Healthcare Finance Trends for 2022: Revenue Cycle Management Focus Report

This Focus Report offers a range of themes carrying particular importance for revenue cycle management (RCM) selected from the Healthcare Finance Trends for 2022 eBook prepared by CommerceHealthcare^®. Financial recovery from the pandemic’s impact will be a paramount concern. (Trend 1 below) An essential contributor to a healthcare organization’s recovery effort is to reduce cost substantially by accelerating automation throughout the revenue cycle, including important areas such as remittance processing. (Trend 2) Automation will drive efficient, cost-effective processes that are likewise a prerequisite for participation in the changing landscape of payer-provider relationships. (Trend 3)

For each highlighted trend, a few additional data points and considerations are provided for further illumination. Leaders are encouraged to read the complete Healthcare Finance Trends for 2022 eBook detailing 11 trends that carry significant implications for the economic and operational wellbeing of health systems, hospitals and practices.

Another Year of Financial Recovery

The trajectory of the COVID-19 crisis suggests a long-tailed recovery. The latest financial data reveals the ongoing challenges.

• Margin/Profitability. More than a third of hospitals maintained negative operating margins during 2021. Estimated total industry net income loss was $54 billion and median margin 11% below pre-pandemic levels.¹ Hospitals paid an additional $24 billion for clinical labor during the year; $17 million for the average 500-bed hospital.² Medical practices have suffered as well. Under 30% of surveyed primary care practices reported being “financially healthy.”³
• Revenue and Volume. An encouraging but decidedly mixed picture emerges on the demand side. Through August 2021, overall healthcare spending was 7.2% higher than the previous year, distributed as displayed in Figure 1.⁴ Spending has lagged GDP growth. Hospital revenue grew, but volume of overall discharges and ED visits remains depressed from 2019 and flat for OR minutes.⁵ The longer-term utilization outlook sees inpatient volume decreasing 1% through the end of the decade, outpatient rising 14%, ED growing 5% for Emergent and falling 15% for Urgent.⁶

View PDF of Figure 1 Chart^[PDF]

• Cash/Liquidity. This metric was bolstered by COVID-19 government subsidies and expedited insurance reimbursements. Disciplined cash management will be required as these supports are removed. In fact, a recent article detailed an emerging liquidity challenge. Major insurers are “behind on billions of dollars in payments,” purportedly due to pandemic-connected “onerous new reimbursement rules, computer problems and mishandled claims.”⁷
• Medical Cost Trend. Another closely watched indicator is employer medical insurance cost increases based on expectations of care pricing and utilization. This figure adds planning context for providers, with particular relevance to health systems involved in direct contracting with employers. Forecasts for 2022 include:
  • PwC: 6.5%⁸
  • Willis Towers: 5.2%⁹
  • Aon: 4.8%¹⁰

Several 2022 implications arise from the data. Effective scheduling and resource management remain essential to optimizing the number of elective procedures performed. Many will diversify revenue, exploring sources such as new reimbursement models, office space leasing and service line expansion. Cost management will be a constant. Leaders will look outside for help. A recent survey found 92% of hospital respondents are intensively considering more outsourcing vendors to drive down both clinical and nonclinical costs.¹¹

Additional Data and Takeaways

• Full-year reports showed health systems and hospitals are still struggling to regain previous margin levels. Labor expenses continue to be a major factor. Those costs have risen 4.6% from 2020 and 19.1% from 2019.¹² Pre-pandemic clinical labor shortages have been greatly exacerbated by the COVID-19 crisis, driving up overall labor expense as a percentage of total costs and exerting increasing downward pressure on margins/profitability for the foreseeable future.
• Providers are contending with inflation, but it is not yet manifesting itself in pricing power. The healthcare price index was up only 2% year over year in October, well below the economy’s overall rate.¹³
• Full recovery will be a long-term project. Fitch Ratings describes the cost burden from the pandemic as “inestimable," and predicts that the ramifications for healthcare “will be felt for decades.”¹⁴
• Some analysts urge leaders to emphasize organic growth transformation, deploying “a range of strategic and operational levers to drive top line revenue growth from acquisition of new patients or greater capture of a patient’s care lifecycle.”¹⁵ It will require a priority shift from the focus in recent years on cost and inorganic growth transformations. (Figure 2)

View PDF of Figure 2 Chart^[PDF]

Major Advancement Opportunity for RCM/Finance Automation

The pandemic’s workflow disruptions spotlighted the necessity of expanding automation of manual processes in the revenue cycle and financial departments. The potential is substantial. McKinsey recently took a fresh look at administrative spending and calculated a 2019 total of $950 billion.¹⁶ The sector breakdown is shown in Figure 3. The analysis attributes fully 21% of that total to the “financial transaction ecosystem,” providing a sizeable target to find savings.

View PDF of Figure 3 Chart^[PDF]

CAQH’s latest annual study asserts that the industry could save over $13 billion if it implemented full electronic transactions.¹⁷ As one example, $426 million yearly could be realized via electronic claims payments. According to 82% of finance executives, their organizations are implementing significant automation, but only 19% report positive results to date.¹⁸ Implementation snags are still prevalent and impede acceleration of automation efforts for many providers. Increasingly, a premium will be placed on selecting outside partners who can manage training and ongoing support effectively to reduce risk and produce speed-to-value.

Financial automation could have a banner year in 2022, driven by several forces:

• Lingering staffing issues. Automation adds significant RCM staff bandwidth, freeing them from rote work to concentrate on more complex situations.
• Inaction becoming more costly. CAQH and others affirm a widening cost gap between more efficient electronic transactions and manual/partially automated ones. For providers whose payment or invoice processes were not automated, average DSO jumped 17% (42 to 49 days) during the pandemic, according to one analysis.¹⁹
• Need to feed growing analytics efforts. Electronic processes help ensure consistent, timely and accurate data flows that are the lifeblood of analytics.

Additional Data and Takeaways

• Detailed information from the CAQH study reveals considerable pockets of opportunity to expand RCM automation:
  • 26% of health plans have not implemented fully electronic payments.
  • 57% plan adoption of electronic remittance advices.
  • Only 22% of health plans receive attachments in a fully electronic manner.²⁰
• 8% of hospitals and health systems have what they consider to be a fully optimized enterprise resource planning (ERP) system in place today.²¹
• Robotic Process Automation continues to grow in healthcare RCM and is increasingly coordinated with artificial intelligence, machine learning and business process management software as part of a powerful “intelligent automation” trend.
• Keeping the principal objectives of RCM automation in steady focus is vital: to produce standardized, exception-based processes (e.g., remittances) while enabling multichannel communications among all parties along the patient financial journey.

Payer-Provider Ecosystem Evolving Rapidly

The pandemic is contributing to a tectonic shift in the ecosystem of payers, employers and providers. The latter witnessed their financial exposure from reliance on fee-for-service. Value-based approaches gained renewed interest, though adoption still lags. Most health systems, hospitals and practices have under 20% of revenue exposed to upside or downside reimbursement risk.²² (Figure 4)

View PDF of Figure 4 Chart^[PDF]

All parties are motivated to expand value-based programs. Providers need to diversify their revenue streams and respond to payers encroaching on their care delivery space. Advancements in artificial intelligence promise better risk management capabilities. For their part, payers are striving for new ways to drive down care costs and alter engrained reimbursement structures. Employers have reacted to the COVID-19 crisis with urgency to rein in burgeoning healthcare costs and foster workforce wellbeing.

The following emerging relationships should see growth in 2022:

• Captive health plans. Health plans launched by providers are growing. Captive insurance offers a predictable revenue stream and a potentially more controllable path to value than structures such as ACOs.
• Corporate partnerships. More companies are forming extensive partnerships with providers. Opening an on-site, near-office, or virtual dedicated healthcare center for employees is of interest to 79% of employers.²³
• Payviders. The so-called “payvider” union of insurance company and provider offers strong vertical integration. Payviders can be created by acquisition, internal development or through partnership, which some argue best creates balanced incentives to pursue value-based care.

Additional Data and Takeaways

• Two leading economists recently asserted that vertical integration through payvider and other structures may offer the best financial and delivery model to “own the whole patient” by assuming “complete responsibility for a patient, spanning coverage, care delivery and administrative processes.”²⁴
• Further innovation in this area can be seen in CMS’ experimentation with “value-based insurance design” under which plans are granted latitude to offer a range of supplemental benefits tied to an individual’s health conditions and social determinants of health.²⁵
• Provider success in navigating these ecosystem changes and new ventures will depend to a great degree on being highly efficient and data-driven. That will require more robust automation of RCM operations than most possess today.

Conclusion

Balancing the multiple RCM priorities discussed in this Focus Report will be crucial. Fuller context for these and other high-impact trends can be gleaned from the complete Healthcare Finance Trends for 2022 eBook, provided by Commerce Bank.

Disclosures:

1. American Hospital Association and Kaufman Hall, Financial Effects of COVID-19: Hospital Outlook for the Remainder of 2021, September 2021.
2. Premier, Inc., “PINC AI Data Shows Hospitals Paying $24B More for Labor Amid COVID-19 Pandemic,” blog post, October 6, 2021.
3. Primary Care Collaborative and the Larry A. Green Center, Quick COVID-19 Primary Care Survey, Series 30 Fielded August 13-17, 2021, September 2021.
4. Altarum Center for Value in Health Care, “Insights from Monthly National Health Spending Data through August 2021,” Spending Brief, October 19, 2021.
5. Kaufman Hall, National Hospital Flash Report, October 2021.
6. Sg2, 2021 Impact of Change^® Forecast Highlights: COVID-19 Recovery and Impact on Future Utilization, June 2, 2021.
7. J. Hancock, “Major Insurers Running Billions of Dollars Behind on Payments to Hospitals and Doctors,” Kaiser Health News, October 6, 2021.
8. PwC Health Research Institute, Medical Cost Trend: Behind the Numbers 2022, June 2021.
9. P. Minemyer, “Willis Towers Watson: Employers Expect Health Costs to Rise by 5% in 2022,” Fierce Healthcare, October 6, 2021.
10. Aon, 2022 Global Medical Trend Rates Report, 2021.
11. Black Book Research, “Labor and Supply Shortages Fuel Surge in Hospital Outsourcing Partnerships, Black Book 2021 Survey Results,” press release, September 30, 2021.
12. Kaufman Hall, National Hospital Flash Report, January 2022.
13. Altarum Center for Value in Health Care, “Insights from Monthly National Indices through October 2021,” Price Brief, November 16, 2021.
14. S. Muchmore, “COVID-19 Impact on U.S. Healthcare System Will Stretch for Decades, Fitch Says,” Healthcare Dive, July 29, 2021.
15. McKinsey & Company, Preparing for the Next Normal Now: How Health Systems Can Adopt a Growth Transformation in the COVID-19 World, August 2020.
16. McKinsey & Company, Administrative Simplification: How to Save a Quarter-Trillion Dollars in US Healthcare, October 2021.
17. CAQH, 2020 CAQH Index, 2021.
18. Healthcare Financial Management Association, “Survey: Hospitals And Health Systems Prioritize Automation,” August 2021.
19. PYMNTS.com, B2B Payments Innovation Readiness Playbook, February 2021.
20. CAQH. 2020 CAQH Index, 2021.
21. Healthcare Financial Management Association, “Survey: Hospitals And Health Systems Prioritize Automation,” August 2021.
22. Numerof & Associates, The State of Population Health: Sixth Annual Numerof Survey Report, August 2021.
23. Marathon Health, Employee & Employer Healthcare Survey, June 2021.
24. P. Orszag and R. Rekhi, “The Economic Case for Vertical Integration in Health Care,” NEJM Catalyst, April 15, 2020.
25. Centers for Medicare and Medicaid Services, Innovation Center Strategy Refresh, 2021.