How to Create a Digital Healthcare Reimbursement Strategy
Marc Griffin, Vice President, and James Cao, Senior Manager, Center for Operational Transformation, AVIA
The effects of COVID-19 on health systems cannot be understated. As new variants emerge and hospitalizations increase, health systems are being forced to adapt to the new reality driven by an unpredictable virus. Unfortunately, this reality includes drastically decreased revenue, driven in part by a slowdown in elective care, and increasing costs. One report by Kaufman Hall found that hospital revenue would likely be down by between $53 billion and $122 billion in 2021, forcing health systems to consider ways to cushion their razor-tight margins to survive through the pandemic.
To drive cost saving and revenue during the pandemic and beyond, leading health systems are looking for ways of optimizing their revenue cycle and patient financial journey. The 2020 CAQH Index estimates that of the $372 billion spent annually on administrative tasks in healthcare, $39 billion is spent on administering financial transactions alone. The industry can save $16.3 billion – or 42% of existing spending – by transitioning to fully electronic transactions across the patient financial journey. When strategically implemented, digital solutions focused on key aspects of the revenue cycle can reduce administrative costs and drive revenue, providing health systems with a much-needed financial safety net.
The patient financial journey represents the entire sequence of events that a patient experiences within a health system, from service cost estimation to patient bill pay. The journey touches both what is visible to the patient, like the bill pay system and initial cost estimates enabled by price transparency, and the behind-the-scenes revenue cycle functions completed by staff and automation to ensure a well-functioning financial system, like prior authorizations and financial clearance.
Much of the patient financial journey can be supported and optimized with digital solutions, both within existing EHRs and through third-party solutions. An AVIA analysis found integrating digital tools into the revenue cycle to manage patient bill pay, financial clearance, prior authorizations, and denials management can drive $25.2 million in savings annually for a sample health system*.
For health systems operating with razor-thin margins exacerbated by COVID-19, digitizing the patient’s financial experience can make an outsized financial impact, as well as improve the patient experience and reduce the administrative load on overextended staff.
Reimagining the revenue cycle and patient financial journey supported by digital can be daunting. To streamline their efforts, AVIA recommends that health systems focus on four key areas of the patient financial journey where digital has been proven to make an outsized financial impact.
Obtaining prior authorizations manually can cost health systems close to $11 per authorization, while digital-enabled prior authorizations cost less than $2. Health systems can turn to end-to-end intelligent automation solutions to aid in:
These prior authorization solutions can reduce administrative time spent on processing, reduce denials and write-offs, increase the volume of transactions, improve patient satisfaction and loyalty, and drive significant cost savings for health systems. An internal AVIA analysis found that a health system could have a potential savings opportunity of $4.6 million through implementing prior authorization digital solutions*.
While the majority of health systems currently have some level of digital financial clearance solutions, registration and eligibility is still the leading cause of denials, accounting for 23.9% of all denials. It’s also estimated that 81% of self-pay net revenues go unrecovered, leading to poor financial health and accounts receivable management performance.
To reduce denials and improve patient satisfaction, health systems should look to implement digital solutions in three primary areas:
Using digital financial solutions, health systems can drive revenue by increasing collection at pre- and point-of-service, reduce denials from inaccurate information, reduce FTEs needed for patient registration and financial services, and improve the patient experience. It’s estimated that digital solutions can reduce denials up to 50%, leading to a $7.5 million increase in revenue for the health system*.
With many health systems operating with razor-thin margins, the importance of collecting patient payments is essential. Even with 80% of patients saying they want the option to pay bills online, it’s estimated that 86% of patients still receive paper bills from their providers. Patient bill pay solutions are designed to improve the patient experience, increase payment received on balances, and reduce bad debt for patients.
AVIA recommends five categories of digital solutions to create a successful digital bill pay process:
When put into practice, these digital solutions can improve patient experience and loyalty, decrease the cost to collect, decrease bad debt expense, and improve a patient’s ability and propensity to pay. An internal AVIA estimate suggests that by increasing yield by 20% and decreasing the cost to collect by 50%, digital solutions can drive an $8 million financial impact for health systems*.
At the foundation of all digital revenue cycle activities lies a strong understanding of data and analytics. Aggregating, analyzing, and diagnosing the vast amount of data across key revenue cycle areas is complex, labor-intensive, and time-consuming.
Health systems are turning to digital analytics solutions to maximize their understanding of their data and a patient’s ability to pay to drive financial savings and assistance for patients. These digital tools allow health systems to segment the patient population according to insurance type, credit worthiness, social determinants of health, and historical consumer behaviors so they can provide more customizable payment options for patients, including those with high deductibles or high out-of-pocket balances.
When implemented, analytic solutions investigating insurance coverage and propensity to pay can tailor a payment plan for each individual consumer that drives increased collections and increases revenue. One solution reports a 29% increase in collection rate and a 95% retention in patients using short-term payment plans when digital analytics solutions were implemented.
While not technically part of the patient financial journey, health systems can make substantial improvements to their revenue cycle operations with digital denial management solutions. Generally, providers receive denial information from multiple sources and in multiple formats and most still rely on manual claims denial processes, leading to an average claim denial rate of 5-10%. To reduce denials, health systems are turning to digital solutions to manage:
Using digital solutions, health systems earn revenue from reducing denials/write-offs, see cost-savings from reduced FTE support needed for denials management, and improve volume and productivity in denials management. Based on an AVIA analysis, health systems can drive $5.04 million in revenue through denials management digital solutions*.
Infusing digital into your revenue cycle and patient financial journey is essential for improving the patient experience, driving cost savings, and exceeding revenue goals. If your health system is ready to emerge as a leader, the experts at AVIA’s Center for Operational Transformation are here to help.
We partner with health systems to help your team build the business case for digital action, design a digital strategy to tackle your revenue cycle challenges, find the digital solutions that address your unique needs, and more. Contact us today to learn more about how digital can transform your patient financial journey.
* Assumptions: A health system with a Net Patient Revenue of $2 billion and all cause denial write-offs 2.1% NPR, financial clearance denials write-offs 0.76% NPR, prior authorization denials write-offs 0.46% of NPR, and denials management write-offs 0.5% of NPR.