Health Costs

Why Are Health Systems in Urgent Need to Understand Their Complete Financial Health?

Abhinav Shashank
Tue 19 June 2018

As an industry, healthcare still lags behind in terms of analyzing the financial outcomes to its counterparts. In times, when other industries such as manufacturing and financial services are on the verge of attaining true six-sigma levels of precision, healthcare still struggles with the similar multitude of challenges in identifying the main cost-of-care.

In a space as vital as healthcare, driving outcomes is as crucial as to put in efforts to achieve a better quality of care. With CMS planning to tie 50% of the Medicare reimbursements to alternative payment models by the end of 2018, and commercial payers following along, there is an increased burden on financial teams at hospitals and health systems to identify opportunities to lower costs without affecting the quality of care.

Moving beyond just clinical and claims data

Traditionally, health systems have been relying on just clinical and claims data. There may be a whole lot of datasets in healthcare space, but the power of data remains underutilized. There is crucial information which can be extracted from various data sources such as financial systems, billing systems, human resource management systems, among many.

Owing to the lack of integrated and interoperable systems connecting these multiple datasets, healthcare CFOs and other leadership executives are not able to leverage the data at hand and gain insights into the rising expenditures and narrowing margins.

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Operational challenges health systems are facing

Rapid digitization of healthcare data and lack of holistic insights from these data silos restraints the CFOs and other healthcare leaders in health systems from driving significant operational changes across the entire network. The absence of an integrated and interoperable clinical and financial system limits the understanding of the true financial performance and opportunities to reduce costs and enhance margins for the health systems.

Revenue cycle, according to the Healthcare Management Association, constitutes all the functions, either administrative or clinical, that contribute to the capture, management, and collection of patient service revenue. When these functions are not properly managed, organizations struggle for financial information related to various processes. At worst, they might find themselves in the position of not having the cash to operate efficiently.

The lack of communication among multiple departments in the network and understanding of the critical components of operational expenses are major cost-drivers in the health system. Little or negligible retrospective views on different elements in health systems prevents them from developing specific bundled payment strategies.

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A data-driven approach to streamline your financial performance

The traditional approaches of analyzing at an individual hospital or facility-level are incapable of providing a deep understanding of macro-level trends or reducing the cost. What health systems need is comprehensive insights into their network utilization and major cost-drivers to identify cost-reduction opportunities and drive several intervention steps. The detailed insights will provide a better context for decision-making and help identify opportunities for improvement by allowing the health system to monitor the trends over time.

Holistic visualizations are to be created through real-time analytics around 3 major pillars, namely revenue cycle, costs and margins, and operations.

1) Revenue cycle analytics

Real-time capturing of data related to charges, payments, days in A/R, collections, and others could provide in-depth insights to health systems enabling them to perform drilled-down analysis of data related to both providers and patients. The ability to identify weak points in revenue cycle processes will enable the system to come up with new solutions for improvements.

2) Cost and margin analysis

Health systems need to perform detailed cost analysis representing true operational and cost data regarding the treatment modalities of every single patient to develop a better understanding of resource utilization by the service center, cost per patient or service, and the variance of physician practices. This would support management and clinical personnel to identify the most effective and efficient way to provide care.

3) Operational cost analysis

Patients are at the center of every process at any healthcare organization, but they have to traverse through multiple departments. Hospitals with a higher value of case mix index tend to under-utilize their staff and over-complicate the process, thus, contributing to high operational costs. Analyzing the utilization of departments with the case-mix of DRG can help the hospital to identify underutilized departments. By examining wait times and LOS, the health system can easily pinpoint at multiple cost drivers in the network.

Get more details: Hospital Financial Analytics

The greatness of leveraging best practices— A success story

Consider an example of a health system in Florida which decided to identify weak points and to reduce the liabilities and debt incurred on the system. What they needed initially was to improve on its self-pay collections. It was critical for the system to identify self-pay patients early-on in the process and potentially educate them about different health-coverage options available based on their eligibility.

The primary step that the health system followed was to collect data from every possible source that could enable it to run a systematic analysis of their self-pay collections, identification of gaps, and defining steps to close these gaps. The organization, based on the insights obtained, designed new processes enabling providers to quickly view their co-pays and open charges.

Not only did this ensure a better visibility into the network, but also empowered the finance department to drill down to look for any additional information. By driving cost-reduction interventions based on advanced analytics, the health system was able to cut down the time required for researching and identifying root causes of variances by 90% and achieved less than 5% of self-pay A/Rs beyond 90 days.

Data and analytics— The glue that holds everything together

The US healthcare is soaring with data and leveraging these datasets can provide a fast and comprehensive solution to define budgets, cost-allocations, benchmarks, operational and clinical processes, and a lot more to reduce redundancies in the network. The efforts should be inclined in deriving meaningful insights from data at disposal. Using data at the right time and in the right form is the key to bridging gaps and understanding the impact of each activity in the network.


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