Healthcare Financial Transformation: Five Leading Strategies

December 1, 2020

Article Summary

Healthcare financial transformation—improving care delivery while lowering costs—has been an ongoing challenge for health systems in the era of value-based care and an even more prominent concern amid COVID-19.
While better care and reduced expense to organizations and consumers might seem like opposing goals, by understanding the true cost of services and other drivers of expense, organizations can successfully manage costs while maintaining, and even improving, care delivery.
To that end, health systems can use data- and analytics-driven tools and strategies to addresses financial challenges, including uncompensated care, prolonged accounts receivable days, discharged not final billed cases, inefficient resource use, and more.

A group of medical professionals having a meeting together inside a boardroom at a hospital
Shot of a group of medical professionals having a meeting together inside a boardroom at a hospital

The Affordable Care Act passed into law in March 2010, putting the shift in motion from fee-for-service (FFS) to value-based care (VBC). Since then, healthcare financial transformation—delivering better care at lower costs—has become an increasingly urgent industrywide concern. Furthermore, COVID-19 has increased financial pressures for many health systems, making financial transformation more important than ever.

As organizations continue to evolve and adapt their financial strategies to optimize performance under VBC, the following central challenges stand out:

  • Delivering cost savings and passing savings to the consumer.
  • Resolving uncompensated care.
  • Handling outstanding bill hold accounts, reducing accounts receivable (A/R) days, and managing discharged not final billed (DNFB) cases.
  • Reacting to runaway costs resulting from high labor and technology expenses, inefficient use of resources, and supply waste.
  • Understanding the true cost of care.

To meet the above challenges and effectively transform under VBC, health systems are leveraging data-driven tools to better understand their costs, including what’s driving their expenses, excessive variation, and the impact of an unpaid bill. With deeper cost understanding, these organizations are identifying opportunities to improve their financial practices and save money without sacrificing the quality of care.

Five Ways Organizations Achieve Healthcare Financial Transformation

As health systems undertake the ongoing and evolving challenge to improve care while reducing cost, certain strategies and tools prove essential to maintain long-term financial health. Below are five examples of ways organizations are achieving financial transformation:

#1: Using Cost-Per-Case Improvements to Deliver Big Bottom-Line Savings

As health systems face more pressure to deliver cost savings, they’re turning their attention to cost-per-case improvement projects. These strategies can produce quick wins for improvement teams looking to gain momentum and buy-in. Studies show that the best cost reduction strategies start with clinical improvements. In particular, reducing clinical variation tends to hold the biggest opportunities for not only cost savings but improving care.

Health systems just getting started with cost-saving and quality-improvement efforts increase their chances of long-term success by starting small, on a per-case basis, and understanding the costs behind each healthcare encounter by provider. Achieving this granular level of costing accuracy requires good communication, an executive champion, interdisciplinary participation, and reliable data tools and resources.

#2: Leveraging Artificial Intelligence to Resolve Uncompensated Care

By collecting uncompensated care (unpaid balances) from patients for healthcare services, health systems stand to curb one of their highest costs. Propensity-to-pay tools help organizations target unpaid accounts by using artificial intelligence (AI) to leverage external and internal financial and socioeconomic data and identify the likelihood that patients in a population will pay their balances (i.e., their propensity to pay).

With propensity-to-pay insight, financial teams can focus on patients most likely to pay and connect patients who are unable to pay with charity care or government assistance. Both health systems and patients benefit, as patients can avoid bad debt, and organizations receive compensation for the care they’ve delivered.

#3: Increasing Cash Flow with Data and Analytics

According to a 2018 survey of hospital CEOs by the American College of Healthcare Executives, financial challenges (from declining reimbursement to bad debt) are the number one issue facing hospitals today. In response, healthcare leaders must seek opportunities to boost revenue through improved financial performance and reimbursement. Some common strategies include reducing the number of outstanding bill hold accounts, reducing A/R days, and managing DNFB cases.

Organizations can take the following actions to increase cash flow using data and analytics:

  • Understanding common reasons accounts remain unbilled.
  • Identifying opportunities for improvement.
  • Using data analytics and process improvement to achieve financial goals.
  • Creating lasting improvements.

#4: Confronting Healthcare’s Cost Problem

For too long, U.S. hospitals have focused on increasing revenue, volume, and growth. At the same time, the healthcare system has wasted hundreds of billions of dollars on supply chain inefficiencies, variation, service duplication, and suboptimal labor management, causing expenses to exceed revenue. Healthcare has focused on revenue for so long that the industry has lost sight of runaway costs brought about by high labor and technology expenses, inefficient use of resources, and supply waste.

Recognizing the cost problem is a significant first step toward solving it. Five expense-controlling strategies can help health systems return to a stronger financial position:

  1. Refocus on labor management.
  2. Manage employed physicians.
  3. Change the patient encounter environment.
  4. Augment standard approaches with technology.
  5. Manage patient access and flow through the health system.

#5: Delivering Cost-Effective Care with Activity-Based Costing

Delivering high-quality, cost-effective care to specific patient populations within a service line is nearly impossible without a sophisticated costing methodology. Activity-based costing (ABC) provides a nuanced, comprehensive view of cost throughout a patient’s journey and reveals the “true cost” of care—the real cost for each product and service based on its actual consumption.

By understanding the true cost of care, healthcare leaders can identify at-risk populations earlier and more quickly implement effective interventions (e.g., more careful monitoring and earlier screenings). Health systems that leverage the actionable insight from ABC further benefit by implementing the same, or similar, process and clinical improvement measures across other service lines.

Better Care at Lower Costs: Healthcare’s Ongoing Challenge

Given the complexity of healthcare delivery and its associated expense, financial transformation will be an ongoing challenge for health systems in the COVID-19 era and beyond. Organizations that adopt proven tools and practices to better understand their cost drivers and how those are tied to quality of care will most successfully navigate the challenges, thereby improving their bottom line along with their patient care.

Additional Reading

Would you like to learn more about this topic? Here are some articles we suggest:

  1. Value-Based Purchasing 2020: A 10-Year Progress Report
  2. From Volume to Value: 10 Essential Strategies for Navigating the Healthcare Shift
  3. Healthcare Revenue Cycle: Five Keys to Financial Sustainability
  4. Reduce Bad Debt: Four Tactics to Limit Exposure During COVID-19
  5. The Medicare Shared Savings Program: Four Tools for Better Profit Margins and High-Quality Care

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Reduce Bad Debt: Four Tactics to Limit Exposure During COVID-19

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