The nation’s hospitals continue to grapple with post-pandemic changes that can negatively impact patient care.
Although hospitals, on average, have moved back into the black following the cessation of federal pandemic dollars, they are still dealing with increased labor and supply costs that are depressing margins. According to the Kaufman Hall National Hospital Flash Report, hospitals returned to profitability in March. However, the average operating margin in July was just 1.3%, which underscores the precarious state of the American hospital system.
Amid a perilous financial picture, one might imagine that hospitals are tightening their belts and putting off new technology purchases. However, a new report available from Eliciting Insights that surveyed more than 300 health system executives reveals that nearly 80% plan to purchase or replace revenue cycle management (RCM) or finance technology within the next 12-18 months.
RCM and finance tools don’t diagnose or treat patients. But their insights and capabilities help fund hospitals and health systems in their mission to provide quality patient care. And in this current climate, providers are trying to make every dollar count.
Payer Response Times Lengthen, A/R Days Rise
Getting claims right the first time is critically important for hospital billing departments. However, response times are growing longer for initial responses to claims, which sends accounts receivable days (A/R days) higher. At the same time, payers are denying larger percentages of claims and for increased amounts.
According to the 2022 MDaudit Annual Benchmark Report, 26% of hospital outpatient claims were rejected in 2021. The average rejection was $602, a 6% increase from the previous year. What’s more, payers were taking 15 days to respond, an increase of four days. On the inpatient side, payers initially rejected 27% of claims. The average rejected charge was $5,810, a 9.5% increase from 2021. Initial response took 16.5 days, an increase of nearly a week.
Multiply each of these charge types by the number of claims hospitals submit in a month, and the importance of effective RCM tools becomes clear.
Willingness to Mix Solutions Promising for Vendors
Developed in conjunction with the Healthcare Financial Management Association (HFMA), “Health System Purchase Plans 2023” provides an in-depth view of the RCM buying landscape by hospital size, region, electronic medical record (EMR), and other factors.
Nearly one-half of survey respondents who are considering RCM purchases in the next 18 months are looking to buy or replace five or more solutions, pointing not only to pent-up demand but also to opportunities for vendors in the space. Of those hospitals considering RCM purchases, 95% would consider a bolt-on vendor, rather than further integrations from existing vendors. Interestingly, those hospitals with intent were more likely to consider best-of-breed solutions. However, health systems are looking past the hype, asking tough questions and demanding proof that solutions work as advertised. More than 80% require 3:1 or higher ROI, and 60% want to see how bolt-on technology outperforms RCM technology within their RCM. As an RCM vice president of a 900-bed health system in the Northeast said, “You have got to demonstrate real-world ROI. Don’t give me predictions.”
Prior Authorizations a Particular Sticking Point
When asked what types of revenue cycle and finance technology they planned to replace, the top choices included software for prior authorization (39%), denials/appeals management (37%), and patient self-service tools (37%).
Prior authorizations (PAs) have long been the bane of hospitals and other providers. A survey from the American Medical Association showed that 94% of physicians report care delays because of prior authorizations. They also consume considerable clinician and staff time, as medical practices report completing 45 PAs each week for each physician. Staff and physicians spend two days a week just on prior authorizations.
Hospitals Seek Automation, AI, Outsourcing
As staffing challenges continue, health systems are looking to use automation, solutions that leverage artificial intelligence (AI), or outsource certain RCM and finance functions where it makes financial and operational sense. According to the HFMA/Eliciting Insights survey, more than 60% of health systems plan to invest in automation, with 38% planning two or more automations. More and more RCM functions are using Robotic Process Automation (RPA) as well as AI to perform tasks that humans used to do.
Hospitals are increasingly turning to outsourcing to maintain revenue integrity. More than three-quarters of health systems outsource either a portion of all of their revenue cycle activities, with health systems of more than 300 beds more likely to fully outsource. Among those that have fully outsourced RCM, nearly one-third are planning to buy solutions for denial/appeals management (33%), prior authorizations (29%), and clinical documentation improvement (29%).
According to the report, nine percent of health systems fully outsource their RCM functions currently. This is in addition to the four percent of health systems planning to move to full outsourcing in the next 18 months.
As the CFO of a 100-299 bed health system in the Midwest said, “We are growing artificial intelligence and related IT systems to become more efficient to … do the same work with 10% less staff. That will be our focus over the next probably two to three years.”
Revenue cycle management and finance tools provide the funds necessary for hospitals and health systems to take the best possible care of patients. Even at time when margins hover barely in the black, executives recognize the value of RCM and finance software to enable their missions.
But they aren’t buying just any solutions: they are focusing squarely on return on investment and real-world results, which presents a bright opportunity for vendors with point solutions or best-of-breed offerings that complement or supplant RCM software that’s part of core EMRs.
And as technologies advance for providers, so does the sophistication for payers. Providers will need to continue to invest in enhanced RCM capabilities. Even as value-based reimbursement gains traction, RCM remains the mechanism for providers to get paid what they deserve. This sector is not going away as some in the past have predicted. For healthcare, RCM continues to be as relevant as ever.
Trish Rivard is CEO and Principal Consultant of Eliciting Insights. She founded Eliciting Insights in 2015 to bring quality market feedback to healthcare companies. Trish is committed to helping companies identify and translate customer pain points into actionable solution roadmaps that generate high revenue while preserving budget dollars. Prior to Eliciting Insights, Trish ran Product Management at Trizetto Provider Solutions, where she was responsible for all RCM products and services, including new solution development and operationalizing new product ideas for hospitals and physicians.