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Running head: APPROACHING REVENUE CYCLE MANAGEMENT 1 Stephanie, This paper was to: introduce the issue; define the problem; analyze the problem; evaluate possible solutions; develop an implementation plan; and justify why and how your solution will solve the identified problem. You did a fantastic job on this paper. This paper was thorough and complete. I appreciated your conclusion and can use this information in the future. You did good research. See the rubric and comments for details. Congratulations, you did a superb job! Mary Category Point s % Description Documentation and Formatting 30 15 A quality paper will include a title page, an abstract, proper citation, and a bibliography. Organization and Cohesiveness 40 20 A quality paper will include an introduction based upon a well-formed thesis statement. The logical order of the content will be derived from the thesis statement. The content will be properly subdivided into sections derived from the outline. In a quality paper, the conclusion will summarize the previously presented content and will complement the thesis statement from the introduction. Editing 30 15 A quality paper will be free of any spelling, punctuation, or grammatical errors. Sentences and paragraphs will be clear, concise, and factually correct. Content 100 50 A quality paper will have significant scope and depth of research to support any statements. Relevant illustration or examples are encouraged. A quality

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Page 1: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

Running head: APPROACHING REVENUE CYCLE MANAGEMENT 1

Stephanie, This paper was to:

introduce the issue; define the problem; analyze the problem; evaluate possible solutions; develop an implementation plan; and justify why and how your solution will solve the identified problem.

You did a fantastic job on this paper. This paper was thorough and complete. I appreciated your conclusion and can use this information in the future. You did good research. See the rubric and comments for details. Congratulations, you did a superb job! Mary

Category Points % Description

Documentation  and Formatting 30 15 A quality paper will include a title page, an abstract,

proper citation, and a bibliography.

Organization and Cohesiveness 40 20

A quality paper will include an introduction based upon a well-formed thesis statement. The logical order of the content will be derived from the thesis statement. The content will be properly subdivided into sections derived from the outline. In a quality paper, the conclusion will summarize the previously presented content and will complement the thesis statement from the introduction.

Editing 30 15

A quality paper will be free of any spelling, punctuation, or grammatical errors. Sentences and paragraphs will be clear, concise, and factually correct.

Content 100 50

A quality paper will have significant scope and depth of research to support any statements. Relevant illustration or examples are encouraged. A quality paper will employ sound use of reasoning and logic to reinforce conclusions.

Total 200 100 A quality paper will meet or exceed all of the above requirements.

Page 2: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 2

APPROACHING REVENUE CYCLE MANAGEMENT

Stephanie D. Walker

HSM 543 – Health Services Finance

June 21, 2015

Professor Mary Black

Page 3: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 3

Table of Contents

Page

1. Abstract.............................................................................................................................3

2. Introduction – Overview of Healthcare Account Receivables................................4 - 5

3. Problem Statement......................................................................................................5 - 7

A. Description of Issuesa. Improperly structured securitization of receivablesb. Lack of formal process improvement methodologiesc. Varying performance metricsd. Poor revenue cycle leadership

4. Literature Review.......................................................................................................7 - 9A. Success under reform through revenue cycle excellenceB. A reform-era revenue cycleC. Achieving revenue integrity in hospitals and health systemsD. Integrate your revenue cycle

5. Recommendations.....................................................................................................9 - 11A. Description of Alternatives

a. Improving cash flow through benchmarkingb. Increasing revenue through A/R recovery, revenue-cycle redesignc. Updating financial policy to include patient financingd. Securitization

6. Implementation ......................................................................................................11 - 12A. Monitoring and Control

7. Summary.........................................................................................................................12

8. References................................................................................................................13 - 14

Page 4: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 4

Abstract

The American Hospital Association asserts that approximately one-third of the hospitals

in the United States (U.S.) are losing money; another third are barely breaking even. This type

of vulnerability to economic pressure makes it difficult for hospitals and health systems to attain

high performance. As a result of new reform, effective hospital revenue cycle management

practices have grown in significance in the hospital business environment. Historically, hospital

revenue cycle management has concentrated on reducing the average collection period; a shorter

average collection period infers that cash in-flows from providing patient care are received

earlier. Though the traditional focus was on back-end tasks such as billing and collections,

today’s financial managers are directing more of their attention to the front end of the revenue

cycle in order to improve back-end performance - generate more patient revenue and collect

receivables in a more timely manner. Revenue cycle management is critical to the success of

today’s hospital. Healthcare finance leaders are striving to understand each component of a

revenue cycle assessment by researching the best practices from other industries to better

understand and adapt similar principles in managing accounts receivable.

.

Mary Black, 06/21/15,
Citation needed
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APPROACHING REVENUE CYCLE MANAGEMENT 5

Introduction – Overview of Healthcare Account Receivables

Although healthcare organizations have been able to make advancements in the revenue

cycle over the course of time patient accounts receivable continue to represent the largest item in

the current assets section of the balance sheet. Further, while providers understand the

importance of liquidity many managers remarkably neglect to take the steps necessary to

improve their liquidity position. Undoubtedly, there are a host of uncontrollable factors that may

undermine a hospital’s endeavors to generate cash flow: payer reimbursement, economic

conditions, competition, cost and supply of labor, demographics, etc. Yet, a consistent focus on

improvement establishes competence and attentiveness and focus.

Challenges to increase liquidity resulting from the Affordable Care Act (ACA), an

increase in the numbers of self-pay patients, and the evolution of high-deductible health plans

presents an unclear revenue picture for healthcare providers throughout the country and is

forcing managers to face the daunting task of significantly reducing bad debts or days in

accounts receivable. And, while state budgets are showing improvement and “integration of

technology, such as electronic health records, holds great long-term promise” (Dickey, R., 2013)

Medicaid reimbursement programs remain ambiguous. Therefore, given the vagueness of

“supply/demand, pricing and expenses,” (Dickey, R., 2013) providers must make every effort to

increase cash flow through circumstances that are within their power.

More frequently than not, healthcare organizations experience inadequate cash flow due

to improper management or to the lack of a sustainable accounts receivable process. According

to Devendra Saharia (Saharia), key performance indicators (KPIs), a set of quantifiable measures

that compare performance in terms of meeting strategic and operational goals are a

recommended approach. Saharia further asserts that, “In the current environment, with

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APPROACHING REVENUE CYCLE MANAGEMENT 6

implementation of the Affordable Care Act (ACA) and the transition to value-based pricing well

underway,” (Saharia, D., 2014) the following five KPIs will have the most influence on accounts

receivable (A/R) and cash flow:

1. Cash Ratio

2. Medicare Billed A/R over 30 Days

3. Third-Party Aging over 90 Days

4. Bad Debt Expense

5. Customer Experience

All things considered, not only is recognizing the necessity of a high-performing revenue

cycle essential, it is equally as indispensable to have strategies in place to achieve bottom-line

improvement. Consequently, this essay will speak to the problem of a poor performing accounts

receivable revenue cycle, identify key, provide a literary review, make recommendations on how

to successfully convert account receivables into cash, and outline an implementation strategy.

Problem Statement

The performance of accounts receivable is a measurement of the financial strength of a

hospital or health system. The longer receivables remain outstanding, the less money the

organization has for payroll, expenses, expansion, and investment. Inadequate revenue cycle

performance makes it more difficult to forecast cash flows and may bring about the need to

create larger cash reserves in order to honor commitments. There is no way for a hospital to be

certain that it is doing the best job maintaining the efficiency of its revenue cycle if it neglects to

assess the significance of a high-performing revenue cycle (Yarsinsky, J., 2015). Failure to

preserve a viable revenue cycle process – misunderstanding the impact revenue cycle decisions

have on the financial outlook of an organization is often the result of:

Mary Black, 06/21/15,
Good topic and introduction!
Page 7: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 7

1. Improperly structured securitization of receivables

2. Lack of formal process improvement methodologies

3. Varying performance metrics

4. Poor revenue cycle leadership

Healthcare providers are able to access an additional funding source when their

receivables are soundly structured. Securitization of receivables allows providers to convert

future receivables into an immediate advance of cash. It gives providers the “tool to manage

cash flow, reduce borrowing costs, and maximize value” (Spradling, M., 2003). However, it is

important that securitization of receivables is properly structured. Establishing the appropriate

structure requires an understanding of “Medicare and Medicaid receivables as well as private

insurance receivables” (Spradling, M., 2003). Further, HIPAA (Health Insurance Portability and

Accountability Act) privacy standards play a critical role in securitization. Though, the

standards permit the use and disclosure of protected health information securitizations must be

carefully structured to protect the value of receivables being transferred (Spradling, M., 2003).

The Healthcare Financial Management Association asserts that no matter the process

areas selected for improvement high performance relies on proven redesigned methodologies.

Formal process improvement requires that high-performing teams be assembled to “examine,

measure, and improve on current processes. Team composition may include revenue cycle staff,

non-revenue cycle business staff, clinicians, and process engineers” (Healthcare Financial

Management Association, 2009). While there is no conventional methodology employed in

healthcare, “creating a framework and a high level of rigor around process measurement and

redesigns is what is important” (Healthcare Financial Management Association, 2009).

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APPROACHING REVENUE CYCLE MANAGEMENT 8

The absence of discernment of the impact revenue decisions have on the overall financial

outlook is also related to the following: (1) the metrics used by the revenue cycle team to

measure performance and (2) poor revenue cycle leadership. When performance metrics are

inconsistent with the concerns of the central finance office it leads to revenue cycle and finance

functions having different priorities (Clark, K., 2012). Overcoming this issue requires the

implementation of a standardized financial reporting and revenue cycle monitoring platform.

This facilitates a more accurate estimation of accounts receivable reserves, streamlines the

month-end closing process, and reinforces internal controls. Successful implementation of a

revenue cycle solution relies heavily on leadership support; gaining the sponsorship of senior

leadership is a critical step. “Depending on the hospital or hospital system and its size, the

steward of change should be the CFO (Chief Financial Officer) or vice president of revenue

cycle or patient financial services” (Callahan, M., 2008). Developing a philosophy of revenue

cycle excellence starts at the top – elevating the visibility of the revenue makes an immense

difference.

Literature Review

In the research article by Thiry, Evans, Walter, & Ramanathan (2011) suggestions to help

hospitals and health systems improve their revenue cycle performance were presented: (1)

collecting patient responsibility amounts up-front, (2) reducing the balance of credit accounts, (3)

limiting no-shows by pre-registered patients, and (4) identifying and managing unbilled accounts

receivable (Thiry, et al., 2011). It was also asserted that clinical coding; clinical documentation

improvement (CDI) and information technology (IT) would play significant roles as hospitals

prepare for healthcare reform (Thiry, et al., 2011). The story also hypothesized that after all

elements of the revenue cycle are assessed, the next step involves the expansion of a detailed

Mary Black, 06/21/15,
You did a very good job on this section
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APPROACHING REVENUE CYCLE MANAGEMENT 9

work plan that guarantees the implementation of all recommendations. More pointedly, the

narrative implied that “Too many hospitals make hope a strategy in a reform era when they

should be seeking opportunities for bottom-line improvement” (Thiry, et al., 2011).

Another article relative to healthcare reform in the United States (U.S.) asserted that

while the law was created to ease the bad debts of service providers it is likely to relieve revenue

cycle pressures Healthcare Financial Management (2010). The study submitted that instead of

depending on clinical personnel whose primary job is patient care, hospitals should focus on

revenue cycle initiatives that propel optimal performance: charge capture, pricing, and patient

access. Further provide in the article were the following opportunities for improving accounts

receivable during the era of reform:

1. Certifying patient financial communications are reader-friendly and clearly establishes

expectations;

2. Offering convenient business office hours and a variety of methods for receiving

payment;

3. Instructing patient admission staff on the importance of point-of-service (POS) cash

collection;

4. Reinforcing financial assistance eligibility screening;

5. Prioritizing back-end collection efforts; and

6. Benchmarking revenue cycle performance to identify and address disputes close to time

of occurrence (Healthcare Financial Management, 2010),

The next topic in relation to approaching revenue cycle management is addressed

according to revenue integrity. Schoen & Najera (2012) offered that hospitals across the U.S. are

discovering that sustainability amidst the reductions in payment requires revenue optimization

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APPROACHING REVENUE CYCLE MANAGEMENT 10

through the enhancement of revenue integrity. In a 2011 survey sixty percent of healthcare

executives responded that “revenue integrity is essential to their organization’s financial health,

while another 5 percent said they were investigating organization models supporting revenue

integrity” (Schoen, et al., 2012). The study further revealed that the following areas: operational

efficiencies, charge capture and coding, and denials prevention provide the best opportunities to

improve financial performance (Schoen, et al., 2012).

The final topic relative to a high performing revenue cycle discussed integrating the

revenue cycle. Morrissey (2011) cited that because the revenue cycle is a pivotal part of

business hospitals and health systems must “liberate claims payment and collection functions

from the financial silo and incorporate within health care services one inclusive revenue cycle

that starts before the patient shows up and ends when the account has been closed (Morrissey, J.,

2011). The article stressed that while accountability resides with finance, success of the revenue

cycle requires commitments from colleagues throughout the health system. Specifically, the

clinical and financial worlds must interact. Tensions must be resolved so that the clinical staff is

equally as concerned with patient care as with finances (Morrissey, J., 2011).

Recommendations

Revenue cycle success does more than enable health care organizations to keep the

electricity on. It supports operational and financial improvements, enriches patient services and

strengthens the potential for financial gains; financial gains support long-term strategic success.

Accomplishing revenue cycle success is comprised of more than taking a shot in the dark –

bottom-line attainment involves more than balancing the books. Health care leaders must have a

clear picture of where they want to go which involves considering and implementing multiple

processes.

Mary Black, 06/21/15,
This Literature Review is well done
Page 11: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 11

Benchmarking, a term pioneered in 1970 by Xerox Corporation has become a common

practice among “forward-thinking healthcare organizations” seeking to advance, shift, and

invigorate their facilities in order to stay competitive in the healthcare industry. The following

techniques are most common relative to benchmarking: (1) studying the accounts receivable

statistics of exemplary healthcare organizations; and (2) visiting exemplary organizations to get a

first-hand look at how they conduct business. Benchmarking is important because the healthcare

industry is “in the midst of a paradigm shift” and being among the best performers is essential to

survival (Nelson, B., 1994).

The ability of a healthcare provider to collect all of the cash to which it is entitled calls

for more than a functional billing and collections process. Studies indicate that most write-offs

are the result of issues that originate prior to the generation of a claim by the billing department.

Therefore, in addition to benchmarking it is recommended that a health system implement a

multidisciplinary recovery program to redesign its revenue cycle. The typical recovery program

reorganizes business office staff, outsources some of the collection activities, increase efforts to

examine coding, analyze billing errors, update its charge master, and trace payment denials.

Though the work is continual during the initial redesign process the potential for cash flow

increases significantly. Timothy Graham offers that “Considerable net revenue can be gained by

enhancing the revenue cycle” (Graham, T., 2001).

In recent years a market research study provided that 32 percent of patients

acknowledged that in the absence of a clear payment solution they expect their healthcare

provider to function in the role of a financing company by billing them – a role that drastically

impacts the bottom-line. The third recommendation is updating financial policy to include

patient financing; adding this alternative can increase cash flow and lessen accounts receivable

Page 12: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 12

(Morris, R., 2011). In lieu of billing patients in the customary manner and managing the risks

and expense of accounts receivable, a more advantageous approach is to “add a third party or

outside patient financing program” (Morris, R., 2011).

The final recommendation is securitization, this process allows healthcare providers to

convert their accounts receivable into cash. Health care receivables securitizations are designed

to allow health service providers to sell their receivables to securitization vehicles in exchange

for cash equivalent to a considerable percentage of net receivables more rapidly than in the

ordinary course of business which improves cash flow and maximizes the recovery of

receivables. “Despite the obvious benefits of securitization transactions, securitization of

healthcare receivables has several unique difficulties,” (Folk, M., 1995). Therefore, healthcare

securitizations must be structured to conform to each legal relationship and must satisfy the

substantive consolidation and true sale legal doctrines (Folk, M., 1995).

Implementation

Every organization is comprised of a culture made up of “shared attitudes, values, and

goals that is puts into practice” (Healthcare Financial Management, 2009). If the right culture is

not in place any effort to improve processes, technology, metrics, and communication will be

ineffective; focusing on issues relating to culture often proves to be the biggest challenge for

healthcare executives. As the recommendations provided suggest, organizations comprised of

high-performance revenue cycles characteristically employ multiple strategies as part of their

efforts. Equally as important as a well-rounded strategy is the successful implementation of

process improvement initiatives.

High performance does not just materialize. The recognition of patient-focused and

value-driven revenue cycle processes requires a commitment to goals – success depends on

Mary Black, 06/21/15,
Very well thought out
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APPROACHING REVENUE CYCLE MANAGEMENT 13

support from all stakeholders. Executives must set high expectations for revenue cycle positions,

devote the necessary resources to training and compensation, and establish systems to reward

high revenue cycle performance. Patient-focused revenue cycle process improvement must be

encouraged throughout the organization: (1) teams of both revenue cycle staff and non-revenue

cycle staff should be centered on key process challenges. Frequent and actionable performance

monitoring and reporting should be fostered to improve supervision of revenue cycle processes

(Healthcare Financial Management, 2009).

Summary

At a glance these recommendations and suggestions for implementation may seem

daunting, especially given the current environment of healthcare reform. Though, the challenge

should not be justification for lack of action. Historically, high performers do not always have

the latest technology nor do their organizations have the most desirable characteristics. Yet, they

do have determination. Irrespective of the strategy followed, an organization’s commitment to

effective implementation makes the distinction. Plainly stated, the approach to revenue cycle

management makes the difference. Organizations that stay the course on performing well in

accounts receivable will find themselves in the best position for future success (Healthcare

Financial Management, 2009).

.

Mary Black, 06/21/15,
You did a good job on this paper and I enjoyed reading it! I wish you the very best in the future. Congratulations!
Page 14: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 14

References

Callahan, M.A. (2008). Successfully implementing a revenue cycle self-pay solution.

Hfm (Healthcare Financial Management), 62(9), 82.

Clark, K., & Bang, D.A. (2012). Bridging the gap between financial reporting and the

revenue cycle. Hfm (Healthcare Financial Management), 66

(9), 76.

Dickey, R. (2013). Cashing in on revenue cycle improvements.

Folk, M. D., & Roest, P. R. (1995). Converting accounts receivable into cash. Hfm

(Healthcare Financial Management), 49(9), 74.

Graham, T. (2001). Increasing Revenue through A/R Recovery, Revenue-Cycle Redesign.

Hfm (Healthcare Financial Management), 55(11), 60.

Healthcare Financial Management (2009). Strategies for a high-performance revenue cycle.

Healthcare Financial Management (2010). A reform-era revenue cycle.

Image. Key performance metrics. Retrieved June 20, 2015 from

http://practiceextension.com/2013/05/15/medical-billing-best-practices-metrics-and-key-

performance-indicators/.

Key Strategies for Hospital-Physician Revenue Cycle Integration. (2014). Hfm (Healthcare

Financial Management), 68(9), 1-4.

Morris, R. (2011). Update Your Financial Policy to Include Patient Financing. Podiatry

Management, 30(5), 91-94.

Nelson, B. (1994). Improving cash flow through benchmarking. Hfm (Healthcare Financial

Management), 48(9), 74.

Schoen, M., & Najera, M. (2012). Achieving Revenue Integrity in Hospitals and Health Systems.

Mary Black, 06/21/15,
Great List!
Page 15: Walker Stephanie Week7_HSM543_ Course Project_Walker, Stephanie

APPROACHING REVENUE CYCLE MANAGEMENT 15

Hfm (Healthcare Financial Management), 66(9), 114-120.

Spradling, M. (2003). Structuring a Sound Securitization of Healthcare Receivables. Hfm

(Healthcare Financial Management), 57(2), 58.

Thiry, D., Evans, M., Walter, L., & Ramanathan, S. (2011). Success under reform through

revenue cycle excellence. Hfm (Healthcare Financial Management, 65(5), 92.

Yarsinsky, J. (2015). Measuring the Performance of Hospital Accounts Receivables.