Revenue Cycle: Cost Center or Strategic Asset?

If a health system’s revenue cycle functions are viewed as a strategic asset, cost-effective technology investments and staffing to maximize that asset will follow.

The adage “You have to spend money to make money” is rarely applied to the health system revenue cycle function. But perhaps it should be, says Jeffery Hurst, senior vice president of finance at Florida Hospital, an eight-hospital system based in Orlando.

Traditionally, most health systems have viewed the revenue cycle as a cost center, and success has been evaluated on the ability to minimize costs. That approach may limit technology investments and staff that can make a financial impact on revenue cycle functions.

“Healthcare executives, especially finance executives, really need to start thinking about the revenue cycle as a strategic business unit, much in the same way as we think of a facility or a service line as a business unit,” he says. “If you begin to view your revenue cycle as an asset versus overhead, you begin to make strategic investments in that asset and you begin to develop and grow that asset.”

He cites two reasons for this new approach:

• Revenue collection is becoming much more complex as patients’ out-of-pocket responsibilities have increased.
• Per-episode payments are expected to decrease with the move to value-based payments.

That means that health systems can no longer tolerate inappropriate insurance denials, high levels of bad debt, and failure to find a payer source for uninsured patients who qualify for Medicaid or other coverage.

“You have to fundamentally look at the areas where you are rightfully entitled to payments and identify where there is leakage,” he says. “Then you have to think through where you need to make investments to put mechanisms and processes in place to capture that leakage.”

Investing for Strategic Success

One example: If the revenue cycle is seen as a cost center, hospital leaders will be reluctant to spend money helping it do its work. But if the revenue cycle is seen as a strategic business unit that is responsible for maximizing revenue collection, hospital leaders will view financial outlays to support its work as having a high return-on-investment.

For example, a few months before open enrollment for the health insurance marketplace began, Florida Hospital reached out to organizations responsible for helping people gain coverage. “We talked about investments that the hospital might make in those community organizations to provide them with the resources to launch more proactive, more thorough open enrollment campaigns,” Hurst says.

That is in keeping with Florida Hospital’s robust patient advocacy program. It spends approximately $2 million a year to maintain a staff of some 40 patient advocates that work with uninsured patients to identify payer sources. It also contracts with two vendors that help patients apply for Medicaid, bringing its total financial advocacy cost to about $3.5 million a year.

Those efforts reduce the hospital’s uninsured patient population from 14 percent to 7 percent.

“For the half we get qualified for Medicaid, we probably end up receiving in excess of $100 million a year in Medicaid payments,” Hurst says. “So we have a $3.5 million investment and a $100 million return on investment.”

Making the Pivot

Repositioning the revenue cycle into a business unit requires a different management approach.

“Once you make the argument that there’s a better value proposition by approaching the revenue cycle in this manner and you get the senior management team to accept that concept and make the investments, the burden of the responsibility then shifts to the revenue cycle to produce a bottom-line return,” Hurst says.

For some organizations, that will require improving the skills and expertise of staff members responsible for reducing revenue leakage. In Florida, Hurst sees insurance companies reworking their job descriptions for claims processors; within the next one to two years, he intends to follow suit.

“As they upgrade the skill of their folks to put more emphasis on areas like medical necessity, clinical criteria, and denials, and they have a more skilled talent pool to drive that, I believe hospitals are going to need to upgrade our talent pool as well,” he says.

Hurst believes new responsibilities—and a new pay structures—may be appropriate for front-line registration staff and back-office customer service staff, most of whom currently make between $12 and $14 an hour. “Maybe we should be hiring college graduates and paying $20 or $25 an hour,” he says.

Reading a script that asks for money will not suffice in many situations. Collecting money from patients requires “customer-centric” employees who can engage consumers effectively. “If you don’t understand something, you don’t engage with it,” Hurst says. “We must create that level of trust that breaks down barriers so patients can really understand the complexities and the nuances of healthcare bills. That takes a particular type of individual.”

While some current workers can be trained to succeed with the new responsibilities, Hurst believes the technical skills that made a good registration staff member five years ago might not be as important as the people skills a registrar will need in the future. Thus hiring staff for their critical-thinking skills, ability to understand the nuances of an individual patient’s situation, and judgment will be a priority.

“As the level of complexity continues to increase, we’re going to see more situations that are unique, so you really can’t take a one-size-fits-all approach to patients,” he says. “Staff are going to have to exhibit some level of judgment within the guidelines that we provide for them to make the right decision on how they ultimately want to resolve a certain situation.”

Interviewed for this article: Jeffery Hurst is senior vice president of finance, Florida Hospital, Orlando, Fla., and a member of HFMA’s Florida Chapter.