Building an Effective Cost to Collect Strategy
By Prashant Karamchandani (PK), Vishal Patel, Kathy Hughes
Today’s healthcare climate is pushing providers to be as efficient as possible. Every dollar, both from a revenue and expense perspective, matters more than ever before. Shifting to a model focused on value and quality necessitates healthcare organizations take a much closer look at their operating model, with recognition that what has worked in the past is not necessarily optimal today or in the future.
One area under increased scrutiny is revenue cycle management. Often structured as a shared services entity, the revenue cycle model can be perceived as a candidate for expense reduction due to being viewed as an overhead cost center vs. an engine that drives revenue performance. Before organizations emphasize the elimination or reduction of cost from revenue cycle operations, they should design a strategic, overarching plan to understand the full spectrum of options available to them that will drive improved yield and define the impact that these options may have on their revenue cycle operations.
According to the Healthcare Financial Management Association (HFMA),1 the cost to collect is defined as the total cost of operating the revenue cycle divided by patient service cash collected. The measurement of this metric and inclusion/ exclusion of key variables may vary between organizations, but for those aligning with the HFMA definition, the figure below includes the key parameters to know.
The Need for a Broad and Balanced Strategy
A common misperception with the reduction of cost to collect is that you must eliminate expense. Reduction in expense is certainly one tactic to impact cost to collect and optimal productivity should be consistently monitored and evaluated. However, the landscape of services and tools available to drive continued revenue performance improvement has dramatically changed over the last two decades and is continually evolving, often necessitating investment.
Within the revenue cycle, it often takes investments in resources (people, technology, vendors, etc.) to achieve a higher realization in net revenue. In these instances, for example, adding cost can be reframed as a positive provided the revenue collected outpaces the dollars spent, ultimately decreasing the cost to collect. However, if a reduction also erodes revenue capture and recognition, the “improvement” efforts may ultimately do more harm than good. In a simple illustration, a 1 percent reduction in cost on the same revenue would not be as favorable as a 1 percent increase in cost with a 5 percent revenue increase.
With the above in mind, The Chartis Group advocates that four primary opportunity areas be explored fully and concurrently with an organization’s leaders to develop a broad and balanced cost to collect strategy. This approach to improving cost to collect will be vital to an organization’s long-term sustainable success. Additionally, the strategy and plan should be assessed for how it will support and drive the organization’s overarching strategic plan and direction, to ensure alignment and mitigate the potential for counter-purpose priorities. The following graphic demonstrates the four areas, which are briefly delineated in the subsequent text.
Vendor Optimization and Automation
Undertaking a concentrated functional assessment that outlines an organization’s usage of core technology and third-party vendors, to emphasize current impact along with the financial and operational benefits that are left on the table, can illuminate an improvement path with meaningful return on investment and minimal cost increases. Assessing previously installed technology to identify optimization areas may increase productivity while reducing cost to collect without a large capital expense. Within the past two decades, the healthcare provider industry has witnessed a strong trend in EHR modernization. However, to reduce the go-live risk, providers have adopted out-of the-box functionality. While customizing current EHRs may carry maintenance concerns, tactical customizations may reap financial and operational benefits that outweigh any ongoing maintenance concerns.
Automation now enables us to take the human element out of simple, repeatable tasks to further reduce costs and/or redirect staff from tedious, necessary work to higher-impact, more complex tasks. Robotic Process Automation (RPA) has become a common strategy within the revenue cycle to increase efficiency and reduce costs. For more detailed considerations around development of a revenue cycle automation strategy, please see “Launching a Revenue Cycle Automation Strategy.”
Workforce Management and Virtualization
When organizations consider leveraging technology, the use case can often be justified by enhancements in how a process is completed. However, the use of technology can also create efficiencies in where a process is completed. Leveraging virtual desktops and remote sessions enable a reduced capital footprint by allowing staff to work remotely. As documentation—including correspondence, letters and EOBs—continues to be digitized across the revenue cycle, end-users have the ability to access vital documents through their computers to complete daily tasks.
While some may question if their staff can be as effective working from home rather than in an office setting, organizations have migrated staff toward a remote work environment in an effort to increase effectiveness and efficiencies. For example, the Cleveland Clinic found a work-from-home program improved employee productivity and engagement while reducing turnover and absenteeism.2 In industries that focus more on project-based work, productivity is measured by milestones and project accomplishment. In a revenue cycle environment in which productivity is measured by daily output, productivity reporting is vital to establish before moving to a remote environment. Incorporating productivity standards into informal and formal performance review processes will allow management to evaluate the effectiveness of a virtual work environment.
Outsourcing and Insourcing
In evaluating cost to collect performance, the use of external vendors to outsource work should always be assessed. Would consolidating the number of vendors performing the work result in a reduced contract price? Are there opportunities to outsource work not based solely on cost, but on performance improvement and reallocation of resources to work on other high-value tasks? When starting with a new vendor or renegotiating an existing contract, consider “at risk” fee structures or other types of partnerships that assure your outsourced receivables get the appropriate level of attention.
Using external vendors does not mitigate the need to manage the work and results. A vendor management structure with defined reporting, dashboards and targets using service level agreements (SLA) will keep goals and expectations top-of-mind for your company and the vendor. The SLA should include expectations regarding customer service, turnaround timelines, meeting and reporting frequency.
Concurrently, organizations should evaluate whether or not insourcing receivables can achieve the same or better results at a lower cost. Current vendor results and staff availability need to be analyzed to determine whether bringing outsourced receivables in-house is a viable option. Adding staff or redeploying staff from other areas as opposed to outsourcing work can also reduce costs. Factors to consider include the availability of experienced staff in your locale, the training needed and space available in your current location.
Operations and Performance
Revenue and cash can often be improved by focusing on operations and performance in current departments. “You can’t change what you don’t measure” is a phrase referring to the need to set targets, review performance and hold people accountable for outcomes.
The first step is to identify KPIs in the industry that most closely align with your unique operations structure, with definitions and benchmarks often flexing with whether or not you are a teaching institution, part of an integrated delivery system or a large medical practice. KPIs can also vary based upon the type of services you provide. By measuring your performance against those benchmarks, identified gaps will further guide the organization toward areas of improvement.
At the highest level, monthly or quarterly reporting of targets and results over time holds management and staff accountable and promotes transparency and problem solving. If a target is not performing to plan, leadership may be able to help remove roadblocks. Dashboards that show goals and performance are an easy way to communicate to leadership as well as other constituents that impact revenue and accounts receivable. Staff accountability at an individual level can be realized by developing productivity standards for each position and measuring performance against those productivity targets. For staff members that are not familiar with how their jobs impact revenue and accounts receivable, the first step may be general information about the revenue cycle, benchmarks and KPIs.
Additional options outside of those outlined can exist and more will continue to manifest in the future. Procuring these services or tools in the absence of a sound strategy can lead to misuse, poor adoption and additional costs. Understanding the various operational needs of the organization will help revenue cycle leaders shape the strategy and guide what options and services could have the greatest impact both individually and together. This strategy also supports better budgeting and financial planning.
Where to Begin?
Building an effective cost to collect improvement strategy starts with understanding the critical issues the organization is facing overall, with a focus on revenue cycle. It is imperative that the strategy ties into the organization’s overarching strategic plan as well as their specific goals for the revenue cycle. Defining and engaging key constituents and stakeholders supported by the revenue cycle will ensure that the resulting infrastructure (people, process and technology) aligns with the broader revenue cycle model. Outside of the core revenue cycle functions, one may consider stakeholders within clinical operations, care management, ancillary services, partnerships/joint ventures, etc., and include them in developing and vetting this strategy.
As previously outlined, there are an abundance of options available to manage the revenue cycle in a cost-effective manner. However, starting with a simple model and building from that will help create a sustainable platform that can be both scalable and nimble. It is important to build upon existing internal resources first and maximize their capacity. This includes both staff and technology. From there, the organization can incrementally add people, services and tools when needs present and there is a positive ROI.
Additionally, revenue cycle leaders should leverage resources and research available to help them understand the market for all of these options and the best way to deploy them. This means proactively engaging with peers to understand what is working for them, having a good handle on the market landscape for each of the various options and spending time on a diligence phase prior to putting pen to paper and creating the approach. Through the engagement of key stakeholders within the revenue cycle, along with others in the organization, plus a good command of what the market has to offer and what has been effective, you can start developing your cost to collect strategy.
Revenue cycle leaders have an abundance of options available to them to help manage their operations in a cost-effective manner, while driving the most value for the organization. Managing the cost to collect metric does not mean forgoing the latest technology or services that are offered in the market that have the promise of an ROI, nor does it mean inevitably reducing cost by consolidating resources and operations. The most efficacious way to manage the cost to collect is to start with a broad and balanced strategic approach, followed by being methodical and tactical in executing that strategy. The traditional trap is to skip that first step, and that step is the most critical component in helping manage the cost to collect. Spending time in a focused manner on developing your strategic approach will pay dividends in the long run, leading to an improved cost to collect ratio and more importantly, an improved yield.
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1. HFMA, MAP Keys, https://www.hfma.org/tools/map-initiative/map-keys.html, (Accessed February 6, 2020).
2. Heidi Peris, “Virtual Work Drives Productivity at Cleveland Clinic,” HFMA, October 31, 2017, https://www.hfma.org/topics/article/56637.html (Accessed February 6, 2020).
About the Authors
Prashant Karamchandani (PK) is a Principal with the Chartis Group in the Revenue Cycle practice. He has over 17 years of experience combining revenue cycle, strategic planning, business intelligence, technology and healthcare consulting expertise to provide innovative solutions required to enhance business and technical operations, accelerate revenue growth and produce actionable change. Mr. Karamchandani is a certified Project Management Professional (PMP), a Fellow with the Healthcare Finance Management Association (FHMFA), a Certified Revenue Cycle Representative (CRCR) and a Six Sigma Green Belt.
Vishal Patel is an Associate Principal with The Chartis Group in the Revenue Cycle practice. With more than 11 years of experience, Mr. Patel has worked closely with leading national and regional health systems and academic medical centers helping to redesign key revenue cycle processes from an operational and technical perspective to drive net revenue improvements. Mr. Patel has consulted in areas of clinical and operational performance improvement, operational readiness for system implementations and vendor selection and management.
Kathy Hughes is an Engagement Manager with The Chartis Group in the Revenue Cycle practice. Ms. Hughes is a results- oriented healthcare revenue management executive with over 30 years of experience serving healthcare organizations. Ms. Hughes has a unique skillset combining revenue cycle operations, project management/advisement, and information technology implementation with multiple vendor platforms including Epic and Cerner. Ms. Hughes’ expertise is in the provider setting in senior revenue cycle executive roles. She has worked with all levels of an organization and across functional lines. Ms. Hughes has expert capabilities at identifying and executing revenue management process improvements, resulting in millions in cost savings and cash realization.