Improving cash flow with better charge capture and denial management: this project is a collaboration effort by MedAssets and the Healthcare Financial Management Association

Healthcare Financial Management, Oct, 2005

It might seem impossible that a patient would undergo hip-replacement surgery without anesthesia, but it's been known to happen. Likewise, there have been cases of surgery to implant a pacemaker without the actual pacemaker. Or at least that's the impression you might have upon noticing such items glaringly missing on the bills sent by the healthcare provider.

The situation is almost humorous, if it were not so serious. Hospitals across the country lose multiple millions of dollars every year due to mismanagement of the billing process. The reasons range from inaccurate charging, such as undercharging for a service or procedure or missing a charge altogether, to sending out claims that are for various reasons deemed inaccurate by the insurance carrier and therefore denied.

"Denials management is uppermost in everybody's mind," says Kim Newland, director of patient financial services for Lexington Clinic, Lexington, Ky., a multi-specialty clinic with 21 branches in nine Kentucky counties. "It's been a huge, huge topic of discussion with just about everybody for the past five years now."

These service and item omissions and claims denials generally stem from an unhealthy mixture of unwieldy process, improperly trained employees, and inadequate technology. Fixing the billing problem, therefore, means determining the underlying causes and then directing resources toward those areas.

Whether the solution involves instituting new procedures, improving staff training, or implementing new software systems, the benefits should be obvious. Accurate charge capture and claims denial management processes mean not only improving cash flow, but also protecting revenue that the provider is entitled to--and that all adds up to a healthier bottom line.

Who Knew?

No matter the size of the organization, billing inconsistencies affect all healthcare facilities to some degree--even those that are on top of the problem. On average, providers lose 5 percent of gross revenues, and that can translate into millions of dollars for a single organization.

"There's no hospital in this country that is accurately charging for all the services it provides. There's none," says Joe Pajor, executive director of patient access and business services at Stamford Health System, Stamford, Conn.

Getting paid for all the services and supplies that a hospital provides would seem like an elemental strategy in order for any hospital to function, but many CFOs are not even aware of the scope of the billing mismanagement issue.

While those in finance positions may know that their hospitals cannot stamp "paid in full" on every claim, Pajor believes the industry in general is not being proactive in implementing measures that will ensure accurate charging and reduce the amount of denied claims.

"And I think that's because a lot of CFOs still say there's not that much money there," says Pajor, noting that some CFOs brush aside the issue, arguing that so many services these days are paid on a fixed rate case basis anyway.

That may be true, but Pajor still believes that many CF Os are missing the point, if not the dollar sign.

And, he should know. Pajor says that by better managing Stamford's billing processes, the hospital was able to recover approximately $750,000 in net revenue that otherwise would have been lost. He says total net revenues for Stamford are about $240 million.

"So, it's significant," he says. "In this day and age, you start looking at the nickels and dimes, they add up. They add up over time."

One study by America's Health Insurance Plans found that 14 percent of claims submitted to payers are denied and one out of every seven claims had to be resubmitted, appealed, or written off by providers. That represents millions of dollars in lost revenue that some CFOs aren't even looking for.

Aside from the direct impact from the loss of revenue, there's an additional impact on resources because of the expense associated with reprocessing denied claims.

Even for hospitals where billing problems have not had such a major impact on the bottom line, accurate charge capture and managing denied claims are priorities. "We do see implants occasionally that are missed; we see high-cost drugs that could be missed, even services like OR time and recovery charges," says Tony Lantzy, assistant vice president, finance chargemaster, for Carolinas HealthCare System, which includes six owned and an additional eight leased and managed healthcare facilities, based in Charlotte, N.C.

However, because so many of these services are paid based on diagnosis-related group and not based on the actual charge, the impact on the health system's bottom line has not been so significant, Lantzy says. Nevertheless, he realizes the importance of accuracy.

"We want to accurately reflect our cost to the insurance companies," he says. "We're not doing ourselves any favors by not reporting our costs."

With profit margins squeezed so tightly in the healthcare industry, it's hard not to think that any loss of revenue would not affect the bottom line, adds Dave Cavell, business office director of Chelsea Community Hospital, Chelsea, Mich., which has 124 licensed beds and specializes in pain management.