Successfully Consolidating Your Business Office:
Table of Contents Introduction 1 1. Situational Assessment 2 Governance 3 Financial review 3 People 4 Process 4 Technology 5 Patient Impact 5 2. Change Management 6 Staff Education 6 Patient Education 7 Provider Education 7 Change Control 7 3. ROI Analysis - Justify the Expense 8 Technology 8 Workflow and Staffing 9 Revenue Growth 9 Short Term Investment vs. Long Term ROI 10 Summary 11 About Hayes 11
Introduction The drumbeat for more cost-effective healthcare delivery is constant and growing. While Washington wrangles with the conundrum that is a long-term plan for the U. S. healthcare system, organizations must operate in a right now environment of reduced revenue and shrinking margins. The shift to value-based care and alternative payments is adding additional stress to the financial well-being of health systems, physicians and other provider groups. The Healthcare Financial Management Association (HFMA) points out that the transition from volume to value and a corresponding move to population health management will require sophisticated management expertise and significant capital investments. 1 The rollout of MACRA adds new requirements and regulations to physician practices. Increasingly, hospitals and physicians are realizing that they can t meet these regulatory and financial demands alone and need to partner with others to maximize resources. Such thinking has resulted in merger mania in the healthcare industry. Since 2010, there have been over 500 mergers and acquisitions involving almost 1300 hospitals. 2 The percentage of physicians in groups of nine or fewer dropped from 40.1 to 35.3 in 2015 while the proportion of doctors in groups of 100 or more increased from 29.6 to 35.1 percent. 3 As more health systems merge, consolidate and diversify, many are looking to combine disparate hospital and physician billing offices into one single billing office. Even those organizations that are not actively in M&A mode are looking for ways to improve margins by lowering overhead costs through streamlined revenue cycle operations. These efforts often involve consolidating business office functions such as patient statements, customer service and systems integration. They may be trying to get on a single technology platform or to streamline like functions and minimize duplication of effort around registration, insurance assignment and verification on the physician and hospital sides of the organization. Consolidation - whether external or internal - means merging of central business office operations specifically and the entire revenue cycle in general. Combining tasks, workflows and technology to create economies of scale can result in much needed cost savings. 1
Organizational leaders often agree on the potential benefits of consolidation, but many fear disrupting established operations could make things worse and may result in lost revenue or diminished employee morale. There are also concerns surrounding the breaking down of organizational silos that could result in loss of positions or jobs. More frequently, they just aren t sure where and how to start the process. Here are three things to think about if an M&A is forcing a consolidation or if you are simply looking to combine revenue cycle operations for better efficiency. 1. Situational Assessment Executing mergers or centralizing your business offices to achieve maximum value can be challenging. You need to begin with an honest evaluation of why you are considering merging or consolidating. There could be several reasons: To grow larger to hedge out the competition and gain an edge in a competitive environment Obtain negotiating leverage with payers and vendors Streamline operations and reduce costs Improve productivity and efficiency Increase patient satisfaction through single threaded patient engagement Allow more rapid access to a wider range of consolidated financial information and operating detail According to a recent HFMA report, the value of consolidation involves two key questions: will there be benefits to the merging entities and will those benefits ultimately be passed on to consumers in the form of higher quality care, lower costs or both. 4 Once you establish the basic value proposition of your consolidation project, you can proceed to assessing your current situation. Before you can determine where you might be able to combine functions and streamline operations, you need to understand the inherent differences between the organizations or divisions you plan to consolidate. This requires conducting a comprehensive organizational assessment of your people, process and technology to establish your current situation and provide a baseline from which to proceed with the project. 2
COMPREHENSIVE ORGANIZATIONAL ASSESSMENT PEOPLE PROCESS TECHNOLOGY Governance There can be many pitfalls during a consolidation project so it is important to put a strong governance structure in place. A key part of this effort involves identifying a visionary with deep revenue cycle knowledge within the organization who can lead the charge. This person should spearhead the assessment of cultural issues in the billing offices, identify potential leaders who can facilitate the transition and gauge the organizational willingnessto change. The governance team must have the solid support of senior management and include cross-functional representatives from all critical business functions legal, finance, compliance, clinical, business office, technology, facilities, human resources and public relations/marketing. Every aspect of the business will be affected in a consolidation project so it is best to have a broad governance team early on. This will ensure decisions are made keeping the interests of the entire organization in mind. Without a single source of direction, the effort can often veer off course and cause disruption without achieving the goals you have set. Strong governance is crucial to help vet decisions involving changes to systems, personnel and workflow. Establish a vetting process that is efficient so as not to cause significant delays to the decision-making process. Financial review The assessment should begin with a comprehensive review of the financial state of the organization. You will need to conduct a complete analysis of your financial statements including the P&L, balance sheet and cash flow statement. Examine all purchased services, capital expenditures and any other outlays that can be targeted for cost reduction. Review and understand the revenue cycle KPI s to identify under performing groups or departments. Complete an ROI analysis of gained efficiencies, cost 3
reduction and cash acceleration that can be realized through consolidation. This ROI analysis should be the foundation of your internal selling of change throughout the organization and with impacted groups. Further in this document, the process for performing an ROI analysis is outlined. People People can be an organization s most important asset, so assessing personnel is a critical component of the overall assessment. Start by reviewing your organizational chart, open positions, staffing details, payroll schedules, compensation policies, and benefit summaries. Perform a pay grade analysis and look for areas to implement normalization of job descriptions and positions and potential elimination of redundant positions. Review productivity reports to assess the strength of your staff to help in making staffing decisions. You should also review quality results and outcomes. Many organizations don t fully track the quality of individual work performance but when considering consolidation of staff, this analysis is crucial when trying to identify your star players. You will also need to assess the skill levels of your management personnel. Consolidation requires sophisticated management techniques to meet the demands of right sizing the organization so you want to be sure your management team has the necessary skill set. The management personnel are your ongoing change agents pre and post consolidation, so they need to have buy-in and ownership of the consolidation efforts. Process Part of the assessment is reviewing the policies, processes and workflow of the merging entities and if different, uncovering the underlying reasons. The key is determining which, if any, represent best practices. These can become part of the foundation of the consolidated organization. Review the reporting metrics, productivity measures and quality monitoring in every department. Your plan should include a timeline for internal and external changes as well as a communications matrix for sharing information with staff and patients before, during and after implementation Guard against a this is the way we ve always done it attitude. Consolidation presents a perfect opportunity to introduce fresh, new workflows that eliminate redundancies that may have crept into existing processes. A representative for all the merging groups should participate in the review and development of any new processes, procedures or workflows. Each group and department will inevitably feel their way is www.hayesmangement.com 4
the best way. Having representation from the staff/function level is critical to making the final decisions on best practices and getting buy-in for effective implementation of consolidated workflows. Consolidation provides an optimum time to look at performance metrics, level set expectations, establish measurements and set goals. Technology Merging technologies is often one of the most challenging aspects of a consolidation effort. Each site will likely have chosen a vendor for any number of reasons feature set, lower costs or more responsive customer support. Analyze each technology stack to determine which is best in breed and most effectively meets the needs of the consolidated operation. Establish which of your service lines are strong and which may require partnering with a system that will add synergy and excel in services that your current group does not. The final decision as to which system you choose can come down to cost. You may opt for a new, integrated solution or to continue with one of the current systems. If you choose an existing system, you need to guard against the appearance that the team from that entity is in charge and that their workflows are to be adopted. Moving to one system provides the best opportunity to reduce cost and resource time. Supporting and maintaining multiple systems will reduce the ROI of the project. One system that provides consistent workflows across all entities enables a true apples to apples comparison across all divisions and locations. This can be problematic for some organizations that have different billing systems and requirements for the physician and hospital sides. Any systems decisions will involve a review of current vendor contracts to determine the approach to take to consolidate or replace third party vendors that handle bad debt or clearinghouses. You will also need to assess the impact of system change to payer contracting. Patient Impact Rising consumerism is bringing much needed transparency to the healthcare market so successful consolidations must include ways in which the combined organization can pass the benefits of consolidation on to the consumer. 5
Consolidation opportunities that can improve patient satisfaction and keeps the patient at the center of planning and implementation include combining registration and billing activities. This enables centralized customer service and single statements which simplifies the patient experience. For example, instead of multiple staff contacting the patient for payment there is one point of contact in the form of a financial counselor for the entire organization. You can also streamline patient access and engagement when it comes to financial counseling and other interactions. The goal is to create a single-threaded patient engagement model that centralizes all the touchpoints between the patient and the organization. This includes financial counselling, communication, billing, and collections. 2. Change Management Change is uncomfortable for many people and organizations and consolidation certainly represents significant change. According to a 2013 Towers Watson study, only 25 percent of change management initiatives are successful over the long term. 5 To beat those odds and manage change effectively you need a structured change management process. Consider implementing change management coaching sessions for the management team. Many managers in the healthcare industry lack formal training in this area but having skills they can leverage is crucial when an organization is undergoing a significant transition like a consolidation initiative. The key to effective change is education and communication. Clearly communicate timeline and milestones and report progress on a regular basis. Successful consolidation efforts educate all stakeholders on what to expect and when to expect it and how the desired end state will benefit them. Defining expectations will help reduce anxiety. Change management, properly implemented and aligned with technology and strategic initiatives, leads to spending reduction. Staff Education Your staff will feel the biggest impact of change related to consolidation so it is critical to involve them as much as possible. Extensive training will be required anytime there is a new system, revised organization structure or updated policies and procedures. The lack of a significant level of training can lead to confusion and chaos. In the uncertainty, staff might improvise and create their own policies and procedures on the fly which will likely be different from the ones you have put in place. Productivity and efficiency will 6
suffer as a result. Set expectations as to when productivity will return to normal or what the new norm will be after the transition. As staffs from the different entities merge, you must avoid the we do it this way mentality. Involving the staff as an intricate part of the transition will help avoid these pitfalls. Patient Education Successful consolidations educate the consumer on what is happening and the impact it will have on them. Highlighting potential benefits they will enjoy reduced costs, improved quality of care, streamlined patient engagement and interaction will help dispel anxiety. Consider using consumer focus groups to assess what your patient base feels is lacking or what services need improvement. This has been a highly successful tactic in other business markets although it has rarely been used in the healthcare industry. Obtaining the voice of the customer is always an effective way to keep the interests of the patient at the forefront. It s important to carefully explain the coming changes especially involving services being offered, look and feel of bills and statements and customer service support. If this is a merging of organizations in separate geographies, patients will want to know if their local contacts will be changing and if so, where they should go for help. Stress that you are trying to streamline your organization and process and make it less arduous for patients to contact you. Provider Education It s also important to inform your providers of the changes to come and how it applies to them. They feel responsible for the integrity of the revenue cycle so when you talk about streamlining there is a high level of concern that they may lose some control. Managing physician expectations to mitigate anxiety is a critical part of change management and if not handled properly, can derail the project. Change Control There will be many decisions regarding changes that need to be made during the consolidation process. It s important to put a process in place to ensure that each change is discussed, reviewed and signed off by the governance group before it is implemented. There will always be some resistance and fear regarding the changes to be made so it s critical to anticipate potential issues and problems that might 7
arise because of a change. Thoroughly examining the impact of every change on the various elements of the organization is the best way to avoid making a difficult situation even worse. The key is finding the right balance when a decision needs to be vetted by the governance group and when it should be fast-tracked. 3. ROI Analysis- Justify the expense In most cases, the main reason for a merger or business office consolidation is cost reduction. There are also benefits involving better care outcomes and improved patient engagement, but the justification most often comes from improving the organization s bottom line. There is no question that consolidations can provide significant savings up to 40 percent in some cases - but there are short term expenditures needed to realize the long-term gains. You must be able to clearly outline the ultimate return on investment to justify these costs. The opportunity for long term cost savings lies in three main areas: technology, staffing and performance improvements. Although these initiatives will require some incremental costs in the near term, you should expect substantial returns in terms of improved analytical capabilities, better customer service and ongoing savings in future years Technology The main savings opportunities in the technology area revolve around the simplification of your technology stack and reducing expenses related to third party vendors. Start with an inventory and assessment focused on the review and validation of existing applications and interfaces documenting potential cost avoidance opportunities. Many organizations have silos of the providers and hospital groups. Evaluate the various technologies in use and their level of optimization to determine best in breed for the core practice management system and EMR. This is the first step toward streamlining with one integrated platform. You should recognize that if you are under utilizing the technology you have, you may be able to elevate to best in breed simply by optimizing your existing system. This strategy can be extremely cost effective in a consolidation project. Also conduct a review of your third-party vendors handling electronic eligibility, claims, and clearinghouses. If you are paying multiple vendors with similar capabilities you can consolidate to simplify your stack and gain better 8
purchasing power by increasing volume and utilization of fewer vendors. This will also reduce licensing fees and staff support costs. With fewer systems, you will likely need fewer system tech experts, analysts and dedicated trainers to maintain and support them. Workflow and Staffing Simplifying the technology stack and minimizing support, training, upgrades and general help desk personnel can be a primary source of staff savings. Other opportunities for staff cost reduction can result from gaining efficiencies from enhanced or new system functionality and automation. Another area for potential cost savings comes from centralizing like-functions and getting everyone on the same platform. For example, if you have hospital and professional services on two different systems and can consolidate them on one you can merge your call center customer service. With a single statement, there is no reason to have separate call centers. Simplifying and consolidating your operations opens a host of opportunities for right-sizing staff. Look to centralize back end functions like A/R management, statement production and lockbox payment posting as well as front end tasks such as financial counseling, patient registration and insurance coverage verification. Reducing the number of sites where these functions are being handled also allows you to decrease the overhead management required to oversee them. These hidden costs of managing disparate workflows, staff and technology can all be considered areas to target for cost reduction. It can be helpful to go beyond what you think are the normal cost savings of consolidation because there are other areas that may provide savings opportunities. You can also research staffing level metrics collected from various industry benchmarks that can help you target possible staff savings goals. Revenue Growth The benefits of consolidation do not lie strictly with cost cutting. Consolidating systems and workflows streamlines your internal operations which can translate to a more positive experience for the patient. In a competitive environment where healthcare organizations are fighting to retain and gain patients, the increased efficiency that attracts more customers can mean higher top line revenue. 9
Organizations where hospital and provider services are handled by separate business office can find themselves competing against each other for the patient dollar. When a patient comes in, both sides are trying to collect from them. If you are in that situation, you can benefit from going to a single, consolidated statement where both sides are collaborating as a single enterprise on collections. This makes it less confusing for the patient, increases collectability across the board and enhances the patient experience. Optimized or new system functionality and integration with EMR may increase your ability to effectively capture charges and services, leading to increased revenue and enhanced revenue integrity. Short Term Investment vs. Long Term ROI While consolidation provides long term benefits, you should be prepared for the short-term costs of the investments you will be required to make. Be prepared to pay for up-front costs such as back filling positions and bringing on additional, temporary staff to get things off the ground. Set aside reserves to account for an initial impact on A/R and cash flow. Some short term tactical actions like changing vendors for statement production or insurance verification can be done quickly and, depending on the contracts in place, could reflect savings in a month or two. Altering things that may be ingrained across the enterprise such transitioning to a new practice management or EMR system or centralizing staff will take significantly longer. These core changes need to be vetted, budgeted and ultimately financed over time. Initiatives like co-facilitation of staff and reengineering workflows requires up front expenditures and time to accomplish. Set realistic timelines and milestones to determine when you will break even and when you will begin seeing reduced costs or additional savings from your consolidation. Typically, you should realize a positive ROI in year three. This is especially the case when you are making PM or EMR system transitions or relocation changes. In our experience facilitating multiple consolidations we have been able to demonstrate a 20 to 40 percent savings for our clients. The level of savings depends on the extent of the project. If you are making minor adjustments to vendor contracts, your savings will be less than if you are completely transitioning to an integrated PM system or implementing a major workflow consolidation. 10
Your ROI calculation should include conservative, moderate, and aggressive projections depending on the number of actions you ultimately execute. In the end, you are likely to land somewhere among those three. Summary These three major planning areas are relevant whether you are involved in a major merger of separate entities or consolidating business offices within a single organization. You need to determine how much time, money, effort and energy you are willing to devote up front to make your consolidation project successful. It s important to remember that a consolidation effort isn t over once you flip the switch. You still need to keep your finger on the pulse to track the results of the actions you are taking and to confirm that you are realizing the projected savings. Establish milestones and monitor them on a regular basis. Only then will you know if you are achieving the goals you have set and realizing the hoped-for value. Taking on a consolidation project can seem daunting. Engaging with an experienced partner who has been through it before and understands the potential pitfalls can make the initiative much more manageable. Your partner can help you develop an action plan with timelines, milestones and checklists that breaks down the tasks to make the project more controllable. About Hayes Hayes Management Consulting is a leading, national healthcare consulting firm and software developer that partners with healthcare organizations to streamline operations, improve revenue and enhance technology to drive success in an evolving healthcare landscape. To learn how Hayes can help you with your revenue cycle needs, call 617-559-0404 or requestconsultant@hayesmanagement.com. 11
Sources 1 Health Care 2020: Consolidation, HFMA report, Fall 2016 2 Health Care 2020: Consolidation, HFMA report, Fall 2016 3 Consolidation of US Physician Practices Continues to Surge, by Nicola M. Parry, DVM, Medscape, September 7, 2016 4 Health Care 2020: Consolidation, HFMA report, Fall 2016 5 New Study Explores Why Change Management Fails And How to (Perhaps) Succeed, by Victor Lipman, Forbes, September 4, 2013. 1320 Centre Street Newton Center, MA 02459-2400 617-559-0404 info@hayesmanagement.com 12