Hospitals have to focus on building customer loyalty and brand recognition. Business plans and marketing strategies must address changes in consumer expectations and customer service, reimbursement procedures, rates of heads in beds, sources of payments for care, workforce management and working conditions, changing demographics in hospital catchment areas, and evolving doctor-patient-hospital relationships.

Many hospital CEOs adapted to the shifting sands before the Affordable Care Act (ACA) became effective in 2010. Smaller and undercapitalized hospitals are merging with or selling to larger facilities and national operators. Bankruptcy looms for others surviving into the twenty-first century who may not make it past the second decade.

In the end, like any business, for profit or not-for-profit, survival is all about money. Money is one of two important tools in commercial survival, and I forget what the second is. A University of Alabama-Birmingham study released in 2014 under the direction of Amy Landry, reports no one factor determines hospital solvency and survival, but unrecognized or unmanageable trends lead to bankruptcy.

Two factors are worth examining more directly: the first is leadership turnover; the second is denial management. Business leadership studies generally confirm rapid change at the top destabilizes companies. Other team members leave, priorities change, and there is a trickle-down effect of uncertainty. One study reports shareholder return drops 3.5 percent in the year following a CEO’s resignation. Ousting a CEO creates tremors resulting in four times the plunge in shareholder value.

According to Challenger, Gray & Christmas, a Chicago-based global outplacement and career transitioning firm, health care and financial services led the CEO turnover sectors in 2014. Health care has just under a 20 percent annual turnover rate, and many hospitals lack what one hospital association executive describes as “robust succession planning.” Reducing CEO turnover and crafting viable succession plans for CEOs and department heads are where hospitals need to engage outsourcers. In-house staff maintains too much “baggage” to undertake these tasks in a meaningful manner.

The other factor to consider for hospital solvency and survival is the institution’s denial management program. On average, commercial insurers inaccurately process 20 percent of claims filed. If a hospital experiences a higher percentage of claim re-filings, it is likely cash on hand and accounts receivable are a financial drag on the institution. Cash ratio to debt is too high for good credit ratings, raising the cost of borrowing. Bad debt as a percentage of patient revenue is high. The IT system is outdated or broken.

Frank Irving, reporting for Healthcare Finance News (Oct. 22, 2014), quotes a medical services CEO who claims his denial management strategy prevents revenue loss and cuts receivables by 50 percent. Reimbursement denials and delays are mostly caused by not predetermining patient eligibility, medical necessity, and proper coding of services. The IT department must be as energetic about attention to detail as the medical staff is to patient care.

The Stanly Regional Medical Center in North Carolina uses a Six Sigma approach to denial management: define by prioritizing select projects, mobilize total commitment to the program from the entire organization, measure performance of defined parameters, analyze data from key process determinants, improve claims submissions, and institute controls to hold the gains by reducing process variations.

The results are not staggering, but they are impressive and point in the direction all facilities must move to remain solvent and survive. SRMC cut the denial ratio from 5.47 percent per month to 4.12 percent, resulting in savings of over $132,000 monthly. SRMC also saved money not having to rework as many claims.

SRMC advises others to recognize denials management is a big project consuming staff time and resource commitments. Weekly meetings of the Revenue Cycle Team continue throughout the project. Everyone must be current on frequent insurance change to maximize revenues. The right team will generate a significant return on investment by tracking denials, enforcing accountability, and keeping staff apprised of improvements because their jobs, pay, benefits, and bonuses depend on reducing denials.

Dr. Goldmeier was a Research and Teaching Fellow at Harvard University, where he received his Doctorate in Education. He is a former consultant to the US Surgeon General on federally funded Maternal and Child Health programs. Currently, he teaches international university students and serves as a business analyst and development consultant for companies and nonprofit organizations. His new ebook on Amazon is Healthcare Insights: Better Care Better Business.

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