We’ve reached a critical pain point in healthcare where the cost of inaction is greater than the investment required to change. What’s brought us to this tipping point is a sorely unbalanced equation: not only are reimbursements declining, they also are becoming increasingly complex to manage. Meanwhile, millions of newly covered patients, funded at lower price points, are flooding the system. Factor in the increase in government compliance measures – such as Meaningful Use and additional quality measures – and the result is an operational model that appears to be unsustainable. In fact, we believe that organizations must maintain operating margins of 15% to 20% in order to counter lower, more complex reimbursements that are already beginning to occur.
Roles are changing to address these challenges. Payers are becoming providers, providers are becoming payers, and patients are becoming buyers. Hospitals are changing core competencies and assuming risk for patient populations. Making the environment even more challenging is the evolutionary process itself: health systems must continue to accommodate the traditional fee-for-service model while smoothly transitioning to value-based reimbursement.
There’s no way around it: to be successful, providers must reinvent themselves, and in a very real sense, do more with less. They are under pressure to improve quality, services and outcomes while reducing their cost equation. This is the second in a series of issues on how organizations are doing more with less. The first issue focused on operations, while this issue focuses on financial strategies to help meet the 20% margin requirement we know is coming.
Reinvention is Critical to Survival
As part of our Better Health 2020™ strategy, McKesson has identified four critical factors that we believe will help organizations define success under health reform through 2020 and beyond. From a perspective of improving overall business performance, information technology can be used to support efforts in addressing these factors by helping identify areas for cost savings, alignment to quality goals and better outcomes. And, the technology itself should demonstrate value with a low cost of ownership.
Below are ways that health IT can support these competencies through better financial strategies, ranging from point-of-service collections to service-line performance to the supply chain.
Optimize Performance and Quality – Finding System-Wide Efficiencies and Cost Reduction
Successful health systems will use actionable intelligence to fully understand the impact of clinical decisions on the supply chain. In a Hospitals & Health Networks® (H&HN) article, “Strategic Supply Chain Management,” Deborah Sprindzunas, executive director of the Association for Healthcare Resource & Materials Management (AHRMM), estimates that around the year 2020, the biggest hospital/health system expense will be in its supply chain, surpassing labor expenses.
For example, physician preference items (PPI) can vary widely by physician, even for the same procedure. Some PPIs contribute to variability in care along with the high cost of supplies. Because physicians value evidence, when data proves that lower-cost supplies support positive outcomes, behavior change will follow.
Additionally, scheduling and resource management tools help optimize system-wide efficiencies for better performance. And integrated clinical and financial data reveal opportunities to remain competitive across service lines.
Coordinate Care – Aligning Financial and Quality Goals
In order to improve or maintain high quality and performance while optimizing reimbursement, it is essential to engage physicians in clinical outcomes initiatives and population management strategies. Partnering with other community stakeholders enables you to align your financial and quality goals, and coordinate care across settings. And, by using analytics to identify best practices in terms of quality and cost, organizations can design care plans that direct patients to the most efficient settings and providers in the network.
Navigate Evolving Payment Models – Using Analytics to Improve Effectiveness and Outcomes
As you prepare for advanced payment models, you should ensure the fundamentals of your revenue cycle are firing on all cylinders. In the new world of high-deductible plans and greater patient responsibility, ensuring accurate, timely reimbursement is more important than ever.
- Verify eligibility and payment responsibility upfront to avoid bad debt, and reduce denials and collection efforts later. With greater numbers of Americans now covered by health savings account (HSA)-eligible insurance plans, it is important to be able to identify this payment source pre-service so that patients can manage their medical budget effectively.
- Collect copays at the point of service to help secure reimbursement and reduce the need for patient follow-up.
- Proactively model contracts to ensure cost-effective reimbursement for services
- Automate processes wherever possible to increase efficiencies, including billing and invoice processing
As payment models evolve, organizations can use enterprise intelligence from its core data to support efforts to reduce costs while improving efficiency and outcomes. Rather than invest in areas that already are doing well, analytics can point to the areas where you need to focus. To be ready for the future, you need to ask yourself the following questions:
- Do your analytics combine clinical and financial data for analysis?
- Can you quantify cost against claims and costs per episode?
- Can you model fund disbursement across the care team as bundled payments become the norm?
Maximize Technology’s Value – Connecting the Dots to Help Reduce Complexities and Cost
To be successful as operating budgets tighten, you must review your technology to reduce your total cost of ownership (TCO), and consider both direct and indirect costs of your operations. A single-database solution uses less hardware and fewer IT resources, helps to reduce redundant data entry and provides physicians with a single point of access to patient information. An easy way to maximize the value of technology you already have is to review existing solutions to be sure you are maximizing your current investments.
As regulatory, financial, clinical and consumer pressures force healthcare organizations to deliver more effective and efficient care, healthcare IT becomes an even more important enabler. Health IT can assist organizations in streamlining workflow and helping reduce complexities and costs. When forward-thinking hospitals connect the dots — integrating key revenue cycle and clinical solutions, and surrounding them with connectivity — real-time, actionable data becomes visible to all stakeholders for performance improvement.
A Vision of the Future State of Care Delivery
As the saying goes, a “picture is worth a thousand words.” Consider this scenario of a care episode under an accountable care model of delivery and how technology can lead to not only better clinical outcomes, but better financial outcomes as well.
Jane Smith has hurt her knee. She enters the health system at an urgent care center near her home. Based on her exam, the provider follows a care plan developed by the organization using analytics based on best practices data from outcomes. The physician orders an x-ray rather than an MRI, saving money and radiation to the patient. Results show Jane needs surgery. The heath system will be accountable for her outcome through a process that bundles all the payments and incents the organization to achieve better outcomes at a lower cost.
Using advanced supply chain analytics, the health system has educated and collaborated with Jane’s physician’s group to use standard (less expensive, but effective) supplies for this procedure. Using data analysis about outcomes performance by care settings, the health system elects to schedule surgery at its off-site surgery center, saving money and providing Jane with a faster, less complex experience. Using telehealth and a patient contact center, the health system monitors Jane’s progress and compliance with her therapy regimen. Follow-up contact helps assure that Jane has the best possible outcome and will remain connected with the health system for future needs.
In this scenario, health system administrators know the true cost of providing care to Jane. Their investment in health IT provides the enterprise intelligence, connectivity and ability to manage resources that enables them to continually improve quality while keeping costs down. In addition, analytics help them understand how their results compare internally and to competitors.
While impending industry changes are daunting, they are arriving at a rapid pace rather than over night. However, inaction or unfocused action isn’t an option. Now is the time to take stock, strategically harness the power of technology, and bring clinical and financial solutions together with a patient-centric focus. That’s when doing more with less will no longer be a pain point. Instead, it will have become standard operating procedure.
12 Strategies to Improve Financials
Below are just a few of the strategies for improving financials that have been recommended by experts and peers in Performance Strategies.
- Use an analytics solution that combines both clinical and financial data to support true enterprise intelligence
- Know your cost per episode and across settings of care
- Understand the impact of clinical decisions on your supply chain
- Engage physicians in clinical outcomes initiatives and population management strategies
- Cultivate physician leadership and develop new physician compensation models that reward higher-value performance
- Partner with other community stakeholders to align your financial and quality goals, and coordinate care across settings.
- Design care plans that direct patients to the most efficient settings and providers in your network.
- Proactively model contracts to manage risk and help ensure cost-effective reimbursement for services
- Improve point of service collections to help reduce A/R days and bad debt.
- Identify variations in clinical practice patterns and their financial impact
- Use data to better predict utilization patterns and cost trends across populations
- Use scheduling and resource management tools to help optimize system-wide efficiencies