Profit Improvement Opportunities are Significant with Prices, Denials, and Costs
How are healthcare providers leaving money on the table?
What can healthcare providers do about it?
Compare Prices to the Prices that Comparable Providers Get with Health Insurance Payers
Healthcare prices are at a pivotal moment. The prices that healthcare providers get paid from commercial healthcare insurance companies for their services have never been published but are now publicly available. Although you must be a data scientist to figure it all out, there are steps that healthcare providers can take to leverage this information to improve their prices.
Requirements have recently been put in place for hospitals and health insurance payers to publish prices. This comes after a long history of unknown prices for what each healthcare provider (“Provider”) gets paid for each procedure by commercial insurance companies (“Payers”).
The Centers for Medicare & Medicaid Services (CMS) recently implemented requirements for prices to be published. The first rule requires hospitals to make payer-negotiated rates available to consumers in a machine-readable file (Hospital Price Transparency). The second rule requires healthcare insurers to make rates available for all services also in machine-readable format (Transparency in Coverage). Both rules have now been implemented.
How can healthcare providers improve their prices using this data that is now publicly available? They can benchmark their prices against similar Providers and use this information to negotiate with Payers to get better prices. A Provider can generate a list of commonly used procedure codes (e.g., CPT and DRG) and gather data on their prices plus the prices of other Providers that are similar to them. There are ways to get this information with the right support or by paying for it.
For example, a podiatrist in St. Louis can generate a list of common CPT codes such as 11750 for removing an ingrown toenail. The podiatrist can then see what similarly situated podiatrists in St. Louis are paid by commercial insurers for procedure 11750. If other podiatrists are getting twice the rate for procedure 11750 from a certain Payer as an example, then there is reason to question that Payer about the relatively low rate.
As explained in CenturyGoal’s blog on Wild West of US Healthcare Pricing, there are significant price variations across Payers, Providers, and procedures. The differences are significant. A RAND study confirmed this and illustrates significant variation in hospital prices.
Performing a quick analysis of a New York Times article provides an illustration of how big the price differences can be among Providers. “Hospitals and Insurers Didn’t Want You to See These Prices. Here’s Why.” covers differences among commercial payer rates. In addition, it touches on some price differences among hospitals. The article highlights two examples that are summarized below showing prices across major insurers that have been averaged among different healthcare providers for two different procedures: colonoscopy and magnetic resonance imaging (MRI).
These examples show significant differences in prices that different hospitals receive with major insurers. On average for major insurers, Memorial Regional hospital in Hollywood, FL gets 230% more than the University of Mississippi in Jackson, MS for a colonoscopy ($3,627 vs. $1,579). Mass General in Boston, MA gets 270% more for an MRI than Baptist Memorial in Memphis, TN gets for an MRI ($2,708 vs. $1,004).
Utilize a Collections Calculator to Quantify Biggest Areas of Denials and Solve the Root Causes
As explained in CenturyGoal’s blog on Denials Taking Big Bites of the Apple, healthcare providers’ bills get denied and are never paid by third-party payers 8-17% of the time across US geographic regions and are continuously increasing over time. It is estimated that 90% of denials are preventable and 65% are never worked. Now that’s leaving money on the table for sure!
Common denials include areas of patient registration and eligibility, insufficient medical documentation, lack of pre-authorization for patient services, billing and coding errors, services not covered, and much more. Frequent denials of payment on healthcare providers’ bills by health insurance companies can seem never-ending and impossible to overcome, but it can be managed with the right approach.
As explained in CenturyGoal’s blog on the Collection Calculator, generally any healthcare provider can utilize reasonably affordable and manageable digital solutions to deploy an approach and methodology used to identify and quantify the biggest denial area issues so that procedures can be put in place to avoid those denials.
The following are steps to properly use the Collections Calculator:
- Develop database of contractual rates by procedure for all (or at least most) Payers
- Collect data on all patient transactions for a selected historical period (e.g., last 12 months) and the amount actually paid for each transaction using 837 billing data and bank records
- Compare how much was paid to what should have been paid for each transaction based on the contractual rate (hypothetically, contractual rates total $1m vs. actual payments of $800k)
- Use 835 payer adjudication data to summarize the denial reasons that comprise the difference between what was paid and what was contractually owed ($200k in hypothetical example in point above)
Once the areas of denials are identified, processes need to be put in place to prevent denials. A real example includes a behavioral healthcare company that had a collections rate increase from 80% of contractual amounts to 86% of contractual amounts within just four months and went on to collect much more over time.
In other words, the company was collecting only $80 million for the $100 million it should have collected. This was determined by multiplying each visit times its contractual rate for the Payer associated with each transaction. Upon analyzing the $20 million shortfall, it was determined that $15 million of it related to three types of payment denials: credentialing; eligibility; and documentation.
These issues were immediately addressed by fixing the problems at the front end. Doctors that were not credentialed with certain Payers were not scheduled with patients of those Payers, patient eligibility processes were revised to include automated insurance verification upon scheduling appointments, and documentation issues related to certain Payers were identified and corrected through the billing process. This led to a $6 million positive annual impact to earnings within four months followed by continuous improvements thereafter.
Automate Tasks that are Performed Manually and have High Labor Costs
Those in healthcare know that the industry has not yet been digitally transformed according to John Glaser, an executive in residence at Harvard Medical School, and Ranil Herath, president at Emeritus Healthcare. Healthcare workers still use fax machines and perform tedious manual processes even in the “most wired” hospitals and clinics. They are continually frustrated by how poorly those technologies work together, and how difficult it is to extract needed data, much less combine data from multiple sources to achieve the insights they need to function day-to-day. Industry news and medical literature abounds with accounts of IT-related clinician burnout. However, there are many problems that technology can solve.
Boston Consulting Group (BCG) did a study titled Which Sectors Perform Best in Digital Transformation? The findings show that the healthcare industry is on the lower end of digital maturity among various industries. This suggests that there is still a long way to go for the healthcare industry. Moreover, the results show that Payers are far more successful than Providers with their digital transformation efforts. This makes it difficult for Providers to keep up with Payers as they are continuously automating the revenue cycle management process.
The good news is that there are reasonably achievable automation opportunities for Providers that can eliminate the lion share of time spent on administrative tasks and lead to higher profitability. Nearly a third of physicians say that they spend 20 hours or more a week on paperwork and administrative tasks, with overall average over 15 hours per week. This can be reasonably and quickly reduced to a fraction of this time.
There are many different functions that can be automated across operating processes and business processes. The illustration below covers several across functional areas.
Physicians say prior authorizations (72%), communications with pharmacists (71%), and provider credentialing (64%) are the biggest opportunities for automation. However, this appears to be just scratching the surface given all the opportunities that have been identified. The table below presents more statistics on how much further automation can go to create efficiencies for Providers.
Selected Provider Administrative Tasks and Percent Automated
Not only does automating administrative tasks improve profits, it also reduces healthcare worker burnout. Holon Solutions released survey findings revealing that 77% of healthcare workers are experiencing burnout with the top reason as not enough people to get the work done (70%). The survey also found that healthcare workers are spending 34% of their time on administrative work, which is a major contributor to burnout, and 72% stated that they would be very or extremely interested in technology that cuts down the time of administrative work, including 75% of nurses surveyed.
The points below are common primary steps that are taken with automating administrative processes:
- Interview the team members to understand the most common administrative functions
- Quantify time spent performing common functions and estimate the labor costs spent on performing the functions manually
- Do process mapping of the time-consuming functions
- Identify automation solutions and process improvements that improve value (e.g., reducing labor costs and freeing up time to see more patients)
The earnings improvement opportunities for Providers are substantial. Big money is left on the table in the areas of pricing, denials, and costs. Any Provider can take steps to improve these areas – all of which fully impact bottom line earnings.
- KFF – Claims Denials and Appeals in ACA Marketplace Plans in 2021
- CPHIMS Review Guide 4th Edition