Pivoting Revenue Cycle Efforts to Resolve New Financial Realities

The latest revenue cycle management trends cover the life cycle of patient interactions, starting with scheduling and coverage verification, authorization for services, coding and claims submission, and final payment processing.

Although these practices have successfully shortened the revenue cycle and optimized revenues, they won’t be enough going forward. Two key economic changes will affect revenues for health systems, hospitals, and clinicians. Both the continuing shift of financial responsibility to consumers and the imposition of financial risk on providers will change the levels and flow of money to providers, as well as who pays.

Focus on Insurance and Charges Misses Shift in Future Revenue Sources

Revenue cycle management fixes issues in the claims cycle and its originating charge process. Most revenue cycle strategies have an insurance-centric focus to ensure payment by health plans, Medicare, and Medicaid. The share of payment from these sources is or will be shrinking—or turning into financial risk—and the share of direct payments from patients is increasing.

The patient is the afterthought in revenue cycle strategies. Providers understand that patients are surprised and confused by the multi-party billings they receive after services. They also know the estimated cost of their services, although this information is not often shared with patients. Medical decision making is not facilitated by transparent pricing, episodic packages, or price arrangements in advance.

An All-Time High Consumer Financial Burden

Consumer medical debt and the share of medical expenses that insured consumers pay have never been higher. High-deductible catastrophic coverage plans are the norm, and new, scaled-back plans that exclude benefits once considered basic—like maternity coverage—are coming into play.

Without accounting for the increasing patient cost burden, bad debt from patients will become a bigger liability for providers than delays in claims reimbursement. That burden will become too big to fix with a back-end patient payment plan.

Payment plans may be effective in dealing with smaller scale copayments and deductibles for patients, but they don’t acknowledge what’s really happening in the market. Loss of coverage, medical bankruptcies, and high-deductible benefit plans create an affordability crisis that payment plans can’t resolve. Failure to recognize the shift in revenue source, with consumers’ increased financial burden will not only lead to less effective revenue cycle strategies, but also thwart providers’ efforts to increase consumer engagement and loyalty as accountable care organizations (ACOs) grow.

Financial Risk Is Emerging and Will Account for a Larger Share of Future Revenues

Financial risk also will have a greater impact than payment. Cost overruns will be harvested in retroactive paybacks under ACOs with downside risk, affecting both facilities and physicians. Specialists will receive set fees based on episodic payments. Over time, financial risk mechanisms will grow to represent the larger portion of revenues for all providers. We also may see the return of primary care capitated payments along with episodic payments to specialists. These will come from provider ACOs s well as health plans.

CMS has repeatedly broadcast its intent to move providers to downside risk, through alternative payment models such as ACOs, or through Medicare Advantage plans, and recently even through direct contracting. With Medicare representing an average of 25 percent or more of revenues, movement toward financial risk will affect the bottom line. Commercial health plans are moving in lockstep with Medicare.

Without Prepayment, Financial Risk Mechanisms Will Surprise Providers

The future financial risk scenario could catch providers by surprise and require return of monies to health plans or Medicare, or discounts on future payments to cover the shortfall.

Specialty physicians and facilities, including academic medical centers, will be more inclined to create attractive episodic care packages to ensure market share. The need for ACOs to achieve savings or pay back money will tighten referrals, so specialty providers will need to become more price sensitive to maintain patient volume. But specialists will be pressed to live within the financial limits of those episodes.

How Providers Can Get Ahead of the Curve

Revenue management in this environment must be more focused on preservation through reducing cost, incorporating control of the total episodic and per-patient costs, and predicting outcomes for longer-term savings. Future revenue strategies should integrate clinical innovations and customer service changes into a cohesive strategy that will account for consumerism and financial risk. That strategy must include the following two key components.

Programmatic or episodic packages of services with transparent pricing. Providers must address patient financial responsibility before services are provided. They will need to establish processes that encourage value-based medical decisions along with the financial commitment, by furnishing both value and cost information to patients. They can best do so by creating service lines and programs with all-inclusive costs.

As revenues become more aligned with total cost rather than individual charges, functional charges are less relevant. Fragmented provider services and billings make it impossible for consumers to anticipate cost. Equally important, sending separate billings for services and providers also obscures episodic and total cost to provider organizations—a detriment to their ability to succeed under financial risk.

Systematic support for value-based medical decision making between patients and providers. The healthcare production line currently focuses on provision of greater volume. The need for cost control and revenue receipt will help ensure appropriate services to patients who will benefit and engage in the treatment. The difference is that, to engage, patients must be able to weigh absolute treatment benefits, risks or harms, and costs. Physicians, who must be willing participants, will need to have the time and support to partake in the medical decision-making process.

Revenue strategies linked to historical payment responsibilities will become less beneficial to providers, and even be harmful to reaching their goals. Reassessing the direction that health care is likely to take is a tricky business, because policy shifts are frequent.

However, over the long term, health care appears to be headed for an uncertain economic future, affecting both providers and consumers. Rising costs will be addressed through limits on services or payments, or both. A strategy that is built on support for customers and better arrangement of services to those customers is likely to win.