ACA brings new opportunities, challenges for revenue cycle management

The U.S. Supreme Court’s decision on the Patient Protection and Affordable Care Act has brought much-needed clarity to hospitals and other healthcare providers. With the uncertainty gone, providers can now fully assess and plan for the Affordable Care Act’s (ACA) effect on revenue cycle management (RCM).

Virtually every aspect of the ACA affects RCM, including:

Funding Cutbacks: The ACA calls for dramatic funding and reimbursement reductions, including more than $700 billion in future Medicare spending. For non-profit hospitals, Medicare reimbursements will be reduced over 10 years by more than $150 billion, and $14 billion in Medicaid disproportionate share hospital payments will be cut, according to Moody’s Investor Services.

Also, the Supreme Court gave states the option to accept or reject federal money for Medicaid expansion. In some states, providers will have to project whether their state will opt in or opt out of federal funding. If a state chooses to forgo the expansion, a provider could still be faced with significant numbers of uninsured patients and experience Medicaid payment shortfalls.

In terms of RCM, these cutbacks and continued uncertainty in some areas make it even more important to identify and maximize payments and collections since hospitals typically operate on a 1-3 percent bottom line margin. Any cutbacks in reimbursement will have a definite negative effect to the bottom line and could quite possibly make the difference between continuing to serve the local community and closing their doors, especially for rural facilities. Typically in order to add one point to the bottom line margin, there needs to be a 10 percent reduction in costs to the top line. With decreasing reimbursements, this makes managing such cost cutting measures even more difficult. It also makes being competitive in the market place that much more important.  

New Quality-Care Programs, Reimbursement and Incentive Models: With the goal of providing better care at lower cost, the ACA includes pilot or expanded programs to test different models. The Center for Medicaid and Medicare Services’ value-based purchasing program, for example, provides incentive payments to hospitals that meet or exceed certain performance benchmarks set by CMS. Other programs include bundled payments and shared savings initiatives.

In terms of the effect on RCM, all of these programs require comprehensive reporting, including the collection of significant data about clinical outcomes, detailed billing and reimbursement records, and compliance information.

In addition to meeting requirements, more robust RCM systems can also provide valuable insights into costs and help identify areas for improvement. If a hospital is penalized, for instance, for an unusually high rate of readmissions or hospital-acquired infections, it can mine its data to identify root causes and trouble spots, and devise solutions.

Compliance, Oversight and Enforcement: Much of the ACA changes involve compliance with new criteria, such as medical necessity standards. Similar to the outcomes-based programs mentioned earlier, RCM systems must have the capacity to collect and integrate clinical and other types of information.

Along with new compliance standards, the ACA also has an oversight and enforcement component. The Recovery Audit Contractor (RAC) program is designed to root out fraud, waste and abuse. Documentation practices will be put under a microscope, necessitating RCM systems with tight controls, access and audit capabilities. These advanced systems can also help identify areas with recurring errors or other issues.   

Huge Influx of New Patients and Data: Once coverage for the uninsured begins to expand in 2014, providers are likely to see an unprecedented increase in demand. RCM systems will have to capture and analyze a tremendous amount of new information, including: insurance eligibility and authorizations for Medicare, Medicaid and private insurance; coding; medical outcomes; compliance with clinical standards; payment and reimbursement requirements; doctor payments; and claims, billing, payment and collections data.

Increasingly, RCM systems will also have to function as interactive patient portals.

Looking Ahead

As providers determine the best strategy to meet broad new requirements, they may choose to update, modify, replace or outsource RCM systems. With the cost and complexity of RCM, outsourcing will play a more central role, enabling providers to minimize upfront investment costs, increase agility and flexibility, reduce the need for training and hiring, and provide ongoing savings.

Many providers have found that the bottom-line effect of outsourcing is significant. One large RCM provider that works for providers on a gain share basis, which is similar to a contingency fee arrangement, achieved a 400 to 600 basis point improvement in margins for its hospital clients, effectively doubling operating margins.

The ACA has dramatically changed the operating environment for healthcare providers. One of the most important tools they can put in place to help adjust to and benefit from the law is a multi-faceted RCM system. While the changes under way are challenging, they also offer a rich opportunity for healthcare providers to use RCM to make their facilities run more efficiently and cost-effectively and provide higher-quality care to patients.
 

John Evensen is vice president-client development at Firstsource Solutions.