Hospitals in a Declining Economy

Key Findings

• Hospitals are moving?from profit to a net loss?due to fewer patient admissions (by 3-5% per quarter)
• Cost control?can be accomplished by job cuts (though already losing good clinical resources), reducing quality (typically not acceptable), or by implementing?better operational efficiency and automation
• One current operational deficiency factor is?Prior Authorization, which historically hasn’t had a good, automated solution, but a solution currently exists
• Industry studies show that, for a mid-size hospital,?Prior Authorization automation?can?reduce costs by up to $7.4M?in operational expenditure (OPEX)

Hospitals Declining Income

In Q3 2022 several hospitals declared net losses, caused by a drastic decline in patient admissions and decreased clinical resources.

Community Health System (CHS)?reported a $42M net loss in Q3 2022. The reduction was due to a 3.7 % decrease in inpatient admissions.

Mass General Brigham?reported an operational loss of $120 million ( a 2.8% decrease) and provider activity resulted in a loss of $121 million (a 3.0% decline). Discharges declined by 5%.

RWJ Barnabas Health?reported an operational loss of $62 million (a 1.7% decrease from $44 million in 2021), caused by a reduction in adult and pediatric admissions of 3%, a reduction of 1.4% in total patient days, and a significant increase in salaries and operating costs.

Hospitals per patient labor expenses increased 37% from 2019 to Q1 2022. Between 2019 and March 2022, the median labor expense per adjusted discharge rose 37% from $4,009 to $5,494, based on industry reports, citing monthly data from over 900 hospitals polled by Syntellis Performance Solutions.

According to the?2022 NSI National Healthcare Retention & RN Staffing Report, the average hospital turnover rate is 25.9%,??a 6.4% increase over the prior year. Hospitals lose clinical staff, which takes a lot of time and effort to replace and have a record?vacancy rate of 17%. This is up 7.1 points compared to 2021.

With the current RN turnover rate, hospitals will lose an estimated $262,300 per year.

What Contributes to the Problem

There are many factors that contribute to the problem – some are of a human nature (burnout, family issues, depression) and some are more technical or financial in nature. There are things that can be controlled by a hospital’s management, but there are some challenges hospitals have no control over.

Some of the factors that may be controlled can be boiled down to operational costs and efficiency without jeopardizing quality. Those are:

• Infrastructure cost?
• Cost of providing??care (cost of durable medical equipment (DME), etc.)
• Revenue cycle efficiency (claims?submissions, speed of patient’s payments collection, prior authorization).

Factors that are beyond control are inflation, consumer sentiment, and patient admissions. Some may argue that certain factors from this category can be reduced, which in some cases are true, but nonetheless they are hard to predict.

What Solutions Hospital Leadership Can Deploy

Let’s analyze what hospitals’ CEOs and CFOs may be looking at in the current recession economy to stay afloat and turn profitable while continuing to provide their population with high-quality care.

Since the revenue decline is, for the most part, out of hospitals’ control due to inflation, rising salaries, and other recession factors, what can be fixed is the?cost side?of the business. Cost factors may include capital expenditures in buildings, equipment, IT infrastructure, which would typically become more expensive as inflation increases and is hard to bring down. Other cost contributors are related to the economics of providing care – medical supplies, drugs, vendors, transportation, etc. Hospitals may look for alternative vendors providing either better payment?options or better price.

However, the fundamental way to cut costs is to look at the efficiency of the Revenue Cycle.

Efficiency of the Revenue Cycle

Revenue cycle is defined as how quickly provider organization can get paid for its services and how?fast turnaround time?it can provide for its core business units (beds for the hospital, new patient visits for clinics, etc).?

Here we can see there are several ways for hospitals to increase revenue cycle speed:

1. Send claims faster – unfortunately, there is very little room for improvement as current billing specialists are already doing their best to send the claim the same day that it becomes possible.
2. Get insurers to pay faster – in most of the cases insurers will pay at the speed allowed by the contract and would not speed this up as this process affects their revenue cycle.
3. Obtain prior authorization faster?– this aspect of the revenue cycle is the most under-developed and there is a lot of room for improvement.

Speeding up prior authorization

Current studies show that the cost of a prior authorization for providers averages around $11 per submission and averages?$80,000 / year per ordering physician. For an average hospital with 90 ordering physicians, the?cost comes to $7M+ / year.

Unlike previous examples, this cost can be brought down significantly by proper implementation.

1. Prior authorization is a mechanism that insurers include in their utilization management process to prevent non-medically necessary treatments thus avoiding unnecessary medical expenses.
2. Currently, most of the prior authorizations (> 70%) are submitted via phone or fax after the provider fills out the form.?
3. Typical turnaround time is 5-15 business days, which delays scheduling and bed occupancy. Forms cost $7.4M per?year.

Ways to solve the Prior Authorization problem:

1. Good EMR:?Ensure you are using modern Electronic Medical Records (EMR) system that supports FHIR ? (Fast Healthcare Interoperability Resources)- the larger vendors like Epic, Cerner, and AllScripts support it, and many will soon follow
2. Prior Authorization Technology Vendor:?Find a vendor that can provide?end-to-end?integration between the EMR system and the insurer. You may want to think twice if you are offered a portal solution, because that type of system will require you to manually type the information.?
3. Use FHIR Standard:?When choosing a vendor, ensure that the solution being offered is FHIR-standardized. You want to stay away from vendors who offer a proprietary solution that will not support integration with an FHIR platform.?
4. Automated authorization form population:?When selecting??Prior Authorization software, make sure it can interrogate your EMR system and pre-populate the submission form for you. This is the main time-saver
5. SaaS:?You definitely want any solution to be a Solution-as-a-service (SaaS) system – this is today’s norm, and you don’t want to put additional burden on your already exhausted IT staff.
6. Multi-Payer support:?No matter how good the vendor software may look, ensure it is connected to the insurer’s clinical criteria and that the prior authorization forms are specific to each individual code and not generic like “radiology form”, “genome test form”, etc.
7. AI/NLP/ML:?Give preference to those technology vendors that can offer decision support driven by AI/NLP/ML (Artificial Intelligence/Natural Language Processing/Machine Learning) to help you process unstructured information and?potentially remove the entire prior authorization burden altogether.

Recommendation:?find a specialized Prior Authorization solution, which can provide EHR-integrated real-time auto-adjudication and is connected to insurers via a standard FHIR interface using AI/NLP to pre-fill the form.

Bottom Line

1. With economy moving into a potential recession, hospital businesses suffer from many challenges – reduction in admissions, clinical staff churn, and competitive pressure. It is important to revise all aspects of the current operations and try to utilize technology whenever possible to avoid paying expensive labor costs.
2. Increase the speed of the revenue cycle by reducing the prior authorization cost from average of $7.4M for the mid-size hospital down to bare minimum with use of specialized software integrated with your EHR system.
3. When picking a Prior Authorization vendor, ensure it has these five features: EHR integration, ability to pre-populate authorization from EHR, auto-adjudication rules for real-time prior authorization, use of AI/NLP, support for all your multiple payers

Reference Materials

1. Edifecs Prior Authorization - https://www.edifecs.com/solutions/prior-authorization
2. AMA Prior Authorization Survey - https://www.ama-assn.org/system/files/prior-authorization-survey.pdf