Hospitals must rethink front-end revenue cycle as healthcare changes

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In the next few years, as the dust settles on the upheavals of healthcare reform, it will become clear that there has been a significant “culture shift” in the way hospitals approach their patients.

At present, a hospital’s patient-facing operations largely focus on providing appropriate care, while compensation is sorted out later in the back-office – an administrative, business-to-business process between hospital and insurers. But even in not-for-profit hospitals, executives have started to realize that, if they want to survive as healthcare expands and becomes consumer-oriented, they are going to have to focus on revenue cycle management and rethink the way they manage their front end.

The shift is not just a result of the Affordable Care Act, though this has increased the pressure for change. Over the past decade, hospitals have seen their margins suppressed as revenues failed to keep up with rising costs, caused by everything from technology to salaries. In the past few years, operating margins have ranged between 3-5 percent, slim enough that any further loss of revenue could easily push organizations into the red.

That makes the rise in uncompensated care – at $41 billion in 2011, a tenfold rise over the last 30 years, according to the American Hospital Association – especially worrying. A large part of that is due to growing bad debt as employers and insurers reduce their coverage costs by increasing the size of deductibles and the range of other out-of-pocket payments. In 2013, the number of people with deductibles of over $1,000 grew to 16 million, up from one million just eight years ago. And many of the 30 million uninsured Americans newly eligible for insurance will opt for plans with affordable premiums or high deductibles.

With the growing complexity and unpredictability of reimbursement, and the increasing need for patients to take more responsibility for their healthcare costs, the existing back-end model of managing patients’ payments is no longer sufficient. Hospital executives must focus on a proactive approach to providing medical estimations and collecting payment upfront, while educating patients and ensuring they understand how to get what their insurance eligibility is eligible for and learn to control their out-of-pocket costs.

Interestingly, some of the first steps in shifting payment issues to the front office include hiring people to help get patients registered directly. Similarly, hospitals will need to change processes to ensure that patient deductibles or other payment obligations are identified when they book appointments. This means making patients aware of the costs, what they are responsible for and how they can pay before receiving treatment – rather than chasing payment from patients after they have received service.

Shifting from a care-only focus to an emphasis on compensated quality-care will be difficult for many hospitals, especially those in the not-for-profit space. But executives across the entire hospital sector are recognizing that caring about compensation is essential to being able to care for patients, as the healthcare system changes and expands.