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A Measure of Success Using KPIs to Accelerate Revenue Cycle Performance Sandy Richman, Director of Advisory Services Daniel Bergantz, Director of Advisory Services PNC Healthcare March 23, 2015

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A Measure of SuccessUsing KPIs to Accelerate Revenue

Cycle Performance

Sandy Richman, Director of Advisory Services

Daniel Bergantz, Director of Advisory Services

PNC Healthcare

March 23, 2015

Today’s Presentation Goals

1. Review current factors affecting the hospital industry and revenue cycle environment

2. Developing and reporting Key Performance Indicators (KPIs)

3. Interpreting the value of selected KPIs

4. How to be MAD about Revenue Cycle Management

5. Learn something new and have fun!!!

1

CURRENT INDUSTRY FACTORS

2

Challenges Inherent in the Transformation of the Payment Model

Transformation from payment for volume to payment for value

Increasing patient financial responsibility

ICD -10 costs burden hospitals

Inpatient Medicare payments will decline 18% by 2019. 1

Only 55 cents of every $1.00 owed by patients is collected. 2

Gross denied charges have increased to 14-18% of total. 3

60% of avoidable claim denials occur at registration. 4

Revenue cycle disruptions could place added rating pressure on hospitals 5

Legacy systems, information silos and technical resource limitations make it hard for providers to deal with strong headwinds.

1 https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/NationalHealthExpendData/downloads/proj2010.pdf

2 McKinsey, 20103 Advisory Board Company, 2011, “Bridging the Gap”4 Healthcare Internal Auditors, Aim High Study, June 20125 Fitch ICD-10 Report, March, 2014

3

ICD-10 What to Consider to Protect Your Revenue Cycle

Post implementation impactsCosts to prepare

Costs and shortages of qualified coding specialists

Initial direct and indirect costs of conversion and compliance preparation

Direct and opportunity costs of systems integration, testing, IT staff

Updating the chargemaster, super bill, etc.

Identifying specialties requiring the greatest change/impact

ROI of additional training, mitigating negative impact through process change

Error rates are expected to jump to 6-10% of total claims from current 3% *

Days in AR are projected to grow 20-40% *

Claim denials are projected to increase 100-200% for 2 years or more *

Under-coding likely to have most significant negative impact on revenue

4

Source: 2011 HIMSS ICD-10 Transformation: Five Critical Risk Mitigation Strategies

WHAT IS ALL THIS TALK OFHEALTHCARE CONSUMERISM?

5

Employers/Payers Shifting Responsibility to Consumers

• Ever increasing strategy is for employers to shift costs to the consumer by offering high deductible health plans (HDHPs) and health savings accounts (HSAs)

• In 2013, about 58% of employers offered a HDHP

• Hospital uncompensated care rose to a record $45.9 billion in 2013

• Out-of-pocket payments by insured patients are expected to grow by 68% from 2009 to 2015

• Increasing HDHPs = Increasing patient financial responsibility = Consumer behavior

6

Healthcare Consumerism is a movement giving the participant purchasing power that promotes decision-making in their own healthcare. It empowers the consumer to become more educated and involved in decisions like what physician they want to see, what procedures they want to have done, what facility they want to go to, and how much they are willing to pay for services.

Healthcare Consumerism

7

“Cashification” of Healthcare

• With HDHPs and HSAs, consumers’ financial responsibility for their medical treatment is increasing

• Trends are moving toward employers only offering HDHP options

• Consumers usually don’t plan on ever hitting their deductibles

• Behavior is modified to save $$$$

8

Effects on Hospital Providers

• Increased pressure to update/acquire technologies and processes to help consumers understand their out-of-pocket costs prior to service and provide options to pay in an easy and timely manner

• Increased consumer pressure for pricing transparency

• Increased competition from less costly, more agile and easily accessible delivery channels, potentially putting market share at risk

9

And now…a Demotivational Thought

10

The Problem

• Sometimes our meetings consist of “a lot of talking as if it’s business as usual.”

• In Healthcare there is “a lot of experience around the table.”

• We sometimes think we know what the problem is but we often are not even looking at the real problem.

11

Developing KPIs

• What to measure?

– Don’t just collect data, Data ≠ Information

– Metrics aren’t KPIs

– KPIs help staff make better business decisions and find solutions to problems

– Choose KPIs according to relevancy

– Apply KPIs where you can affect change

– Develop indicators for each process at the department/ functional level as well as overall RCM indicators

12

Important decisions will be made based on KPIs. Choose them wisely!

Developing KPIs

• Define how to measure selected KPIs (i.e., operational definition)

– A precise description of the specific criteria used for the measures

– The methodology to get the value for the characteristic you are trying to measure

• Develop a baseline - where are you today?

• Where have you been?

– Trending information is more valuable than one point in time

– Calculate values for the previous 12 – 18 months

– Track a 3 – 6 month rolling average

13

14

If these were your KPIs, what would you do?

51 daysNet Days in A/R

Recommend Range:

45 – 55 days

2.5%POS Collections Ratio

Recommend Range:

1.5% - 3%

3.8%Denials Write-off Ratio

Recommend Range:

2% - 3%

Developing KPIs

• Where do you want to be?

– Implementing initiatives to reduce operating costs is the number one priority of hospital CEOs in response to healthcare reform.

– Hospital CEOs report that the most effective way to reduce costs is through benchmarking and the use of decision support tools.

– Use resources such as HFMA & HARA for best practice benchmarks

– Try to find benchmarks more specific to your type of facility and geographic region

– Look for opportunities and create your “own” target

15

Processes Used to Reduce Costs in the Hospital % UsedEffectiveness(Scale 1-5)

Benchmarking 93% 3.84

Decision Support Tools 68% 3.66

National or Regional Collaborative 58% 3.76

Lean Six Sigma 42% 3.69

Management Engineers or Financial Liaisons 33% 3.70

Source: American College of Healthcare Executives. “CEO Survey: Hospital Initiatives to Reduce Operating Costs.” Healthcare Executive. May/June 2011.

Gap Analysis

Current Performance

Good Performance

Better Performance

BEST PERFORMANCE

Good, Better, BEST!

16

KPIs by Functional Area

PATIENTACCESS

REVENUE INTEGRITY CLAIMS MANAGEMENT REIMBURSEMENT

OTHERMANAGEMENT

• Pre-Registration Rate

• Days Gross Revenue in Discharged-Not-Final-Billed (DNFB)

• Final-Billed-Not-Submitted (FBNS)

• Initial Zero Paid Denial Rate

• Cash Collections as % of Net Revenue

• Point-of-ServiceCollections Rate

• Discharged-Not-Submitted to Payer (DNSP)

• Clean Claim Submission Rate

• Initial Partial Paid Denial Rate

• Days Cash on Hand

• Uninsured Patient Conversion Rate

• Late Charges as % of Total Charges

• Net Days in A/R • Total Denial Write-Off as a % of Net Revenue

• Case Mix Index

• Insurance Verification Rate

• A/R Aging Distribution

• Overturned DenialRate

• Bad Debt Write-offs as % of Gross Revenue

• InsuranceAuthorization Rate

• Billed A/R >90 Days∙ 3rd Party >90 Days∙ Self Pay >90Days

• Charity Care Write-offs as % of Gross Revenue

• Charity Care to Uncompensated Care

• Days Gross Revenue Held in Credit Balances

• Cost-to-Collect

17

KPI Reporting Process

• Determine how you will display and track KPIs

– Charts, graphs, dashboards, spreadsheets, etc.

• Decide which indicators will be tracked daily, weekly, monthly, quarterly

• Put someone in charge of collecting the data

– Automate data collection where possible

• Schedule regular meetings with the CFO and revenue cycle leadership team to review indicators

– Give updates on current initiatives, identify new opportunities and create action plans

– Results in common goals

• Schedule separate department meetings that includes director, managers, supervisors & leads

18

Using Your KPIs

• The ability to set goals and make projections.

• Use data to “find value that others oversee” (i.e., information).

• Effective KPIs allow you to find the “championship combination” for your organization that you can afford.

• Your KPI tools will be specific to your organization and will allow you to customize solutions.

19

And Now…

Time to get MAD about

KPIs and Revenue Cycle Management!!!

20

Thomas Edison…Example of a “MAD” Man

• Many often referred to Edison as a genius.

• What was his response?

• “Genius is 1% inspiration and 99% perspiration.

• He was also noted as saying: “Genius is hard work, stick-to-it-iveness, and common sense.

• Invented the lightbulb – now a symbol synonymous with idea and inspiration.

21

Inspiration

• Your “lightbulb” moment

• Involve everyone in the “lightbulb” process

• Consider rewarding staff for coming up with their own “lightbulbs”

• Your lightbulb, or idea, is only the first step, next comes the real work of implementing your idea

22

The Keys to being a MAD success!

Measurement

DisciplineAccountability

Patient Access

Scheduling/ Pre-registration

Ins. Verification/ Authorization

POS Collections

Financial Counseling

Registration

Revenue Integrity

Charge Capture

Clinical Documentation

Chargemaster Management

Coding

HIM Throughput

Business Office

Billing

AR Follow-up & Management

Payment Posting

Customer Service

Collections/ Agency Management

Reimbursement

3rd Party Contracting

Denials Management

Contract Management

Pricing Strategy/ Fee Schedules

Revenue Recognition

23

Measurement

• We’ve all heard it: you can’t manage what you don’t measure.

– Measurement aids in identifying problem areas.

– Sets the stage for setting goals/targets and working toward them.

• It is also a proven principle that:

– When performance is measured, performance improves. When performance is measured and reported, the rate of improvement will accelerate beyond mere measurement alone.

• Other principles to keep in mind:

– Ensure that what you are measuring is accurate and meaningful. Use a standard data source.

– Use metrics instead of just data reporting – the more standardized and widely used, the better. Examples: HARA, HFMA’s Revenue Cycle MAP Keys

– Measure early and measure often.

– Automate the measurement process as much as possible.

24

Key Performance Indicator Target

Overall pre-registration rate of scheduled patients >98%

Overall insurance verification rate of scheduled/pre-registered patients >98%

Registration accuracy rate >98%

Successful attempts for collection of elective services deposits prior to service 100%

Successful attempts for collection of inpatient self-pay deposits prior to discharge >65%

Successful attempts for collection of ED self-pay deposits prior to departure >50%

Days of gross revenue held in Discharged-not-Final-Billed status <4-6 days

Physician documentation completion deliquency greater than 30 days <5%

Final-Billed-Claim-not-Submitted backlog <1 A/R day

Billed insurance A/R >90 days from service/discharge <15-20%

Bad debt write-offs as a % of gross revenue <3%

Charity care write-offs as a % of gross revenue <3%

Total cash to net-collectible revenue (60 day average lag) ~100%

Cost to collect (HIM excluded) <2-3%

Net A/R days <45-55 days

Point-of-service collections as a % of total cash collections >2-3%

Outsourced bad debt netback ([collections-fees]/placements) >7-11%

Overall initial denials rate (% of net revenue) <4%

Clinical initial denials rate (% of net revenue) <5%

Appealed denials overturned rate 40-60%

Pati

en

t A

ccess

HIM

Pati

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cco

un

tsD

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Examples of Measurement

KPIs, Dashboards, and Graphs, oh my!

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Project Plan (click on image below to see detailed workplan)

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Create a C

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# List of Activties

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1 Increase Market Share by 5% 0%

2Increase Market Share by 5% in Targeting Service

Lines through Physician Alignment0%

3 ARHS Days Cash on Hand 0%

4 Increase CMI by ≥ 0.05 0%

5 Achieve Breakeven Status on Medicare IP 0%

6 Achieve MH "Best Places to Work" Status 0%

7Improve Overall ARHS Physician Alignment by ≥ 10%

Over Baseline0%

8 Achieve Magnet Status 0%

Show Gantt for Planned Show Status? █ What is current month? 1

Create a C

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Invest in

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Project Kickoff

Team Selection

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5

1

Protect the

Core

Protect the

Core

ABC Health System

25

Accountability

• Accountability must start with leadership.

– A waterfall without a source is just a cliff – the source of accountability must be with leadership, then it can flow to the rest of the organization.

• Establish accountability for every process of the revenue cycle.

– Ensure that every revenue cycle process reports to the right person – the “right people in the right seats on the bus” principle.

• Accountability is enhanced when coupled with measurement.

– Every metric being measured should be tied to an accountable leader.

– All staff level employees should be accountable to at least one quality and one productivity metric.

26

Accountability

Not this…

No Accountability!

Sr. Assoc. Dir.

Associate

Director

Assistant

Director

Admission

Officer

Asst. to Director

Transfer

Coordinator

Sr. HCPPA

Asst. Coor. Mgr. HCPPA Asst. Coor. Mgr HCPPA

Coord. Manager

Tour II

Coord. Manager

Tour I

Coord. Manager

Tour III

Sr. HCPPA

Admitting/ER

Clerical Assoc.

Admitting / ER

C.A.

Sr. HCPPA

Pre-Adm/

Information

Clerical Assoc.

C.A.

Sr. HCPPA

Admitting/

Discharge

PAA

Admitting

Clerical Assoc

Discharge Office

C.A.

Clerical Assoc

Admitting

C.A.

C.A.

Sr. HCPPA

ER/Bed Board

Asst. Coor.

Manager

ER

Clerical Assoc.

ER

C.A.

Sr. HCPPA

Admitting

PAA

Admitting

Asst. Coor.

Manager

ER

Clerical Assoc.

Admitting

C.A. C.A.

Systems

Analyst

Asst. Coor. Mgr.

Census / TCEs

Census Team

Clerical Assoc.

Clerical Assoc.

27

Discipline

• Process discipline = a standardized approach:

– Define each task within the revenue cycle very clearly, then stick to that definition each time the task is performed to improve overall revenue cycle performance.

• You don’t have to be a six sigma black belt to identify areas and ways in which a process can be improved and where process discipline can be implemented.

• If you talk to different employees who perform the same task and they give different answers on how the task is done, you know you have a problem.

• Develop tools such as workflows, scripts, and training sheets so staff can easily follow the standard approach.

• Identify or create a process champion – someone who performs the task (or is willing to) in the best manner and utilize him/her as an example/role model/trainer for others.

28

Putting it All Together

• Develop your idea – your “lightbulb”

• Identify which measurements relate to the area you are desiring to improve

• Utilize measurements to assess where you are now compared to where you want to be

– Identify gaps and quantify opportunities

• Prioritize opportunities based on financial and operational impact

• Develop standardized, disciplined approaches for each process to be improved

• Assign accountability to each measurement and process so that everything is tied to an accountable individual

• Implement changes

• Continue to measure and report to determine progress

• Celebrate successes

29

Lessons for Success

Once you figure out your KPI recipe:

• You can “accomplish what no one has before…”

• Find the best path even in impossible situations

• Don’t let the past define you

30

Contact Info

Dan Bergantz - Director

[email protected]

801-755-4628

Sandy Richman - Director

[email protected]

801-300-0221

31

Speaker Biography

• Sandy Richman has 15 years of combined clinical, financial, and consulting experience in the healthcare industry. In his current role as Director of Advisory Services for PNC Healthcare, he specializes in revenue cycle process improvement. Prior to joining PNC, Sandy was Manager of ARUP Laboratories’ Consultative Services Division where he and his team worked closely with hospitals nationwide to develop or expand their laboratory outreach operations. Sandy also has extensive experience in ED improvement, strategic planning, financial analysis, strategic pricing, operations improvement, and market research. He holds an MBA degree from the University of Utah, and is an active member of the Utah HFMA chapter.

32

Speaker Biography

• Dan Bergantz has 15 years of combined research, financial, and consulting experience in the healthcare industry. He currently serves as Director of Advisory Services for PNC Healthcare specializing in revenue cycle process improvement, and also has extensive experience in strategic planning, labor management and productivity, strategic pricing, and physician productivity. Prior to joining PNC, Dan developed his expertise and passion for the healthcare industry working for organizations including the Premier Healthcare Alliance, Phase 2 Consulting, GE Healthcare, and the Utah Medical Education Council. Dan earned his MBA in Health Administration from the Eccles School of Business at the University of Utah, and is an active member of HFMA’s Utah Chapter.

33

APPENDIX

34

Patient Access KPIs

Indicator Calculation Things to Consider Target

• Pre-Registration Rate of Scheduled Patients

Number of patient encounters pre-

registered

Number of scheduled patient encounters

All scheduled encounters pre-registered prior to date of service. A scheduled encounter is considered prior to day of service.

90-98%

• Point-of-Service(POS) Collections Rate

POS Payments

Total Cash Collected

Defined as patient payments collected prior to or up to seven days after discharge/dateof service for the current encounter only.

1.5 - 3%

• Inpatient Uninsured Patient ConversionRate

Number of uninsured patients converted to a

payer source

Total number of uninsured patients

Payer source can include COBRA, Medicaid, workers comp, other insurances such as motor vehicle, and other government programs.

10-20%

35

Patient Access KPIs

Indicator Calculation Things to Consider Target/BestPractice

• Insurance Verification Rate

Total number of verified encounters

Total number of registered encounters

All scheduled patient encounters where eligibility/insurance is verified prior to date of service and non-scheduled encounters verified within one day of service/admission date.

90-98%

• InsuranceAuthorization Rate

Number of encounters authorized

Number of encounters requiring authorization

Authorization is defined as required approval from the 3rd party payer for the services ordered.

90-98%

• Charity Care to Uncompensated Care

Charity care write-off

Total uncompensated care

(charity care + bad debt)

36

Revenue Integrity KPIs

Indicator Calculation Things to Consider Target/BestPractice

• Days Gross Revenue in Discharged-Not-Final-Billed (DNFB)

Gross dollars in A/R not final billed

Average daily gross patient service

revenue

Include inpatient and outpatient, and exclude in-house claims.

4 – 6 Days

• Discharged-Not-Submitted to Payer (DNSP)

Gross dollars in DNFB + gross dollars in FBNS

Average daily gross patient service

revenue

5 – 8 Days

• Late Charges as % of Total Charges

Charges with post date >3 days from last

service date

Total gross charges

< 2%

37

Claims Management KPIs

Indicator Calculation Things to Consider Target/BestPractice

• Final-Billed-Not-Submitted to Payer (FBNS)

Gross dollars in FBNS

Average daily gross patient service revenue

1-2

• Clean ClaimSubmission Rate

Number of claims that pass edits requiring no manual intervention

Total claims accepted in to billing scrubber for

editing

> 85%

• Net Days in A/R Net A/R

Average daily net patient service revenue

Should exclude credit balance accounts and any non-patient service A/R

45 – 55 Days

38

Claims Management KPIs

Indicator Calculation Purpose Target/Best Practice

• Billed A/R >90 Days∙ 3rd Party >90 Days∙ Self Pay >90 Days

Billed A/R > 90 days

Total billed A/R

Should only include debit balance accounts aged from discharge date.

15 – 20 %

• Days Net Revenue Held in Credit Balances

Dollars in credit balance

Average daily net patient service

revenue

Should not include accounts in pre-admit or in-house status.

1.5 – 2 Days

39

Reimbursement KPIs

Indicator Calculation Things to Consider Target/Best

Practice

• Initial Zero Paid Denial Rate

Number of zero paid claims denied

Number of claims remitted

Total number of zero pay claims received from 3rd party payers with a denial code on the remittance advice.

< 4 %

• Initial Partial Paid Denial Rate

Number of partially paid claims denied

Number of claims remitted

Total number of partial pay claims received from 3rd party payers with a denial code on the remittance advice.

• Total Denial Rate Denial write-off amount

Net patient service revenue

Should include all net account balances written off within the month resulting from un-appealable denials. Do not include contractual allowances.

2-3 %

• Overturned DenialRate

Number of appealed claims paid

Number of claims appealed and finalized

or closed

Should include all appealed claims (in response to a denial or take-back) that were closed/finalized within the month due to a receipt of payment.

40 – 60%

40

Other Management KPIsIndicator Calculation Things to Consider Target/Best

Practice

• Cash Collections as a % of Net Revenue

Total cash collected

Average net patient service revenue

Total cash collected from patient service accounts. Exclude any non-patient service cash.

> 100%

• Days Cash on Hand (Cash on hand + market securities)

[(Total operating expense -

depreciation expense)/365]

Include all cash and other liquid assets as reported on the balance sheet.

150

• Case Mix Index∙ Total∙ Medicare

Sum of relative weights of all DRGs

billed

Total number of DRGs billed

Trending indicator that reflects the diversity, clinical complexity and the needs for resources in the population of patients in a hospital

Monitor for significant change

41

Other Management KPIs

Indicator Calculation Things to Consider Target/BestPractice

• Bad Debt Write-offs as % of Gross Revenue

Bad debt write-off

Gross patient service revenue

<2.5 -3.5 %

• Charity Care Write-offs as % of Gross Revenue

Charity care write-off

Gross patient service revenue

<2.5 -3.5 %

• Cost-to-Collect Total revenue cycle cost (patient access, patient

accounts)

Total cash collected

Should include all Patient Access departments’ costs, including the functions of: scheduling, pre-registration, eligibility/insurance verification, admissions, registration, and financial counseling. Include all Business Office departments’ costs, including the following functions: billing, A/R follow up & collections, cash posting, customer service, and denials/underpayments management. Include costs for any outsourced functions.

<1.5 –3 %

42