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 a thorough review of 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 to chip away at — in order 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 payers to negotiate better rates? All of these issues need to be addressed when embarking on a 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 billable and how to code and document it. This is going to be especially important now that ICD-10 has been implemented — those billing with ICD-9 codes past the cutoff 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 the actual services provided. Coding is changing constantly, and the organization needs to adapt and adhere to these changes to receive the maximum reimbursement. Special considerations when coding include:

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

Staffing Ratios

Staffing ratios are especially critical for medium and small organizations. What we usually find is non-clinical staffing that is bloated and non-functional. Staffing ratios should be established to ensure maximum efficiency in all aspects of the hospital — including non-clinical staff. What is the ideal number and mix of staff for each department to provide excellent patient care and safety while allowing 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

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 set at in our primary contracts? This is the ratio between volume and price. Do you know what your ROI needs to be in order 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 determine the cost per service, you can begin to look for opportunities to insource or outsource. Some services may be less expensive to insource, while others may be less expensive to outsource. A cost-benefit analysis should be performed to identify areas where cost savings can be obtained.

Conclusion

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

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About BHM Healthcare Solutions

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

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