As Colorado's primary safety-net organization, Denver Health provides healthcare services to nearly 25 percent of all Denver residents. Medicaid, the health system's single biggest payor, covers 46 percent of the patient population, and Medicare covers another 12 percent. It seems unlikely that a health system with such a payor mix can remain so vibrant. Yet in 2010, it was able to record a net income of more than $6.5 million and had total operating revenues of nearly $662 million.
Peg Burnette, CFO of Denver Health, has been with the system since 1996 and has seen it all. The ups, the downs, the highs, the lows. She says there are several ways hospitals can deal with today's financial hurdles, and there are six common strategies in particular.
1. Implement lean processes. Since 2005, Denver Health has saved roughly $128 million through different lean management initiatives. Ms. Burnette says lean programs can put hospitals on the fast track to cost savings and increased revenue production as waste is directly cut from the system.
Ms. Burnette gives two examples of how the lean programs have helped out the health system. Denver Health has grants that are awarded to the organization to help patients pay a small portion of their hospital bills. Previously, the grant portion would be carefully billed and payment received, but no one closely monitored the other payors that had to cover the rest of the bill. Denver Health decided to redesign the process through automation, which eliminated the muddling of paperwork, and it redeployed its staff to identify and notify the payors immediately after grants paid. Now, the grant program is running efficiently while still providing benefits to the patients, she says.
Denver Health also used lean principles to shore up the coding department. Previously, there was no standardized way to get documentation to coders, as couriers manually transported pieces of paper to coders. After implementing a lean strategy, Denver Health created a shared directory where coders can pull data for their specific cases instead of waiting for a courier, which saved time, paper and the environment. "It's something that somebody should've done, but sometimes you're not regularly looking at all services or processes you have in a complex organization," Ms. Burnette says.
2. Focus on primary care. Much like accountable care organizations, Ms. Burnette says hospitals that concentrate on making primary care an integral part of their organization, formally through an ACO or otherwise, are doing themselves a favor in the long run. Focusing on the treatment of chronic diseases and acute problems outside of the hospital as well as low-cost outpatient procedures are the tenets of future success. "Our belief is that most cost-effective model for a capitated reimbursement program is to focus on primary care," Ms. Burnette says. "This involves affiliating with other systems, getting all components of care coordinated by one organization, developing that relationship with the primary care provider and developing a reimbursement system to the providers."
3. Stay on top of revenue cycle and RAC issues. If hospital CFOs have heard it once, they have heard it a million times: Watch the revenue cycle like a hawk. Ms. Burnette says this is nothing new, but it's becoming even more paramount as Medicare and Medicaid recovery auditors are ramping up their efforts to recoup overpayments. "There are so many billing rules with fee-for-service, so you have to stay on top of billing and [RAC] processes, or you'll miss out on money that's due and lose out on reimbursement," Ms. Burnette says.
4. Have a good system in place for high-deductible health plan patients. High-deductible health plans are on rise, as roughly 32 percent of employers with 500 or more employees offer a HDHP, up from 23 percent in 2010, according to Mercer's National Survey of Employer-Sponsored Health Plans. Forty-seven percent of employers with 10,000 or more employees offer a HDHP.
However, if a patient must pay that deductible, which is an inordinately high out-of-pocket cost to pay at once, hospitals are sometimes left in the dust with the bad debt. Hospitals need to plan ahead of this trend and prepare to help patients pay off their deductibles through payment plans and other less intimidating ways. "If [HDHP patients] have a big bill and can't afford to pay the deductible all at once, we have to have a strategy in place to address that," Ms. Burnette says. "If we don't strategize, we'll be faced with bigger bad debt amounts."
5. Sort, rank and analyze DRGs. At Denver Health, Ms. Burnette says they take a list of all of their inpatient DRGs, compare the cost of those services with what Medicare would pay and sort them highest to lowest. From there, she and others look to see where the highest shortfalls are to see what the problems may be.
For example, some DRGs might need documentation improvement during the coding and billing process, or perhaps a service has an unusually long average length of stay. It's not enough to sort out all the DRGs, Ms. Burnette says. It takes the added effort to find the "why" behind DRGs with high shortfalls.
6. Negotiate payor contracts that provide stable revenue for high-volume patient populations. Due to its high Medicaid volume, Denver Health has negotiated a capitated payment with the state for its large managed care plan for Medicaid patients — the Denver Health Medicaid Choice Plan. Ms. Burnette says this saves the state money and has allowed the health system to provide patient care at a lower cost as it can focus more on prevention and primary care while keeping hospitalization costs down.
Medicaid reimbursements usually do not cover all costs, and although Medicaid fee-for-service payments cover some expenses, it's not as predictable as a managed care plan, she says. "We get a fixed amount per enrollee per month, and it provides a good source of reimbursement," Ms. Burnette adds. "It still just covers costs, but at least it covers the costs."
Peg Burnette, CFO of Denver Health, has been with the system since 1996 and has seen it all. The ups, the downs, the highs, the lows. She says there are several ways hospitals can deal with today's financial hurdles, and there are six common strategies in particular.
1. Implement lean processes. Since 2005, Denver Health has saved roughly $128 million through different lean management initiatives. Ms. Burnette says lean programs can put hospitals on the fast track to cost savings and increased revenue production as waste is directly cut from the system.
Ms. Burnette gives two examples of how the lean programs have helped out the health system. Denver Health has grants that are awarded to the organization to help patients pay a small portion of their hospital bills. Previously, the grant portion would be carefully billed and payment received, but no one closely monitored the other payors that had to cover the rest of the bill. Denver Health decided to redesign the process through automation, which eliminated the muddling of paperwork, and it redeployed its staff to identify and notify the payors immediately after grants paid. Now, the grant program is running efficiently while still providing benefits to the patients, she says.
Denver Health also used lean principles to shore up the coding department. Previously, there was no standardized way to get documentation to coders, as couriers manually transported pieces of paper to coders. After implementing a lean strategy, Denver Health created a shared directory where coders can pull data for their specific cases instead of waiting for a courier, which saved time, paper and the environment. "It's something that somebody should've done, but sometimes you're not regularly looking at all services or processes you have in a complex organization," Ms. Burnette says.
2. Focus on primary care. Much like accountable care organizations, Ms. Burnette says hospitals that concentrate on making primary care an integral part of their organization, formally through an ACO or otherwise, are doing themselves a favor in the long run. Focusing on the treatment of chronic diseases and acute problems outside of the hospital as well as low-cost outpatient procedures are the tenets of future success. "Our belief is that most cost-effective model for a capitated reimbursement program is to focus on primary care," Ms. Burnette says. "This involves affiliating with other systems, getting all components of care coordinated by one organization, developing that relationship with the primary care provider and developing a reimbursement system to the providers."
3. Stay on top of revenue cycle and RAC issues. If hospital CFOs have heard it once, they have heard it a million times: Watch the revenue cycle like a hawk. Ms. Burnette says this is nothing new, but it's becoming even more paramount as Medicare and Medicaid recovery auditors are ramping up their efforts to recoup overpayments. "There are so many billing rules with fee-for-service, so you have to stay on top of billing and [RAC] processes, or you'll miss out on money that's due and lose out on reimbursement," Ms. Burnette says.
4. Have a good system in place for high-deductible health plan patients. High-deductible health plans are on rise, as roughly 32 percent of employers with 500 or more employees offer a HDHP, up from 23 percent in 2010, according to Mercer's National Survey of Employer-Sponsored Health Plans. Forty-seven percent of employers with 10,000 or more employees offer a HDHP.
However, if a patient must pay that deductible, which is an inordinately high out-of-pocket cost to pay at once, hospitals are sometimes left in the dust with the bad debt. Hospitals need to plan ahead of this trend and prepare to help patients pay off their deductibles through payment plans and other less intimidating ways. "If [HDHP patients] have a big bill and can't afford to pay the deductible all at once, we have to have a strategy in place to address that," Ms. Burnette says. "If we don't strategize, we'll be faced with bigger bad debt amounts."
5. Sort, rank and analyze DRGs. At Denver Health, Ms. Burnette says they take a list of all of their inpatient DRGs, compare the cost of those services with what Medicare would pay and sort them highest to lowest. From there, she and others look to see where the highest shortfalls are to see what the problems may be.
For example, some DRGs might need documentation improvement during the coding and billing process, or perhaps a service has an unusually long average length of stay. It's not enough to sort out all the DRGs, Ms. Burnette says. It takes the added effort to find the "why" behind DRGs with high shortfalls.
6. Negotiate payor contracts that provide stable revenue for high-volume patient populations. Due to its high Medicaid volume, Denver Health has negotiated a capitated payment with the state for its large managed care plan for Medicaid patients — the Denver Health Medicaid Choice Plan. Ms. Burnette says this saves the state money and has allowed the health system to provide patient care at a lower cost as it can focus more on prevention and primary care while keeping hospitalization costs down.
Medicaid reimbursements usually do not cover all costs, and although Medicaid fee-for-service payments cover some expenses, it's not as predictable as a managed care plan, she says. "We get a fixed amount per enrollee per month, and it provides a good source of reimbursement," Ms. Burnette adds. "It still just covers costs, but at least it covers the costs."
Related Articles on Hospital CFOs:
How to Cope in This Economic Climate: 4 Thoughts From Elkhart General CFO Kevin Higdon
110 Hospital and Health System CFOs to Know