As the pandemic slows down, the scale of Healthcare consolidation during the past year is becoming clearer. M&A grew more than 50% in 2021 compared to 2020, showing no signs of slowing down. The deals are bigger, the players are bigger, the effects are more far-reaching.
Consolidation is one driver of what we call the Healthquake, a seismic force that is shaking healthcare at its foundations.
As the Healthquake rumbles, it has generated heated dialogue about the pros and cons of consolidation, including doctors’ decreasing independence, changes in patients’ options, and increasing patient financial responsibilities along with their growing medical debt.
The financial press has focused on operational efficiencies, greater profitability, and the consequences of the tug-of-war between bigger insurers, bigger hospital groups, bigger physician’s practices, and the power of bigger data pools.
However, there are aspects of consolidation that haven’t been in the news as much, almost as if they are hidden. They deserve a closer look because they are affecting doctors’ incomes and even the buy/sell prices for physician practices.
These “hidden” factors are the medical billing process itself and the effects of “non-performance”. Both can have a huge impact on profitability and patient satisfaction.
The reason that both medical billing and associated employee non-performance aren’t getting as much press is because they are simply taken for granted and they aren’t exciting as news stories.
There’s no glamour in medical billing and even though it’s the most critical component of the healthcare business. As for employee non-performance, this usually gets bucketed with HR, a function often considered less important to the bottom line.
A closer examination shows that ignoring billing and the people who are part of it might weaken an otherwise well-thought-out consolidation.
During consolidations, buyers often base valuations on current income. The expectation is that incremental profitability “post deal closure” is driven by revenue increases from additional production and better contracting, as well as by cost reductions on shared service optimization (headcount reduction) and purchasing power of the larger entity.
This focus often leaves something out, specifically money that was being left on the table by the seller or acquired entity, without either of them realizing it. National averages suggest that it could be as high as 15%.
Doctors who are selling their practice might have been underpaid for a long time if they haven’t optimized billing. This means the practice could have been earning more simply by collecting more. Because earnings affect the selling price, they might get less than they deserved in a sale.
The buyer (acquiring entity) may not be able to calculate the incremental revenue that was left on the table. This revenue can be obtained with no change to the way the work is done (throughput). The buyer simply needs a better billing machine to collect on the work the practice is doing.
The optimal way to avoid these issues and identify the opportunity is to engage a 3rd party specialist to complete an audit of the revenue cycle and associated process, then remediate identified issues. To understand this better, let’s look at the billing process, and what an audit might reveal.
The main buckets of Revenue Cycle Management are:
- Patient Intake (Front Desk Operations)
- Charge Entry
- Payment Posting
- Denial Management and Resolution
- Customer Service
Even in the best managed practices, the audit is likely to find issues within each of these 5 areas. Some of the lowest hanging fruit is often in the Patient Intake processes. The “root cause” of why money is being left on the table is usually Knowledge/Training and Process/Technology issues.
Patient intake covers the way patients sign in, pay their copays and outstanding balances, and sets up the system for the physician’s claim to be submitted. This is where things can go wrong without getting noticed.
Patient intake often has process holes or lack of adherence to protocols, which can lead to incorrect collection of relevant information leading to issues in the revenue cycle.
Front desk personnel could input a birth date incorrectly, forget to check the insurance card to see if anything changed, mis-key other demographic information or collect the wrong amount.
These little things can add up as “lost” revenue over time. Here’s an example:
Assume your group collects $10 million a year on average. Upon results of an audit, it is noted that 10% of the time, the “front desk” has made some of the mistakes identified above, which have resulted in an associated denial. Since almost 60% of denials are never resubmitted, this results in approximately $600,000 in lost revenue per year. Since the doctors practice is accustomed to the “normal” monthly revenue, they don’t know this money was left on the table.
The cost is not only the denial itself but also the cost to resubmit and work a claim through the resolution process, which exponentially increases the cost to collect a dollar. So, the financial loss in this case is even greater than the $600,000.
As the consolidation moves forward, it’s likely that these small issues will increasingly show up if the proper processes and systems are not introduced, and billing management is not tightened up.
To avoid the pitfalls, do an outside audit. Catch the “little” mistakes before they become big ones. Train the staff and follow up on the training.
Why Would A 10% Error Rate Be OK?
If the practice has done the proper job on processes and procedures, including training and follow-up for front desk staff, then ongoing errors during Patient Intake (such as the 10% error rate noted earlier) raise some questions.
For those who are conscious of the problems but choose not to resolve, the question becomes – why aren’t they resolved? Is it lack of technical knowledge? Is the money unimportant in the big scheme of things? Or is it something else?
Since the answer requires a deeper dive, it will be covered in another installment of the Healthquake newsletter.
If you are a buyer or a seller in a consolidation, make sure you’ve done a thorough billing audit to get maximum value from the transaction.
Audit all your billing processes and procedures to identify hidden problems that might result from improperly trained or supervised staff. Remediate. Support the staff with sufficient follow up until they are “competent” in their role.