healthcare finance 3. Healthcare Financial Analysis – Want To Be More Profitable?

Healthcare Financial Analysis – Want To Be More Profitable?

Summary: Many healthcare organizations are facing financial issues due to changes in the economy, changes to federal, state, and local legislation, and paradigm shifts caused by reform. What can providers and hospital organizations do to improve their profitability?  How does an organization begin to recognize and implement changes to positively affect the bottom line?

Have you completed a healthcare financial analysis lately? We have previously written extensively about the importance of completing an extensive review on health insurance claim denials.  This is one area in which the data is relatively easy to obtain and fairly easy to correct or at least chip away at making corrections to positively affect the bottom line. We have also written about the importance of looking at scheduling alternatives to maximize efficiency and reduce the number of missed appointments. Finally, we have written about the importance of reviewing payer mix and contracting. Are you receiving the maximum reimbursement based on your payer mix? Have you reviewed your contracts? Have you reached out to your providers to negotiate better rates? All of these issues need to be addressed when embarking on healthcare financial analysis.

To further our discussion on financial analysis, today we will focus on billing/coding maximization, staffing ratios, costs per unit, costs per service, and insourcing versus outsourcing options.

Billing/coding maximization

Billing/coding maximization involves billing for the services you provide at the level you provide them.  It is imperative to know what is billablehealthcare finance and how to code and document.  This is going to be especially important when ICD-10 is implemented. Those billing for ICD-9 codes after a certain point will automatically have their claims denied. It is of utmost importance to make sure the organization is fully versed and current on all billing and coding protocols and standards in order to receive the maximum reimbursement allowed, and the appropriate reimbursement that most accurately reflects actual services provided. Coding is changing constantly and the organization needs to adapt to and adhere to these changes in order to receive the maximum reimbursement. Special considerations when coding include:

    • Ensuring that the most appropriate up to date codes are utilized
    • Ensuring that coding is reflective of the services provided from a time perspective
    • Ensuring that the coding is reflective of the intensity/complexity of the services provided
    • Ensuring that staff know appropriate code modifiers to use to align treatment with invoicing and avoid confusion and incorrect and/or inefficient codes

Staffing ratios

Staffing ratios for medium and small organizations is especially critical. What we usually find is a non-clinical staff that is bloated and non-functional. Staffing ratios should be established to ensure maximum efficiency in all aspects of the hospital. This includes non-clinical staff. What is the ideal number and mix of staff for each department to provide excellent patient care and safety while providing little to no downtime? For example: you can’t have staff working 40 hours of overtime consistently as this is very costly and errors are more likely to occur. Conversely, you can’t have staff with an abundance of downtime as this is a waste of resources.

Costs per service

healthcare finance 2.Healthcare Financial Analysis: Learn innovative new strategies today

Healthcare Financial Analysis: Learn innovative new strategies today

We need to be able to drill down to what the cost is for each service on a per unit basis. What does a single unit of service cost the organization? How much can we charge for the service? What is the service reimbursement in our primary contracts established as?  This is the ratio between volume and price. Do you know what the ROI needs to be to be profitable? Drilling down to the cost per service provides an opportunity for apples-to-apples comparisons to determine inefficiencies and target areas to improve.

Insourcing versus outsourcing

Once you can obtain the cost per service, you can begin to look for opportunities to insource/outsource. Some services may be less expensive to insource while other services may be less expensive to outsource. A cost benefit analysis should be performed to identify areas in which cost savings can be obtained.


There are many ways to improve the financial profitability in any healthcare organization. It takes due diligence and comprehensive analysis to determine the areas of improvement as well as to prioritize which improvements can have the biggest impact.

About BHM Healthcare SolutionsBHM Healthcare Solutions

BHM is a healthcare management consulting firm whose specialty is optimizing profitability while improving care in a variety of health care settings. BHM has worked both nationally and internationally with managed care organizations, providers, hospitals, and insurers. In addition to this BHM offers a wide breadth of services ranging including managed care consulting, strategic planning and organizational analysis, accreditation consulting, financial management of health care, physician advisor/peer review, and organizational development.

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