Up to 5% of Revenue is Lost to Preventable Leakage

September 22, 2020 By: Ken Magness

An Effective Denials and Contract Management Strategy Mitigates Losses

In a June 2020 report, the American Hospital Association estimated that, nationally, hospitals are facing unprecedented losses as an impact of COVID-19. Industrywide, the association forecasts “total projected losses to hospitals and health systems in 2020 [of] at least $323.1 billion.”

In the current environment, perhaps more than ever, hospitals and health systems need to gain better visibility into their revenue streams, identify leakage and implement strategies to preserve and recover the revenue they are owed.

One important piece of the revenue cycle that is often overlooked is contract management. Remarkably, 7 to 11% of claims are underpaid.* This not only negatively affects revenue intake, but cash flow as well. However, with so much effort needed to manage denials and non-payment of claims, assessing and managing claims that are paid under contract is often given a low priority by many hospitals and health systems. The healthcare organizations that are successfully managing contracts are often committing undue resources – budget, time and people – to doing it well.

A Strategic Approach to Contract Management and Revenue Recapture

There is significant complexity in a typical healthcare organization’s payer contract structure. It starts with the challenges of maintaining contracts with dozens of payers and extends to the variability in any given contract’s payment terms based on provider, insurance type, insurance plan and procedure and includes the added wrinkles of managing frequent contract revisions and long reimbursement cycles.

Any efficient, sustainable approach to contract management must start by accounting for the nuance and variability of the contracts and be designed to compare the contracted expected reimbursement to the payer’s allowed amount. This sort of systematic gap analysis enables the organization to identify underpayments as well as wrongful denials and shortfalls.

By creating this level of visibility into contracts, a hospital or health system can begin to take action to shore up revenue leakage.

A best practices approach to contract management and revenue recapture should include:

1. Contract Modeling

Contract modeling provides a basis for systems to understand and “see” the key elements of every contract. This is an important first step to actionably managing contract. An effective contract modeling solution must accommodate all professional and institutional contract types.

2. Actionable Workflow

Not all actionable claims are equal. By defining and systemizing a workflow for outlier claims, the health system can route and prioritize actions. For example, an organization can pursue priority claims during pre-billing based on expected revenue versus total charge, or define payment variance rules and apply post adjudication to determine next steps.

3. Charge Validation

Once a claim is submitted, it’s much harder to fix errors. Instead an effective solution should incorporate chargemaster validation to prevent errors before the claim is submitted. Ideally, the solution should enable the organization to set business rules to identify and correct fees to prevent undercharging.

4. Cash Flow Analytics and Variance Reporting

Well managed contracts and billing procedures create data that can provide insight into cash flow and the impact of variance response strategies. To extract value from the data, a proper contract management solution should provide a set of relevant analytics so an organization can instantly and easily identify opportunities to maximize cash flow improvement in the revenue cycle.

5. Collection and Revenue Recovery

A systematic solution for identifying underpayments and shortfalls is only effective when paired with a means to take an efficient, repeatable action to resolve it. Look for any contract management solution to provide one-click or mass processing options to help recoup revenue.


Quadax’s use of revenue systems integration and intelligent analytics enables its clients to see, manage and act on leakage issues rapidly and at scale with minimal additional resources. To learn more about Quadax’s solution for contract management, contact sales at 440-777-6300, ext. 2405.

Let’s take on the revenue cycle together!

 *Medical Group Management Association (MGMA) Research

Ken MagnessKen Magness is a focused healthcare professional with more than a decade of experience in helping clients understand the true value of automation in the revenue cycle management process. As the Strategic Initiatives Leader at Quadax, Ken and his team are passionate about connecting with healthcare providers to help them create and leverage the appropriate technology solutions to optimize the revenue cycle process and improve the experience of their patients and staff.

 

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