Strengthening Partnerships with Revenue Cycle Outsourcing Vendors to Improve Performance & ComplianceNicholas Fricano – President, Healthfuse

2

Over 50 Vendor Types – 1,000s of Options

3

• Many vendors• Best fit?• Time consuming

Difficult to Manage

4

Healthfuse statistics as of January 2012 – based on combination of collected data and surveys from 983 health systems

Spending More on Revenue Cycle Vendors% of Revenue Cycle Operating Budget Spent on Third-Parties

5

• 72% increase in cost to collect from 2001 to 2011

• 69% Of hospitals are partially or fully disappointed with their vendor’s performance for the price; about 50% are making a change just because of this)

• Early-out self-pay seems to be main area of concern

• Only 11% of hospitals have adopted consistent and consolidated revenue cycle vendor governance models despite 74% of vendor costs due to outsourcers and/or service providers

• Less than 40% of hospitals reported that service level agreements are in outsourcer agreements

• Less than 20% of hospitals audit vendor activity and compliance to service level agreements or hospital policies

• Average tenure of outsourcing vendor is nearly 7 years; after 3 years, performance deteriorates by 10%

State of the Industry

6

• Increased cash collections• Better and less expensive than “do-it-ourself”• Expert and knowledgeable• No “nickel and diming”• Good visibility and communication• Executive involvement• Aligned incentives

What Hospitals Expect From our RC Outsourcers

7

• Engagement• Client understanding of differentiation• Long-term partnerships• Open dialogue and feedback• Timely payment for service• Good visibility and communication• Executive involvement

What Vendors Want From our Hospital Clients

8

Leverage Analytics

Manage the Process

Measure Improvement

Create a Vested Partnership

Prioritize Vendor Management

Agenda

9

Leverage Analytics

Manage the Process

Measure Improvement

Create a Vested Partnership

Prioritize Vendor Management

Agenda

10

Presentations Do Not Prove Performance

11

We Can “Moneyball” Vendor Management?

New York Yankees$114,457,768

vs$39,733,689

Oakland Athletics

12

Deriving Quantitative Vendor Data• >1,200 Vendors• >2,000 Hospitals• Quantitative & Qualitative

• Best possible across markets• Focus is top performers• Outcome vs Pricing

13

Who are Your Partners More Like?

OR

14

RFP Quantitative Data Collection

• Historical performance for at least 2-3 like hospitals

• If self-pay, what percentage of performance is PSP, BAI, insurance discovery?

• If auto, does performance include med pay?• If bad debt, does performance include legal?• If Medicaid, does performance include SSI,

disability, insurance discovery?

ACTION IT

EM

15

10 Metrics That Drive ResultsPUAT – % of unpaid accounts touched (BM >90%)

PWA – Payment without action (with exception of statement) (Avg <25%)

ATPP – Average touch per payment (AVG - 1.5-2)

APPA – Average payments per account (AVG - 2.3)

FPY – First pass yield (AVG– 45%)

PPPC – % of payments per incoming/outbound call (AVG- 30%/70%)

PAL90 – % of accounts liquidated > 90% (AVG– 30%)

PPE – Payments per event (touch) (AVG- 0.3)

PTPD – Promise to pay default (BM <10%)

ADFP – Average days to first payment (BM < 47)

16

Leverage Analytics

Manage the Process

Measure Improvement

Create a Vested Partnership

Prioritize Vendor Management

Agenda

17

“Barry Bonds doesn’t step up to the plate thinking home run.

He steps up to the plate focused on a sweet swing”

– Jim Camp

18

Correlating Process to Outcomes

• Account Activities Audited

• Financial & Compliance Measured

• Errors Halved• Outcomes Doubled• Immediate Impact

19

Measuring Your Vendor’s ProcessSimple File Spec from Vendor

• Identifier (MRN, guar. #)

• Placed Date

• Last Pay Date

• Placed Balance

• Current Balance

• Financial Class/Type

• Status (pay plan, etc)

• Event Date

• Event Type

Compare Actual to SLAsACTIO

N ITEM

Data + Experience = Better Results

20

21

Leverage Analytics

Manage the Process

Measure Improvement

Create a Vested Partnership

Prioritize Vendor Management

Agenda

22

Measuring Improvement

• Seasonality and Cyclicality• Month Over Month / Year Over Year• Notification of Performance Deterioration – Typically 8%

Annual Decline After Year 3

ACTION IT

EM

23

Leverage Analytics

Manage the Process

Measure Improvement

Create a Vested Partnership

Prioritize Vendor Management

Agenda

24

Creating Vested Partnerships

• Sharing Mutual Success• Safety Net• Compliance with Service Level Agreements• + - Competition

25

WIIFM or Vested Partnership?

• Shift as Soon as Month 18• Vendor Margins Steady or Grow • Hospital Performance Declines

26

Examples of Vested Partnerships

Year 1 Year 2 Year 3Base Fee 7% 6% 5%

Yield Fee NA 1.5% 3%

Total Fee 7% 7.5% 8%

Sharing Mutual Success(e.g. EOSP)

Safety Net Fee Rebate (e.g. EOSP)

• In the event bad debt performance exceeds a certain threshold (e.g.4%), EOSP vendor rebates difference in fees

• Also works for secondary Medicaid eligibility and underpay recovery

FeeEarly Out Self-Pay 7%

Bad Debt Fee 18%

Difference 11%

• If baseline exceeded, auto-renew; if missed, term

• Easiest to use cash equivalent on monthly basis

ACTION IT

EM

27

Leverage Analytics

Manage the Process

Measure Improvement

Create a Vested Partnership

Prioritize Vendor Management

Agenda

28

29

30

Functions of a Vendor Management Office

Financial & Compliance Auditing

Remediation & Correction

Inventory & Invoice Reconciliation

Contracting Management & (Re)Negotiations

Evaluation & Implementation

Outcome-Based Reporting & Budgeting

ACTION IT

EM

31

Prioritize Meetings

1. Historical performance review and forecast2. Goal to actual performance review and process compliance 3. “Chalk-talks” – account-level review and corrective planning (based on

auditing, etc)

ACTION IT

EM

Hospital

CFO & VPRC (60 min)

Director-Level

Manager/Supervisor – Level

Operations Executive

Revenue

Cycle Outsourcers

Dedicated Client Contact

Dedicated Client Contact and On-site Rep

1Quarterly

2Monthly

3Weekly/Daily

32

Staffing Ratio

Position Description Staffing Ratio

Analyst • Vendor evaluations• Custom research• Vendor scorecard generation• Implementation oversight• Contract negotiation support

• 0.25 FTEs per outsourcer

• 0.25 FTEs per bolt-on tech

Auditor • Account-level auditing• Root cause analysis and reporting• Inventory reconciliations• Invoice reconciliations• Tech optimization analysis

• 0.4 FTEs per outsourcer

• 0.25 FTEs per bolt-on tech

33

Results

• 43 cohort hospitals over last 4+ years

• 7 revenue cycle outsourcers + 8 bolt-on tech

• Average size: $410M NPR ($105M-$1.3B)

• 10-20% cost savings

• 20-30% performance improvement (high was 67%)

• Yield = 1-1.5% of annual net patient revenue

34

Leverage Analytics

Manage the Process

Measure Improvement

Create a Vested Partnership

Prioritize Vendor Management

Agenda

35

Questions?

324 East Wisconsin AvenueSuite 1300Milwaukee, Wisconsin 53202414.988.1130

Nicholas FricanoPresidentnfricano@healthfuse.com414.988.1136