Many hospital executives find their organization’s revenue cycle difficult to measure due to the array of non-standardized and highly variable benchmarks, as well as key performance indicators (KPIs) that have been the industry’s standards. These factors make it challenging for providers to readily see opportunities, assess current resources, determine future purchasing needs, and identify priorities consistent with the organization’s mission.
Healthcare reform and other critical changes to the payer landscape, such as the proliferation of high-deductible health plans, have compelled hospitals to expand revenue cycle management (RCM) indicators in order to paint a more holistic portrait of fiscal performance. One such measure that can identify and drive positive financial improvement is yield.
Defined as cash collected/net expected reimbursement, yield is an indicator that expands beyond traditional accounts receivable (A/R) tracking mechanisms to provide a more comprehensive indicator of the effectiveness and success of the revenue cycle, while normalizing performance reporting.
Yield is intended as a measure of total revenue cycle transactions. However, consistently tracking this measure may point to specific, short term process opportunities for improvement. For example, if the revenue cycle identifies a decrease in insurance carrier yield, it may suggest that a provider is experiencing an increase in denials or underpayments, enabling RCM leadership to put an economic value or return on investment on the solution to improve operational performance.
Although intended to measure total transactions, the following example of a single transaction illustrates how the measure of yield might look. The gross charge for a patient’s routine exam is $2,000. Based upon the payer’s contracted terms, the allowable amount is 50 percent—or $1,000. Insurance pays 80 percent ($800) and the patient is responsible for the remaining 20 percent ($200). Thus, the provider’s net expected reimbursement is 100 percent yield ($1,000).
Suppose in this scenario that the claim is partially denied or paid incorrectly—say, the insurer only pays $700 instead of the $800 contracted amount. The payer yield decreases from 100 percent to 88 percent.
Let’s also suppose that the patient is unable to pay his or her $200 obligation in full, and offers a partial payment of $100—a 50 percent patient yield.
The provider then has a total cash collection of $800, while the net expected reimbursement is $1,000, shrinking the provider’s total yield to 80 percent.
Impact of yield
Traditional/short-term KPIs, such as days in A/R or cash as a percentage of the cash target, can no longer be solely relied upon to understand the long-term overall effectiveness of the revenue cycle. The measure of yield shows healthcare organizations what they may expect to collect vs. what they actually collect.
It’s best to think of the revenue cycle as a series of highly interdependent functions that utilize built-in process safety nets that attempt to maximize net expected reimbursement. Items on a bill or claim are actually a list of these interdependent processes. In other words, if a provider has 100 processes/data points required to complete a claim, and five are suboptimal, those latter processes become “sieve-like” at various points in the revenue cycle, draining revenue.
No organization has the economic wherewithal to touch every individual claim, but if it has processes in place to mitigate inefficiencies, it can ensure that clean claims are being sent out the door.
As an example, let’s say that patient access has been identified as an area with process shortcomings. The revenue cycle can track the effectiveness and accuracy of processes for its front end. Eligibility verification in batch mode processing, centralized pre-service clearance, point-of-service collections and patient self-service technologies may all be brought to bear to provide solutions and increase overall yield.
Further, if a provider determines their claims denial rate is 7 percent, they can ask themselves if those denials are related to patient access (approximately 40 to 45 percent of denials are related to patient access related processes such as eligibility/benefit verification, coordination-of-benefits and missing authorizations, etc.).
In assessing yield, key questions providers need to ask themselves include: Are you willing to sacrifice speed for yield? Are revenue cycle operations going to put more time and effort into pursuing active A/R accounts, or are they to resolve active A/R as soon as possible? Speedy resolution has its advantages; however, in the rush to resolve accounts, are providers missing opportunities to increase yield?
The bottom line
By measuring yield, provider organizations can better assess their overall fiscal health and determine how much real value the revenue cycle contributes to the bottom line.
In doing so, an opportunity also presents itself to implement safety-net measures to mitigate risks, re-engineer processes and reduce the cost of rework. Tracking yield as a measure will provide an opportunity for an expanded view of revenue cycle effectiveness now required in today’s changing and complex healthcare environment.