, coercively underpaid physicians, and exposed its members to its underpaid balances."
Murphy echoes the sentiments of many providers struggling to win full payments from payers. Frustration with payer underpayments is just one challenge an MSO faces when trying to standardize physician groups. Physician owners appreciate learning that their MSO has a plan and accurate technology for pursuing underpayments.
Barriers to collecting underpayments
Despite the potential to recover earned net revenue, some of the groups we engage with initially feel they lack the time and staff to tackle the underpayment aspect of their revenue cycle. Too many settle for getting something from payers. If you’re an MSO, falling short won’t help you achieve your financial plans. Strong net revenue is the backbone to a healthy P&L; robust revenue integrity practices directly impact exit valuation, particularly when pit against comparable companies with less stringent revenue integrity protocols. In the near-term, pursuing underpayments also lets you service debt and otherwise invest cash in growing your organization.
As described in this Underpayments Guide, common healthcare industry challenges like the difficulty of finding strong revenue cycle talent and lack of awareness of the potential in underpayment collection create an environment for rampant underpayments. That guide contains which payer contract terms often lead to underpayments, as well as the occasional mistakes in your own revenue cycle that trigger underpayments.
No matter the source, however, the solution to underpayments is threefold: detect, recover, and resolve root causes to prevent them from recurring.
Making underpayment collection efficient
We understand why MSOs avoid addressing underpayments.
Tackling them manually involves hunting down payer contracts, finding the fees surrounding patient treatment, and comparing those fees to the reimbursement received. Carrying out these steps for the hundreds or thousands of patients MSO practices see daily becomes overwhelming. It’s no wonder payer contracts languish in practice files for a year or more (17 percent never review contracts, and 16 percent only review every two to three years or more). We’ve even run into physician groups that haven’t reviewed contracts for over five years.
Further, certain practice management systems have underpayment modules, but setting up and maintaining these systems typically requires dedicated staff with specialized training on the software, such as contract load specialists. Practice management systems are not built to identify underpayments, and so often fall short of accurately identifying real net revenue opportunities. Worse yet, inaccurate data can result in yield loss when staff is led astray.
An automated underpayment solution plays a central role in detection and recovery, making your operations more efficient. This technology ingests, digitizes, and analyzes contracts, consolidating them in a single location. It automatically compares every payment received to the payer’s written contract terms and promptly alerts staff to any discrepancies. Automating underpayment detection helps your staff become more productive as they are free to focus on higher-value, more patient-centric work.
While you may feel your MSO lacks the time, budget, and bandwidth to implement this technology, rest assured that third-party software solutions integrate with your physician groups’ EMR, billing, and other systems. You may need to consolidate multiple platforms from separate groups. Your underpayment solution partner can integrate the technology so that the data from all members in your portfolio flows into a single underpayment solution.
Solution providers are well aware that your automation solution must be as “touchless” as possible, with insights and data delivered with minimal effort on your part. Your partner also provides thorough implementation and maintenance support, typically including monthly meetings and quarterly reviews of underpayments discovered.
When MSOs acquire new locations, they’re busy consolidating business and financial management services, such as the arduous task of migrating a new practice to accrual accounting. Credentialing physicians and keeping the schedule filled with patients to achieve a smooth transition are also top priorities. Given these pressures, chargemaster review can get postponed.
Once management gets to the chargemaster, they may find they’ve acquired a physician group that’s gone years without updates. Further, chargemaster issues can arise after transitioning a newly acquired group onto more favorable managed care agreements.
Outdated chargemasters prompt significant hits to revenue because of payers’ “lesser of” clauses – language in the contract that allows them to review the fee schedule in the contract and the chargemaster and pay whichever amount is lower. If a payer lists a payment rate of $200 for a procedure in the contract, and the chargemaster lists $150, the payer is well within their rights to only send $150.
Failing to benchmark contracted rates against standard rate sets such as Medicare is an enormous red flag. When one-fifth or one-quarter of chargemaster rates are beneath even Medicare rates, we know the physician group has gone a long time without updating their chargemaster.
An outdated chargemaster also triggers denials. In one case study, a hospital brought in a third party to review the chargemaster. This team found that seven percent of codes had been deleted, some even 20 years prior. When informed, hospital administration replied that – while those codes were still in the chargemaster – they knew not to use them. But on further examination, the third party found that indeed the 558 codes were used nearly 2,000 times, accounting for $187,920 in denials.
Barriers to chargemaster optimization
First, with the AMA updating ICD and CPT codes yearly (225 new codes, 75 deletions, and 93 revised codes just this year), keeping the chargemaster current can be a trial. Of course, chargemaster accuracy declines when these codes are not updated. While updating the chargemaster according to new CPT codes seems like common sense, we’ve encountered many physician groups that have let years go by without culling deleted codes, updating changed codes, or adding new codes.
Another impediment to an optimized chargemaster is when it exists as multiple Excel spreadsheets. The confusion and frustration involved in juggling these drops this task to the bottom of the priority list. No one wants to touch it.
Data and format chaos aren’t the only barriers to chargemaster optimization. Unfortunately, in most practices and physician groups, staff considers the chargemaster someone else’s responsibility. They even tell us it’s a “low-level data entry” task. It’s not a low-level issue, however, when significant net revenue is involved. Revenue recovery should be considered a critical task for all to pursue, no matter how basic the workflow.
Making chargemaster optimization efficient
Healthcare leaders stress that chargemaster review and accuracy are key to improving operations. These steps set you up to create a robust and accurate chargemaster.
- Involve all stakeholders in establishing chargemaster accuracy and awareness. Gather representatives from finance, patient financial services, and IT, as well as all medical specialty departments.
- Establish one individual or a team from each department in charge of keeping the chargemaster current.
- Conduct a comprehensive, outside review every 3 – 5 years. Conduct full internal reviews yearly. Departments should review their full chargemaster every quarter.
- Automate chargemaster review and updating. Read your contracts, leveraging automation to detect discrepancies or errors in the chargemaster. This functionality not only enhances the accuracy of the billing process but also mitigates compliance risks. When automated, chargemaster clean-up delivers immediate results.
Aim for current, accurate net revenue forecasting
Where chargemaster and underpayment process improvements help you recover revenue, accurate net revenue forecasting keeps you on track to achieve financial targets. You take careful steps to grow and optimize each of your physician group partners. Part of this process involves using net revenue forecasting to inform management’s capital allocation throughout the organization and report out to a private equity sponsor or lender, as necessary.
Accurate forecasting is critical in effectively stewarding your organization through its financial obligations and towards its value creation goals.
Barriers: using historical data leads to inaccuracies
We find that many MSOs depend solely on historical data to forecast future net revenue. Variations in business activity that are not dynamically factored into the forecasting model are then unaccounted for, leading to less accurate results.
This tactic was more effective years ago when the majority of payments came from insurance companies. Payers are a relatively reliable source of accounts receivable in comparison with patients. Today, however, given rising deductibles and increased patient responsibility, the share of physician group revenue collected directly from patients has increased from 10 percent in 2013 to 30 percent today.
And patient payments are not as consistent. Why? Some patients simply lose track of their obligations, and with higher amounts due, certain patients need to extend payment deadlines or negotiate lower payments. Some are even willing to default on their healthcare payments altogether. In sum, the cash flow from this growing revenue stream is highly variable. It takes rigorous modeling to get it right.
Use dynamic net revenue calculations instead
Accurate forecasting begins with a more real-time, dynamic calculation. Rather than start with historical patient visit patterns or averages, instead use a technology solution to calculate the expected allowed amount for current visits at the time of billing. From there, apply collections patterns from both the patient and payer, factoring in the specific payer and procedure for each given visit. Leveraging visits that have occurred and granular assumptions specific to each patient’s circumstances, this forecasting methodology depicts as accurate a picture of your future collections as possible.
Ensure accurate upfront collections
Most of the MSOs we encounter today are working on improving their upfront collections, but they face some barriers. Organizations should prioritize breaking through these impediments given the step-change improvements in collections cycles that can be unlocked by collecting from patients pre-service.
Collecting patient payments upfront is relatively new to physician groups, to patients, and even to staff. Because, as mentioned earlier, patients now provide 30 percent of revenue, the financial viability of healthcare organizations depends on capitalizing on every opportunity to convert this growing revenue stream to cash.
Every dollar collected upfront is one that stays out of accounts receivable. Studies show that patients are less likely to pay overdue bills than payers. A recent study reveals that 78 percent of providers are not collecting patient balances of $1,000 or more within 30 days. These receivables go into 45- and 60-day buckets. Once a bill goes over 120 days in accounts receivable, physician groups collect just 10 cents per dollar.
Upfront collections can be a challenge
Our MSO clients tell us that the main barrier to collecting patient payments upfront is a concern that the patient estimate will not be accurate. Indeed, conducting patient estimates manually is time-intensive and subject to errors. It requires staff to comb through payer contracts and patient details, a process that can take anywhere from ten minutes to one hour. Manual patient estimates are not scalable when MSOs serve hundreds or thousands of patients each day.
Another barrier is habit. Until recently, collecting possibly 10 percent of the charge from patients was an afterthought. Front-office staff may have been working for years or decades not requiring an upfront payment. Leadership at individual practices, and clinical leaders in particular, may push back on an upfront collections initiative. Delivering a clear, compelling business case supporting upfront collections is imperative in driving buy-in at the practice level. Further, thorough training can ingrain this new workflow in the day-to-day of staff.
Similarly, many patients (particularly older ones) have been trained on an insurance-as-payer model. They sometimes perceive paying upfront as wrong or unscrupulous. Detailed estimates clearly delineating patient responsibility and a well-trained front-office staff are keys in unlocking upfront collections from this, more difficult, population.
Make upfront collections mandatory
With the right processes and technology, you can add accurate upfront collection practices to your existing workflow. Alerting patients to payment policies upon scheduling either via email, text or phone prepares them to meet their responsibility.
Train front desk staff to:
- Check patients' insurance eligibility and determine if any upfront payment is required for services.
- Clearly communicate payment policies to patients before appointments, ensuring that they are not overwhelmed or offended.
- Process payments efficiently using appropriate systems and procedures, as a complicated payment process may discourage patients from making payments.
- Provide thorough explanations about how insurance payments work, as patients who are unfamiliar with health insurance may be hesitant to pay for services upfront. A clear breakdown of deductibles, copays, and coinsurance within the estimate reduce the burden on your staff in triaging downstream questions.
Front desk employees must be well-versed in these areas to ensure smooth operations and satisfactory patient experiences. One senior vice president of revenue cycle shared with us that he built traction through a pilot program:
“We rolled out upfront collections to practices one by one. We started at the group’s small volume locations to get it right before expanding. Results in hand, we brought an analysis to the CFO showing the net revenue improvements for the practices pursuing upfront collections against those that are not. Because the practices pursuing upfront collections saw tangible decreases in bad debt, we got buy-in.”
A data-driven, well-planned approach to pursuing upfront collections helps on two fronts. First, starting small helps refine the process in relatively low-stakes environments. Second, it’s likely easier to get management buy-in for a pilot versus a full-scale rollout. With data backing a successful pilot, the business case for the broader workflow implementation becomes more clear.
Automate patient estimates and facilitate upfront payments
Many MSOs and provider groups have facilitated upfront payments by using a proven patient estimate partner that ingests, digitizes, and analyzes all payer contracts along with patient insurance information.
Software can automate eligibility verifications, generate accurate patient estimates, and send a text or email to the patient detailing their financial responsibility. Your clear communications increase the patient’s confidence in your services and their payment options. Some platforms even include a patient portal that enables patients to send in a deposit or prepay the entire estimated bill.
Those intent on automating upfront collections must keep in mind that technology goes hand in hand with a good process and the right talent. After all, it’s your staff that ensures the workflow is implemented appropriately.
Tame co-insurance chaos
Healthcare organizations that have achieved operational efficiencies by automating front- and back-end processes struggle with patients who don’t quite differentiate between their co-pays and their co-insurance. Where copays don’t count toward deductibles, co-insurance kicks in once the deductible has been met. Patients are confused about these two terms. Providing both co-pay and co-insurance information for patients ensures they don’t face any surprises. Patient confusion and the resulting refusal or inability to pay risk your receivables cycles running long and ending in bad debt.
Now that – for self-pay patients – full pricing transparency is the provider’s responsibility, these patients expect providers to let them know their full out-of-pocket responsibility amounts along with their co-pays. Soon enough, insured patients getting wind of self-pay patients’ advantage in learning all of their financial obligations up front, they too, will expect estimates up front. Some providers are already providing this service to all patients. The Health First hospital system in Florida took a proactive approach to upfront collections and started providing all of their patients with estimates pre-service. After increasing upfront collections by 27 percent, they achieved 2.7% net revenue in point-of-service collections, impressive given the industry benchmark is 0.7%.
With their new "100% estimate, 100% ask" protocol, Health First secured over $2 million in upfront collections. In their first month, they collected their highest percentage of pre-service revenue ever. This shift improved both their collection rate and their customer satisfaction.
Barriers to determining co-insurance
As occurs with co-pays, providing co-insurance information requires the pre-service staff to dig into payer contracts and patient details. With potentially dozens of payers to juggle and uncertainty about who’s responsible for conveying co-insurance details, a non-payment blame game between the patient and the physician group can ensue.
Benefits of providing co-insurance information
By working up pre-service estimates that include co-insurance amounts, physician groups reap meaningful benefits. A third-party partner known for accuracy not only provides patients with reliable co-pay information, it delivers co-insurance information as well. Patients appreciate knowing how close they are to meeting their deductible.
Further, according to Medical Billing and Coders, 92% of patients appreciate knowing their healthcare cost responsibility upfront. In today’s patient-as-fickle-consumer climate, keeping patients happy is paramount.
A foundation of operational efficiencies fuels perpetual growth
In the existing high interest rate environment, the return on investment of M&A is less appetizing than just a few years back. Many board rooms and management teams of MSOs are shifting focus to integrating practices they’ve accumulated and streamlining the operations of those practices. As a vice president of finance and accounting at an ophthalmology MSO shared with us:
“Back in 2018, 2019, we were growing quickly. It wasn’t a free-for-all, but we would reach out everywhere and say come join us. Unfortunately those practices, particularly the smaller ones, just don’t have the same return that they used to… The slowdown did allow us to focus on some of those synergies that we were probably not getting to previously. For instance, we had kept some practices on their old systems. We’ve taken the extended time to analyze all the data from our practices, which will be helpful going forward”
Most MSOs leaders understand that revenue cycle optimization fuels operational efficiency. McKinsey agrees, estimating that deploying automation and analytics alone could eliminate $200 billion to $360 billion of spending in US Healthcare, across the revenue cycle and other functions.
With taming bloated cost structures and improving net revenue the two most critical tasks physician groups must undertake today, more and more are replacing human capital with technology. As McKinsey’s Shubham Singhal predicts at the outset of this article, technology like AI, machine learning, and automation will go far in solving the healthcare staffing and inflation crisis.
While change always involves some stress, there is good news in the automation revolution. MD Clarity’s contract management solution RevFind and patient estimate solution Clarity Flow bring value to MSOs quickly. Further, these solutions consolidate information across practices into a single pane of glass for management to view and drive work from.
RevFind enhances your financial performance by centralizing your contracts and digitizing all terms and fees. This allows your staff to access the necessary data to ensure full reimbursement as specified in payer contracts and detect any underpayments. RevFind also compares your reimbursements to national standards such as Medicare. The analysis provides insights on contract performance metrics for each payer, enabling you to negotiate higher reimbursements based on competitive intelligence.
Clarity Flow simplifies insurance eligibility verification, generates accurate estimates of patient payments before services are rendered, and calculates co-insurance amounts. Request a demo to witness how our automation and operational efficiency solutions can benefit your MSO at any scale.