Coming changes in the healthcare industry called for under ICD-10 represent nothing less than a sea change for healthcare organizations. The overall scope of these changes is daunting and has already posed significant challenges to these organizations as business enterprises. What began as a gradual transformation of clinical systems (i.e., DMR) under the Bush administration has evolved to have a material impact on both clinical and financial systems.
One important issue that has come to light in the transition to next-generation clinical systems is the fact that these newer systems do not interface with older, legacy accounts receivable (AR) systems. For many healthcare organizations, that has translated into leaving significant AR assets locked up – constituting a sizeable amount of buried treasure. Fortunately, there are keys to unlocking legacy AR that organizations can put to work today.
A Sea Change in the Industry
The requirements in transitioning from ICD-9 to ICD-10, which goes into effect Oct. 1, 2013, are historic in scope. Where ICD-9 comprised 14,000 diagnosis codes and 3,800 procedure codes, ICD-10 comprises 70,000 diagnosis codes and some 72,000 procedure codes. As a result, from the outset, ICD-10 has bridged clinical and billing systems, with obvious detrimental impact on financial systems.
The fundamental changes under ICD-10 are having a direct, negative impact on revenue generation. In the spirit of “in for a penny, in for a pound,” a significant number of organizations have decided to transition both their clinical and financial systems at once, rather than put off the latter until clinical systems are transitioned.
One industry estimate shows some 30-35 percent of organizations are pursuing this strategy.
Their rationale is eminently sound. As sea changes to clinical systems push into billing, the door is opened to a host of inaccuracies, redundancies and gaps. The effects are seen in billing, compliance, days in AR and, ultimately, cash on-hand. The top line impact of the “big shift” equates to a 2-3 percent reduction in reimbursement revenue. That decline, in turn, necessitates at least a 10-15 percent reduction in operating costs in order for healthcare organizations to stay the course on profitability.
Finding places to cut back on the two biggest costs at hospitals – drugs and labor – is greatly complicated by the fact that the bond market is all but closed for the healthcare industry in the current climate. That makes allocating your best people a critical competitive advantage.
While understandable, too often healthcare organizations feel compelled to throw their best administrative professionals (the “A Team”) at the extensive challenge of migrating to the new clinical and financial systems, while relegating the “B Team” to tasks regarded as lower priority such as recovering legacy AR. But with hundreds of millions of dollars in legacy AR at stake in some cases, these organizations are hurting themselves in the long run.
Putting Money and People in the Right Places
A growing number of healthcare organizations are turning to outsourced solutions as a way to avoid overtaxing already thin administrative ranks as they set out to accomplish the systems transitions described above. In addition to delivering what are typically double-digit reductions in administrative costs, the right outsourcing solution permits an effective redeployment of capital to areas most critical to the bottom line while facilitating the re-allocation of people to projects and functional areas where they are most needed.
Any outsourced implementation must begin well in advance of putting workers in seats. Accordingly, a well-planned effort will kick off with a thorough analysis of the AR portfolio at least three months in advance of commencing recovery efforts.
Another example of a substantial value-add that an outsourcing partner can bring to the table is a lending warehouse facility that will permit AR invoicing by the client. This puts valuable cash, representing a portion of value currently locked up in AR, into the hands of a client today.
At a broader level, as part of laying the foundation, clear executional and financial goals must be agreed to and enacted to ensure the right processes are put in place and financial objectives are met – and exceeded wherever possible.
The advent of ICD-10 is a game-changer for healthcare organizations. Among the seemingly countless transitional issues in play – modeling, testing, documentation, policies, guidelines and much more – legacy AR occupies a meaningful place on the list. A best-practices approach to successfully capturing those assets will be essential for the long term success of healthcare organizations.
John Evensen is vice president-Client Development and Simon Hughes is division president at Firstsource Solutions.