US Hospital Operational Cost Per Day via Ezra Kline, The Washington Post

The High Cost & Reasons Hospitals Losing Money

Do you know the reasons hospitals losing money? Its no secret that our healthcare system has been fraught with trouble for some time now.  For the average healthcare consumer, the price of care is a primary concern, with the cost of healthcare in America highest in the world according to a recent post by Ezra Kline at The Washington Post.  With such a high cost of care, many assume that Hospitals in America are turning a healthy profit, however this just isn’t the case.  In fact recent estimates indicate that nearly 67% of US Hospitals are losing money, particularly when it comes to the treatment of Medicaid/Medicare patients.  In this post we will examine the top 5 reasons why despite high healthcare costs, hospitals fail to turn a profit.

Top 5 Reasons Hospitals Losing Money

1. Denials and Coding Issues

Hospitals frequently lose money because their revenue cycle has not been optimized.  This pertains not only to billing and coding, but also denial management.  If a hospital has not fully examined their coding processes and optimized them, they may not be getting fully reimbursed for the level and amount of care that they are providing.  Organizations should conduct frequent assessments of billing and coding practices, and look for areas of improvement in relation to coding.  It is critical to ensure that you are billing for all care provided, that staff have a full knowledge of what codes can and cannot be accepted in relation to care provided, and that any coding errors which regularly occur are being addressed through staff training.   Denials are another reason why Hospitals often feel the financial crunch.  Organizations should be examining their denial rate for most common reasons for denials.  Administrative errors should be examined, and a sound protocol for appealing denials should be put in place by management to recoup this money.

2. Service Level Discrepancies

Some services which hospitals provide are loss leaders.  For instance, a recent report has shown that Hospitals which heavily utilize “observation” stays for patients could be experiencing a pinch in their bottom line.  In many cases, patients who could be treated on an out-patient basis are being kept in the hospital under observation.  This is not only a costly and inefficient method of caring for these patients in many cases, but could also put the hospital at an increased risk for a RAC audit.  Hospitals should ensure that there are appropriate protocols in place to determine when patients need to be treated in an in-patient vs. out-patient setting, and should familiarize themselves with Medical Necessity Criteria to align their protocols with payments and performance.

3. Front Desk Processes

The best performing hospitals are those in which few resources are wasted, and capacity is optimized.  In order to increase profitability hospitals can look for common areas of waste and downtime which often occur in the form of front desk processes.  Are you utilizing scheduling that ensures that there are appropriate resources and that your departments stay busy?  Are you managing missed appointments and follow up appointments to identify any barriers to care which could lead to inefficiency?  Are you avoiding duplicate administrative work within the organization?  These are questions that savvy hospital CEOs and CFOs are asking themselves.  Decreasing administrative time, boosting efficiency of front desk and other administrative tasks, and ensuring that you are maximizing visits and capacity are all sure fire ways to make your organization more profitable.

4. Reasons Hospitals Losing Money: Look at Your Patient Mix

Hospitals should examine the mix of patients who utilize their facility.  If the majority of a hospitals patients are Medicare/Medicaid patients then it is more likely for them to be suffering financially.  Hospitals with the best financial performance has a sound mix of patients which are Medicare/Medicaid, Private Insurance, and Self Pay. Many organizations can see an improvement in their bottom line by targeting services to patients with Private Insurance.  This can be done by reaching out to payers directly or through marketing campaigns which aim at attracting these patients.  An additional benefit of maintaining and equitable mix of patients is that you are not so susceptible to financial downturns should the payment rates or strategies of any one payer changes.  This will become even more important in the face of healthcare reform.

Get a Jump Start on Increasing Profitability by Managing Denials & reasons hospitals are losing money

5. Evaluate Your Contracts and Negotiate to Win

From contracts with payers, to contracts with vendors, Hospitals should have a sound strategy in place to periodically evaluate and negotiate their contracts.  This could include negotiating improved rates for medical supplies, or increased payment rates from your major payers.  This is also applicable to any standing contracts with drug companies and pharmaceutical providers.  CEOs and CFOs should look at every financial contract that the hospital is engaged in, from the large to the minute and evaluate whether the contract is working for them.  Renegotiation strategies should be put in place internally so that you can eliminate those services which the hospital is not utilizing and get a better rate on those contracts which are still needed.  Companies tend to be hungry for business right now, so the atmosphere is ripe for negotiating, and those hospitals which will experience significant change due to healthcare reform may want to pay special attention to contract terms.  If a contracted service is known to be needed post reform, and a good rate is able to be negotiated it may be worth the organizations effort to lock into an early multi-year contract.  For those services whose impact is more questionable with impending reform, organizations may want to be leery of agreeing to a multi-year arrangement when the economic viability of the service could be called into risk due to pending changes.