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Why do some hospital revenues rise while others see a crisis?

By Jennifer Bresnick

- Seeing the words “hospital” and “revenue cycle” in the same sentence is more likely than not to produce a gloomy, bitter outlook for healthcare professionals.  Hospitals have always been overworked, understaffed, and short of resources, working day and night just to keep their heads above water in challenging communities that continually demand more than they can give.  Whether they are for-profit or not, everything the hospital does or wants to do revolves around the operating budget: a yearly struggle to squeeze blood from a stone.

EHR implementations, federal mandates such as meaningful use and ICD-10, and the changes involved in the Affordable Care Act (ACA) might seem to be nothing more than added burdens that are fated to seal the collapse of the healthcare system as we know it, but not all hospitals are faltering under the weight.  Some are even posting healthy profits, surprising analytics and executives alike.  Why are some hospitals starting to thrive in this era of continual reform while others are sinking irreparably into debt?

Seeing technology as an opportunity

CMS and the Office of the National Coordinator (ONC) have been urging healthcare organizations to see EHRs as a productivity-boosting cure for patient safety concerns, care coordination, and data analytics.  While the EHR Incentive Programs certainly have their detractors, and the benefits of health IT might not be fully realized just yet, the healthcare organizations that can successfully implement and leverage their EHRs and other health IT systems have a better chance of positioning themselves for financial success than those who let their adoption programs get away from them.

Consider the implementation of an Epic EHR, which serves to illustrate the clear dichotomy between EHR success and failure.  While the University of Arizona Health Network plunged into the red with $28.5 million in debt after poor planning, unanticipated delays, and a lack of leadership sent their EHR adoption program awry, a health system like Novant Health in North Carolina, which carefully planned its roll-out to include time for troubleshooting and thorough training, was able to build confidence and absorb the high costs of the EHR without a catastrophe.

Investment in revenue cycle tools that identify waste, manage human resources, and simplify the collection of increasing patient responsibilities is also becoming a must for organizations that want to keep a positive profit margin.  Ninety-three percent of hospitals that classify themselves as struggling financially are looking to revenue cycle management (RCM) technology to plug gaps in their financial management programs and position themselves for upcoming pay-for-performance reimbursements.

“Most hospital CFOs have no choice but to leverage next generation financial system solutions including software and outsourced services in order to keep their organizations solvent,” said Doug Brown, Managing Partner of Black Book Market Research. “The reimbursement challenges ahead to get paid may require several new applications, and the frank reality is that outdated, understaffed and failing current solutions could quickly close a marginally performing hospital for good.”

Adapting to the changing flow of patients

Technology may be one important component for financial success, but the “people piece” is just as critical.  While some hospitals are seeing empty beds and shrinking revenues as they cling on to traditional models of patient care, others are eagerly courting ACA patients that are flooding into the healthcare system at astonishing rates.  Sixty percent of newly insured patients have already visited a primary care provider, and systems like Tenant Healthcare Corporation are thanking this new tide of patients for their positive outlook.

Tenant CEO Trevor Fetter said that patients that purchased ACA insurance exchange plans accounted for 2,700 admissions and more than 24,000 outpatient visits during the second quarter of 2014, aiding a 40% year-over-year growth in revenue.  Fetter added that in states that have chosen to expand Medicaid, uninsured and charity admissions declined by 54.3 percent and Medicaid admissions increased by 22.9 percent, highlighting a significant source of new revenue.

“In a way, I’m delighted to have this fantastic quarter,” he said to D Healthcare Daily. “But it would’ve been nice to show a quarter like this pre-ACA because it would’ve demonstrated that the business is solid and the strategies are working. The ACA is just icing on the cake.”

The sudden increase in patients and associated revenue may taper off as the pent-up demand for healthcare services from the previously uninsured eases off, but with a rapidly aging population and an increase in the prevalence of chronic diseases, hospitals will have a higher volume of needy consumers on their hands for many years to come.

Leveraging accountable care and reformed payment structures

Accountable care may still have its skeptics, but an increasing number of hospitals are taking pay-for-performance reimbursements, care coordination, and population health management to heart.  Forecasts predict that 130 million patients will be covered under an accountable care organization (ACO) or pay-for-performance arrangement by 2017.  In Wisconsin, 90% of the population will have the option almost immediately.

For healthcare organizations looking to turn these changes to their advantage, the American Hospital Association (AHA) recommends that organizations identify their existing sources of capital and develop a baseline financial projection before testing the impact of major changes to their reimbursement strategies.  Understanding the risks and rewards of accountable care before jumping into pay-for-performance structures can help organizations focus their efforts and avoid failures experienced by some projects such as a portion of the CMS Pioneer ACOs.

“The process requires vigilant monitoring, flexibility and updating as markets evolve and strategies are implemented,” the AHA says. Although the current planning environment has new variables and uncertainties, the need for the time-honored, fundamental financial planning approach remains unchanged.  This approach is grounded on the guiding principle that cash flow must be sufficient to meet the strategic capital needs of an organization within an acceptable risk tolerance.”

Hospitals that can embrace these changes with a detailed roadmap and a solid handle on the risks will be able to face the revenue challenges in front of them with a clearer head and a strategic plan.  The outlook for healthcare organizations remains rocky, but providers that are flexible enough to embrace the changes to the healthcare industry have a good chance of finding their way through the shoals.

“I believe the rating agencies look at this sector as volatile,” said Steve Underdahl, President and CEO of Northfield Hospital, which managed a 5.1% profit margin in 2013, one of the highest in the Twin Cities region and 1.6% higher than 2012. “My sense is that bond rating organizations look at all of the variables and unknowns associated with health care reform, new care delivery models and new customer expectations, and find the future of our industry difficult to predict.”

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