Only 24 percent of hospital CFOs expect a positive near-term return on their investment in physician employment, according to a recent HFMA survey. Revenue cycle management is part of the problem. Only a small minority of CFOs are “very satisfied” with the collections processes of their employed physicians. Just 15 percent of CFOs are “very prepared” to analyze physician-specific data.
Finance leaders need a simple method for managing the physician revenue cycle. By using a little known metric—collected versus collectable (CVC)—revenue cycle leaders can monitor the medical practice revenue cycle, manage practice performance, and communicate outcomes. CVC is cash actually collected compared to cash that should have been collected based on payer contracts.
CVC allows revenue cycle staff to monitor high-level outcomes while managing performance at a detailed level. In addition, CVC is easy for physicians to understand, so it is a useful tool for engaging physicians in financial goals.
The CVC ratio is similar to the net collections rate, but it enables a more accurate review of payments. The basic calculation: Divide payments received (cash) by all contractually allowable payment amounts (see exhibit below).
To track CVC, you will need data on cash-basis payments from payers and patients, and contractual allowables by payer and by CPT code. Allowables should reflect any special payment tiers based on unique coding (e.g., lower allowables for bundled services or assistant surgeon services).
How is CVC different from net collections or accounts receivable (A/R)? A practice’s net collections rate is calculated using payer-classified adjustments, so it is dependent on accurate payment from payers. Additionally, the net collection rate includes any and all adjustments, including non-contractual adjustments such as bad debt and others. The adjustments may be erroneously inflated, therefore invalidating the metric. In contrast, CVC is calculated using contractual allowable amounts determined from the actual fee schedules. That makes it an accurate indicator of effective collections.
The A/R days measure tells you how quickly claims are paid, but not whether claims are paid appropriately. It is possible for medical practices to have very strong A/R and net collections numbers, but poor collections on allowables.
Once revenue cycle staff begin examining CVC, they may find physician practices are leaving a lot of money on the table. CVC indicates clearly whether a physician practice is collecting all the money it is entitled to.
Using CVC to Drive Analytics
CVC monitoring allows finance professionals to manage medical practice collections proactively. Dips in long-term CVC trends or failure to meet benchmarks provide an early warning of revenue cycle problems (see the exhibit below).
For example, say a health plan is consistently paying incorrectly for certain office-based procedures. Unless these procedures represent a very large percentage of total charges, the net collections rate will not indicate a problem. Even if net collections were noticeably low, the standard approach would be to examine payer denials.
In contrast, finance leaders who monitor CVC will detect consistent underpayment very quickly. Once CVC declines, managers can drill down by CPT code and identify the specific procedures being underpaid. The organization can then approach the payer with concrete information about codes, procedures, and payment shortfalls. Payers are more likely to address and resolve underpayments when presented in bulk.
While other metrics are process measures, CVC is an outcomes measure. This lets you measure the effectiveness of your revenue cycle at key points, then explore problems using other metrics.
CVC provides a clear way for physicians to understand their practices’ collection goals and their actual collection performance. CVC metrics can be included in physician dashboards (see the exhibit below). This is especially important for physicians whose compensation is tied in part to collections.
Uncovering Contract Problems: A Case Study
A large multispecialty practice on the East Coast has included CVC in physician dashboard reports for the past several years. Recently, a gastroenterologist in the group noticed a steep one-month decline in CVC, so he called the business office immediately.
Quick analysis showed the problem was confined to one payer and a small number of codes. Follow-up revealed that the payer had recently enacted a new policy, bundling certain procedures that had always been paid separately. It was a relatively minor change, but it had a significant impact on this specialist’s revenue.
Contract language enabled the practice to reverse this new unfavorable policy. Without CVC, the finance department may have eventually picked up on the problem. But in many large practices, a relatively minor change like this can go unnoticed for months.
Supporting Financial Management
CVC data supports several important financial management functions:
Projecting practice revenue and cash flow. Estimating practice revenue based on historical revenue data can be inaccurate because this approach does not account for actual payment performance. The alternative is to apply payer-specific CVC rates to receivables. This will produce accurate projections of payments over the next month and quarter and an accurate estimate of future revenue.
Preparing for contract negotiations. Finance departments can prepare for contract negotiations by analyzing the CVC ratio. Comparing collected to collectable amounts by CPT code, physician, and service line will highlight chronic underpayments that should be addressed in the contracting process. Where rates are below Medicare payment, comparing collectable amounts to charges will allow revenue cycle leaders to identify specific components of the fee schedule that are due for renegotiation.
Managing the revenue cycle under new payment models. Because CVC is an outcomes measure, finance leaders can use it to monitor total performance under a contract for specific procedures, diagnoses, and patient groups. Custom CVC metrics will show whether payment is correct for a particular service bundle. CVC also allows you to compare bundled payment rates between different payers.
Implementing CVC Tracking
The first step is to obtain all fee schedules for existing payer contracts—or at least fee schedules for your top payers that cover 80 percent of provided practice services.
The next step is to load the fee schedules into the practice management information system or to create a fee schedule database using commercial database software.
Assign an analyst to set up CVC measures within the system, monitor the metrics, and produce regular management reports. Embedding an analyst within the hospital finance department will enable better management of the organization’s employed physicians.
Once revenue cycle staff start monitoring medical practice CVC, they will uncover many process bottlenecks and contract problems. Revenue cycle leaders must be committed to tackling the problems that show up in the data. Hospitals that devote resources to a CVC initiative will improve the operations of their employed physician practices. This will allow the hospital to negotiate better contracts and strengthen overall financial outcomes.