Increasing revenue through A/R recovery, Revenue-Cycle redesign - the example of Capital Health System - Company Profile - Statistical Data Included

Healthcare Financial Management, Nov, 2001 by Timothy Graham

After experiencing operating losses of more than $15 million and a growing number of days in accounts receivable and payment denials, Capital Health System implemented a multidisciplinary recovery program to redesign its revenue cycle. The system reorganized its business office staff, outsourced some. collection activities, and stepped up its efforts to review coding, analyze billing errors and edits, update its charge description master, and track payment denials. Although this work is ongoing, during the initial revenue-cycle redesign, the system increased its cash flow by more than $30 million and increased patient-service revenue by 7 percent annually between January 1999 and July 2001. Capital has received more than $10 in new collected revenue for every dollar spent on accounts-receivable recovery and revenue enhancement.

Since 1996, New Jersey healthcare organizations have seen a continuously increasing amount of clinical and administrative payment denials from the state's managed care organizations. In addition, the New Jersey healthcare market has migrated away from closed-panel HMOs to a point-of-service, "any-willing-provider" scenario. The loss of revenue associated with these changes has further eroded an already reduced revenue base and manifested itself in hospitals overstating their estimated realizable accounts receivable.

In August 1998, Capital Health System, Trenton, New Jersey saw the need to address problems in its revenue-cycle process. Capital is a two-hospital health system with 500 inpatient beds and annual revenues exceeding $260 million. Serving the communities of Mercer County in New Jersey and lower Bucks County in Pennsylvania, Capital offers a range of hospital services, including an expanding trauma program, maternity orthopedics, noninvasive cardiology, renal dialysis, and psychiatry

During 1997 and 1998, Capital's estimated realizable net accounts receivable and net patient service revenue were materially overstated. In addition, Capital had a significant amount of aged accounts receivable and unrecorded payment denials, and was understaffed in the patient financial services (PFS) division. By involving a multidisciplinary team composed of representatives from registration, case management, and patient accounts to redesign its revenue cycle, Capital increased cash flow by more than $30 million and increased patient-service revenue by 7 percent annually from January 1999 through July 2001 (see Exhibit 1) despite both declining inpatient volume and increased clinical payment denials. Capital also reduced bad-debt expense by $6 million between January 1999 and June 2000, representing a 20 percent drop.

The resources invested in the revenue cycle and efforts to control the growth of expenses over the past two years have mitigated the operating losses from 1998 and 1999, which exceeded $15 million, and have resulted in a 2 percent gain from operations through July 2001.

Capital's Recovery Program

Recognizing that it was experiencing a significant loss of revenue in addition to payment delays, Capital implemented a plan to increase revenue and cash flow The system views its PFS division as both a revenue center and a cost center; thus, Capital measures the division's contribution by the additional cash flow and new revenue it brings in, net of the new expenses incurred to generate that revenue.

Capital's recovery program includes the following components:

* Involve physicians' office staff in the effort to increase revenue and enhance physician communication;

* Review lost and late charges;

* Analyze electronic-billing errors and edits;

* Update the charge description master (CDM) for market pricing and readiness for ambulatory payment classifications (APCs);

* Review medical-record coding;

* Reduce the number of unbilled accounts;

* Track payment denials;

* Dispute arbitrary and capricious payment denials;

* Conduct payment audits;

* Enhance customer service;

* Reassign internal staff to work current claims;

* Outsource collection of all outstanding managed care claims older than 90 days;

* Outsource claims collection for uninsured patients; and

* Emphasize a team approach to dealing with day-to-day issues, such as audits, software and hardware upgrades, and staffing shortages.

Involve physicians' office staff Although the hospital's revenue cycle typically begins at the time of a patient's registration, the revenue cycle could be considered to begin in the physician's office, even before scheduling. Physician office staff should know details of what services each payer covers to register patients accurately.

To improve communication with its physician offices, Capital periodically hosts luncheons for physician office managers to discuss current issues and provide managed care updates. The system also sends its physicians a quarterly newsletter that explains changes to the hospital's managed care contracts and meets with medical staff leaders to discuss issues affecting both them and the hospital. Physicians typically want to maintain a positive relationship with hospitals and will work with and support management when they understand the issues and the actions taken.