Revenue Leakage in Hospitals and Health Systems: 10 Numbers You Absolutely Must Know

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Posted By: Industry Expert September 22, 2017

By Crystal Ewing, Manager of Data Integrity, ZirMed
Twitter: @zirmed

It doesn’t matter if you’re big or small, urban or rural, for-profit or nonprofit – no hospital or healthcare system can afford revenue leakage.

You may know the most common sources of leaks; you may even know which ones are most likely to affect your organization. What you may not know are the astounding statistics showing the depth of the problem and the potential revenue opportunity in solving it.

We’ll start with a big number: revenue cycle inefficiencies (manual vs. electronic processes, for example) eat up 15 cents of every healthcare dollar. (2016 CAQH Index, 2017) Here are 10 more you should know and act on.

Process leaks

    1. It’s common sense that manual transactions between providers and payers cost more than electronic transactions, but the real numbers are shocking. For example, if you’re still checking claim status manually, you pay $7.94 more per claim; for each remittance advice, you pay $5.72 more. (2016 CAQH Index, 2017)
    2. It’s common sense that manual processes between providers and payers cost more than electronic transactions due to the additional time and resources needed, but the real numbers are shocking. According to CAQH if you’re still checking claim status manually, it can cost $3.59 more per claim and for each manual remittance advice, the cost is $4.74 more. (Patient Accounting System Conversions: Challenges for Cash Collections and Revenue Cycle Performance, Crowe Horwath LLC, January 30, 2016)
    3. Patient accounting system (PAS) conversions can be exciting, but they can also spring new revenue leaks. Write-offs peak during conversions and cash collections fall almost 21% immediately afterward.  (Patient Accounting System Conversions: Challenges for Cash Collections and Revenue Cycle Performance, Crowe Horwath LLC, January 30, 2016)
    4. Charge capture problems can cost up to 1% of annual net revenue. (“Capturing all charges: The operational reality,” by Cathy Smith, HFMA Blog, January 21, 2016) Not worried about such a small number? Consider this: a hospital generating $750 million per year could leak $7.5 million of it in missing charges.
    5. Coding errors are the number one reason Medicare and Medicaid deny complex claims. It’s a double-edge sword too. Gaps in Diagnosis Related Group (DRG) coding also affect quality metrics reporting and acuity of care, which can impact reimbursement.
    6. Providers spend an average of $25 (“How to avoid ‘unclean’ claims,” by Amber Taufen, MGMA Connection Plus, March 28, 2014) and up to 33 minutes to research, manually process and appeal each denied claim. (ZirMed) The good news: 90% of denials are preventable; 67% are appealable. (Driving the Denials Management Initiative, a Renewed Focus, The Advisory Board Company, Washington, D.C., web conference, July 28, 2009)

Payer leaks

  1. On average, hospitals lose five margin percentage points to underpayments, denials, and less-than-great contract negotiations. (“Average Hospital Revenue Cycle Leaves $22 Million on the Table”, The Advisory Board, June, 27, 2017) For many, it could be time for an outside contract management solution that doesn’t drain internal IT resources.
  2. Unverified insurance coverage is the number one source of payer claim denials. (ZirMed) Locking in patient insurance eligibility will save the cost to collect later and increase your chances of getting what you’re owed.

Patient leaks

  1. Providers who allow patients to leave the care setting and send statements later are 20% less likely to collect. (“The Importance of Collections / Avoid Writing Off Copays,” by Heidi Jannenga, citing Nancy White, APTA Podcast, WebPT, March 25, 2013) A process for collecting on the spot can help plug the leak.
  2. A complicated medical bill can trip up the best of us. Seventy-five percent of healthcare providers’ bad debt can be attributed to unanswered billing questions, (“Trends in Healthcare Payments,” InstaMed Annual Report, 2014) putting the onus on providers to provide clear estimates, simplify statements and offer finance options.
  3. Hospitals write off 49% of patient responsibility for care as bad debt (“The Consumer Realities of Uncompensated Care,” by Ric Sinclair, HFMA Blog, January 15, 2016) and there’s no end in sight. As Americans rack up more medical debt and struggle to pay their growing share, providers must do a better job of communicating payment expectations and making them easier for patients to manage.

Quantifying revenue leakage is eye-opening. It’s also the first step in determining which sources impact your bottom line the most, by how much and what’s needed to plug the leaks and capture more revenue.

For more information on reducing revenue leakage at your hospital or health system, download this whitepaper.

This article was originally published on ZirMed and is republished here with permission.