Integrated, automated revenue management for managed care contracts - Managed Care

Healthcare Financial Management, April, 2002 by Kent Burckhart

Faced with increasing managed care penetration and declining net revenue in recent years, healthcare providers increasingly are emphasizing revenue management To streamline processes and reduce costs in this area, many healthcare providers have implemented or are considering automated contract management systems.

When selecting such a system, healthcare financial managers should make certain that the system can interface with both patient-accounting and decision-support systems of the organization. This integration enhances a healthcare provider's financial viability by providing integrated revenue-management capabilities to analyze projected performance of proposed managed care contracts and actual performance of existing contracts.

Revenue management is experiencing new life in today's healthcare environment for several reasons. First, managed care penetration has been on the rise for many years. Even healthcare providers in the smallest of markets now are negotiating managed care contracts. Second, providers' net revenue has been on the decline in recent years. The increasing number of fixed-rate contracts means providers no longer will be able to raise net revenue simply by raising the charging structure.

Fully integrated, automated revenue management can improve a healthcare provider's performance under managed care contracts by facilitating both the prospective review of managed care contract proposals and the deliberate, retrospective review of executed contracts. Throughout this article, "fully integrated revenue management" refers to the deliberate integration of the automated systems for patient accounting, contract management, and decision support.

When purchasing a system to automate the administration of managed care contracts, a provider ordinarily would demand that these systems be capable of interfacing with patient accounting systems. In addition, however, providers should require that the systems be capable of interfacing with their decision-support systems.

Similarly, many providers have robust decision-support systems that can administer managed care contracts but are incapable of prospectively calculating net revenue on patient accounts when bills are generated. Healthcare providers need one automated contract management system that prospectively calculates net revenue on patient accounts for the patient-accounting system and retrospectively calculates net revenue on patient accounts for the decision-support system.

Benefits of Integrated Revenue Management

Fully integrated, automated revenue management facilitates proper statement of accounts receivable, early identification of payment variances, thorough review of proposed contracts, retrospective review of executed contracts, and accurate, seamless contract management.

Proper statement of accounts receivable. A contract management system automatically will adjust the balance of the patient account to the net expected amount as soon as the bill is generated for the account, thereby ensuring that the value of accounts receivable is properly stated on internal financial statements without the need for the accounting department to estimate the value of the accounts receivable on the financial statements. A good contract management system will be able to administer all contracts, including those with the government and managed care organizations, so that all accounts are listed at net expected payment.

Early identification of payment variances. When all accounts are adjusted at the time of final billing for their net expected payment, the cash-payment-posting function can identify overpaid or underpaid accounts immediately, thereby allowing payment variance reports to be generated and reviewed on a routine basis so that timely investigations of payment variances can be undertaken.

Thorough review of all proposed contracts. Contract management systems that interface with decision-support systems allow details of proposed contracts to be reviewed before they are signed and executed. Proposed contracts can be loaded into the contract management system and their terms applied to claims already in the decision-support database. Because decision-support systems indicate both revenue and cost by patient account and service, proposed contracts can be analyzed for revenue requirements and overall contribution to net income after allocated expenses.

Retrospective review of all executed contracts. Fully integrated, automated revenue management allows all executed contracts to be thoroughly retrospectively reviewed on a routine basis. Net revenue can be recomputed by the contract management system at the time of review and compared with the original net revenue calculation for audit purposes. Actual payments then can be compared with the expected payments to verify that all payment variances have been researched properly. Full cost accounting can be applied in the decision-support system to ensure that the contract is performing as expected.

Accurate and seamless contract management. Contract management systems that interface directly with both the patient-accounting system and the decision-support system eliminate duplication of effort because the contract needs to be entered only into the contract management system rather than into separate systems for patient-accounting administration and decision-support analysis. This integration ensures that existing systems can administer all terms of the proposed contract so that it will not be necessary to build the contract in a separate system after it has been executed. Also, when the contract is signed and executed, integration of the systems can allow the contract to be applied to actual claims in the patient-accounting system within minutes. Finally, the need for training in two separate, unrelated programming languages for contracts is eliminated.