Hospitals seek to turn patients, insurers into more reliable payers

By Jay Greene

With the jobless rate in Michigan hitting levels not seen in two decades and people losing their health insurance or reducing coverage to save on premium dollars, hospitals are overhauling their billing and collection systems to stem the rising tide of bad debt and charity care that is chipping away at already slim and declining profit margins.

Most hospitals in Southeast Michigan have the same goal: improve cash flow, enroll more eligible people for Medicaid or other charity programs, increase customer satisfaction and help patients pay their bills.

Trinity Health in Novi and Ascension Health, the parent company of Warren-based St. John Health, are developing a systemwide method to plug leaks and enhance billing and collection, otherwise known as the revenue cycle process.

Oakwood Healthcare Inc. in Dearborn and Royal Oak-based William Beaumont Hospitals also are tweaking revenue cycle processes to improve cash flow and customer satisfaction, and to help patients manage out-of-pocket expenses.

The revenue cycle process at hospitals starts when patients register to be admitted or to undergo a procedure and insurance eligibility is verified. If a patient is uninsured, hospitals seek to determine method of payment.

As the patient receives services, employees record charges and then submit bills to insurers and patients for reimbursement. The cycle ends after the bill is sent out and collection is sought. Bad debt occurs when patients or insurers fail to pay and hospitals write off uncollected revenue.

“We are shifting some of our revenue cycle staff to the front end (registration) from the back end (collections) to check eligibility and collect revenue up front,� said Nick Vitale, Beaumont senior vice president for financial operations.

Like other area hospitals, Beaumont has decided to improve its patient registration process by doing a better job at checking insurance eligibility and then collecting unpaid cash balances or negotiating payment arrangements for scheduled procedures.

“We are evaluating the best way to collect upfront for elective procedures,� Vitale said. “We have to be sensitive because patients are dealing with health care issues.�

Hospitals also are enhancing their revenue cycle to comply with ever-changing federal billing regulations and a cornucopia of different insurance company reimbursement systems.

For example, Medicare is expected to begin this year its Recovery Audit Contractor program. RAC, as it is known, allows third-party auditors hired by the Centers for Medicare and Medicaid Services to keep 9.4 percent to 12.4 percent of payments they flag as improper. Providers are required to repay Medicare for overbilled services.

Michigan hospitals were scheduled to be audited starting last November, but the program was postponed because of legal challenges.

Hospitals also are facing pressure by bond rating agencies to reduce costs and increase revenue.

For example, last fall Moody’s Investors Service downgraded the outlook to negative from stable for nonprofit and investor-owned hospital companies because of the weakening economy.

Moody’s said increasing bad debt and weak patient volumes created the dim reimbursement outlook. The agency recommended hospitals cut costs and capital expenditures to boost cash flow.

The increasing amount of bad debt and charity care at Beaumont Hospitals is fairly typical for others in Southeast Michigan.

Over the past four years, Beaumont’s uncompensated care has more than doubled to $33.2 million in 2008 from $16.9 million. Uncompensated care includes charity care and bad debt.

“We expect an increase of 3 to 4 percent (this year),� Vitale said. Bad debt has increased, in part, because insured patients have reduced coverage, leading to higher deductibles and co-pays, amounts some cannot or do not pay, he said.

Vitale said the economy also is a factor. Michigan’s unemployment rate grew to 9.6 percent last November, compared with 7.4 percent a year earlier.

To collect more revenue, St. John began a pilot project in 2004 to outsource its revenue cycle process to Accretive Health, a Chicago-based management company. St. John’s parent, St. Louis-based Ascension, has partial ownership of the company, officials said.

“Accretive identifies those patients when they come in as to whether they should apply for charity care programs or other payment sources,� St. John CEO Patricia Maryland said.

Accretive also provides preregistration, scheduling, admissions, contractual compliance, billing and collection services.

“It has improved our ability to be reimbursed for the care we provide,� Maryland said. “It is keeping our hospitals viable. We are seeing a significant increase in people coming into the ER. We are able to get some type of coverage for them and it has stabilized our revenue.�

Based on the success here, Ascension is using Accretive to assist most of its 66 hospitals nationwide.

More than 18 months ago, Trinity Health also began a systemwide project to modernize and centralize the revenue cycle process for its 44 hospitals in seven states. Twelve of Trinity’s hospitals are in Michigan.

Paul Sahney, Trinity’s chief revenue officer and vice president of finance, said the health system created a shared services organization to centralize coding and billing services.

Last July, Trinity’s Unified Revenue Organization began to standardize software and revenue cycle processes across the system, he said.

“We believe it will ensure full compliance and bring $500 million in economic value over five years,â€? Sahney said. “We believe our patient experience will be much better.â€? The economic value includes reduction in bad debt, charity care and insurance company claims’ rejections, he said.

Some 2,500 to 3,000 employees work in revenue cycle departments at Trinity’s hospitals.

“Some of these people will work from home, some at the hospitals and some we will move to a regional center and the central office in Farmington Hills,� Sahney said. “This is not intended to save money on labor.�

Sahney said the process will also help reduce the number of rejected insurance claims by more closely following each insurer’s reimbursement rules.

“Insurance companies make mistakes, so we are setting up a central office to identify common problems so we can pick up the phone and call Aetna and deal with the 1,000 claims that have similar issues,� he said.

Trinity also is working with a national insurance company to lower administrative costs of processing claims between insurers and the hospitals, Sahney said.

“We each spend 4 percent to 5 percent in managing our revenue. We can reduce that,� he said.

Sahney said another large health care system also is piloting a similar program with another national insurer.

“We want to integrate our efforts with insurance companies and the other system and have a model for the industry,� he said.

Oakwood’s Lynn Flynn, corporate director of revenue, said the four-hospital system also is improving its revenue cycle in a variety of ways, including by informing patients how much they will owe before their procedures.

Typically, patients enter the hospital not knowing how much their service will cost. They are sometimes surprised by the amount they are billed, she said.

“Patients want to know up front what they owe,� said Sahney. “The health care system is so complex, patients have no idea as they get hospitalized, and they have worry about it.�

Sahney and Flynn said the industry has an obligation to give patients an estimate — like contractors or auto repair shops do — of how much they will owe for elective medical procedures.

Informing patients of health care costs led Oakwood last November to develop a financial informed consent form, Flynn said.

“For scheduled and elective cases like cardiology, orthopedics (and surgery), five days prior to it being performed we talk with patients about their financial liability,â€? Flynn said. “We say, “here is the insurance, here is the co-insurance, the 20 percent you owe after insurance pays, and this is what you will owe.’â€?

Flynn said Oakwood then gives patients the option to pay immediately or pay when they check in.

“This satisfies patients,� she said. “They would rather pay it before they receive the bill.�

Some patients will defer the medical procedure for financial reasons, she said. “If they have bad-debt dollars, we will work on a payment schedule,� she said.

Since last summer, Flynn said, Oakwood has seen a reduction in bad debt and an improvement in accounts receivables, although figures are not yet available.

Trinity also plans to ask patients later this year to pay their co-pays or deductibles up front, Sahney said.

“If you owe us $20 or $50, we will ask them if they can pay ahead of time,� Sahney said. “They will be able to write a check, take out a low-interest loan or go to a payment plan.�

Another way to improve collections is to enroll more eligible patients in the state Medicaid program.

“Once you qualify the patients, get them insured, they are better served. There is better satisfaction and our revenue goes up,� Sahney said.

Oakwood saved $1 million annually when it ended a contract in 2007 a vendor that conducted Medicaid eligibility applications.

“We in-sourced that and educated our registration staff to look for patients who might qualify for Medicaid and charity care programs,� Flynn said.

In 2008, Oakwood enrolled 33 percent more patients into Medicaid than the previous year, Flynn said.

Last August, Oakwood outsourced its collections department to Flint-based Client Financial Services. The 10 former collections’ employees now work in patient registration to identify non-emergency patients who need financial assistance and then provide cost estimates.

Through its OakAssist program, Oakwood offers a 25 percent discount to admitted patients who don’t have insurance but have jobs and ability to pay.

One of the keys to Beaumont Hospitals’ financial turnaround program is improving its revenue cycle, Vitale said. In November, Beaumont announced layoffs of 165 employees and a plan to cut costs by $46 million.

Beaumont is using a recently installed Epic Systems Corp. electronic medical record system that includes a system that integrates scheduling, admitting, billing and eligibility data.

During tough economic times, hospitals always look to do point-of-service cash collection and ways to improve coding and documentation, Vitale said.

“What is new is using the electronic medical record method to capture the ordering of tests, providing services and procedures to more accurately bill what we do,� Vitale said.

On Feb. 1, Vitale said the EMR system will go live at its Royal Oak and Troy hospitals. Later this year, Beaumont will determine how much up front to collect for scheduled services.

“We have had a lot of discussion about the financial impact of the new systems. We call it our IT dividend,� he said. “We expect a good return on investment.�

Jay Greene: (313) 446-0325,

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