The pandemic has put chief financial officers of hospitals in a new and very challenging position: how to prevent a public health crisis from causing a cash-flow crisis for their organizations.
U.S. hospitals will lose at least $323.1 billion in 2020 because of COVID-19, according to a June 30 calculation by the American Hospital Association, which found that outpatient volumes declined 34.5% and inpatient volume was down 19.5%.1 The revenue loss equates to $885.2 million per day nationwide; a separate analysis found hospitals of more than 100 beds will average almost $1.5 billion in daily losses.2 Few, if any, hospitals had cash reserves or contingency plans to offset that level of revenue loss. New strategies are needed, and this brief describes proven approaches that hospitals can use to quickly reduce expenses, improve revenue-cycle time and create new sources of revenue during the pandemic.
After more than half a year of the COVID-19 era, the pandemic’s full scope and expected duration are still unknown. Hospitals do not know how long their patient volumes for elective procedures and other admissions will be down, nor if they will experience additional surges of COVID-19 patients. Cash is king in an uncertain climate like this.
Fortunately, there are more tools in the finance toolbox than ever before. These range from traditional tactics like drawing on lines of credit, issuing new long-term debt, freezing or cutting capital spending and stretching accounts payable (AP) terms, to new tech-enabled processes to reduce labor expenses while maintaining or even raising productivity. There is also a range of specialized financial services that can accelerate the revenue cycle and create new revenue sources, even during a pandemic. This brief focuses on modern revenue- cycle improvement options, including automating accounts payable and accounts receivable processes in ways that can be implemented quickly even when budgets and staff availability are limited.
Newer services and technologies are breathing new life (and savings opportunities) into the tried-and-true tactic of trying to reduce operating expenses and labor costs in response to a financial downturn. For example, digital workplace services like virtual desktop infrastructure, desktop-as-a-service and collaboration offerings make it practical for health care organizations to enable sizable segments of their staffs to work remotely. The many remote working technologies available today are highly scalable and have the functionality to enable work from home for many job roles with specialized application and data access needs. They also can be implemented quickly, as many organizations have proven during the pandemic. Transitioning employees to a remote work model can help hospitals reduce congestion and free up physical space that could be reconfigured temporarily for pandemic response. Longer term, remote work infrastructure can accelerate digital transformation, help attract and retain employees and potentially reduce information technology operating costs.
Supporting A Remote Workforce
A Closer Look at Payment Receipt Automation
Technology provides even larger and more sustainable cost-savings benefits when it is applied to automate how work is done, rather than to change where work can be done. For example, paying suppliers and contractors through an e-payables program instead of by paper checks reduces the total cost of the payment transaction. It is more scalable than manual, paper-based check issuance, which enables more volume to be processed. Savings from the transaction costs alone can be significant. Depending on their processes the cost for a hospital to make a payment via ACH [automated clearing house] can vary. Based on the extensive track record of CommerceHealthcare®, the cost of an ACH payment typically ranges from 10 cents to 40 cents while the labor cost to issue a paper check has been calculated between $5 and $7. Plus, electronic payment programs can generate revenue share for the hospital.
E-payment should be viewed as a way to augment current payment processes and options rather than as a way to upend them. When hospitals have a single portal that can manage ACH, check, card and specialty payments, they can optimize each transaction by channel while saving time and money on reconciliation and eliminating redundant data entry.
Most health care organizations already have their top suppliers enrolled in an ACH program. Encouraging more suppliers to accept electronic payment is a way for organizations to gain immediate savings and receive incremental benefit from their existing programs without requiring new investment. A Texas hospital recently pursued that strategy with support from CommerceHealthcare®. It identified $1 million in expected benefits. When the hospital weighed those savings against the new revenue needed to generate $1 million in profit because of its low margins, it immediately began expanding its payment automation program.
Another way to leverage existing systems for immediate savings is to introduce reconciliation tools into the payment-receipt automation process. For many organizations, this is a relatively straightforward step that could be undertaken during the pandemic despite staff and discretionary spending limitations.
Providers have been working with healthcare clearinghouses for years to automate remittance data for a faster posting process. However, most organizations are not fully leveraging posting automation. One challenge organizations face is enrolling payments along with electronic remittance advice (835/ERA). Enrolling the EFT with the ERA enables providers to avoid account receivables delays. Without this critical step, 835/ERA cannot be posted until the payment is in the bank. Additionally, if a payer cannot provide an ERA for automated posting, there are tools that automatically convert the explanation of benefits (EOB) to an 835 for automated posting. Reconciliation tools have capabilities to segregate comingled remittances into separate ERAs for multiple posting systems, automatically route correspondence and denials, map adjustment codes by payer and other features to automate processes. Tools are available that integrate directly with Epic, Cerner and most other systems, and typically are cost-effective for most hospitals and clinics.
Revenue Cycle Opportunities
With cash taking on added importance, the pandemic is a good opportunity for providers to review their patient financing services. Monetizing internal payment plans through recourse or nonrecourse lending and other third-party services are all potential revenue streams that hospitals may not have used before, but may be attractive options during the pandemic.
Hospitals can use third-party services to quickly set up in-house payment programs that are seamless for patients. These programs can be structured several ways. Up-front funding is an emerging option that gives hospitals an immediate cash flow boost. In up-front funding programs, the hospital provides an estimated cost of care to patients prior to a service, and offers a payment program at the same time. If the patient accepts, the third-party financial services provider pays the hospital up front and in full for the service, and takes responsibility for managing the payment program and patient collections. Less than 20% of providers surveyed at the 2019 HFMA conference were offering payment plans to patients, so up-front funding plans represent a widely available opportunity to open a new revenue stream.3 A more common variation of this strategy is to monetize the accounts receivable portfolio by selling it to a loan servicer.
The systems and processes described in this brief were featured because they can be implemented quickly and cost-effectively even in the current health care climate and provide a positive return on investment. The COVID-19 crisis will change hospital finances. The extent of the change depends on how hospitals respond. A proactive approach that uses new technology-enabled services to automate workflows can mitigate the current revenue decline while positioning organizations to be more efficient and profitable in the future.
A crisis often brings out the best in people and organizations. It can be a catalyst for transformation and a chance to improve value for patients. Many hospitals now have this opportunity because their accounting operations have considerable potential for more innovation.
- American Hospital Association. Catastrophic Financial Impact of COVID-19 Expected to Top $323 Billion in 2020. June 30, 2020. https://www.aha.org/press-releases/2020-06-30-new-aha-report-losses-deepen-hospitals-health-systems
- Crowe. Hospital volumes hit unprecedented lows. May 01, 2020. https://www.crowe.com/insights/asset/h/hospital-volumes-hit-unprecedented-lows
- Healthcare Financial Management Association & Parallon. (2019). Analyzing pre-payment and point-of-service collections efforts. https://www.hfma.org/topics/hfm/2019/november/analyzing-pre-payment-and-point-of-service-collections-efforts.html