Case study

Triangulating success: How a major healthcare provider navigated the revenue cycle and executed an operational turnaround

Client: Major healthcare provider

Our Role: Our PwC team programmed the logic and flow of the client’s revenue cycle into the customizable Resolution Queue™ (ResQ) tool, which immediately gave revenue cycle leadership visibility into all accounts receivable.

Industry: Health Industries

Services: Finance Transformation, Operations, People and Organization

Client Challenge:

How to serve patients while being cash flow positive in an industry where everything’s a moving target and there’s no room for error

And you thought you had a hard job. How would you like to have been the newly appointed VP of Revenue Cycle Management for a major healthcare provider, one of the top 15 healthcare systems in the US, with 19 owned or affiliated hospitals, 5,500 physicians and 26,000 employees? Yes, it sounds great, but healthcare is one of the most complex, highly regulated and rapidly changing industries on the planet, and for this organization an extremely challenging environment with operating margins averaging 2%. At 2%, even small inefficiencies get magnified. When the new VP joined the health system, the provider’s cash flow was trending negative and it was his job to fix it.

Things weren’t always this tight. For many years, when the payer mix was more commercial, there wasn’t as much pressure on cost and margins. But now, with the balance shifting away from commercial payers, everything had changed. For our client and its peers, this cost pressure combined with outdated processes and technology and the need to address increased patient volumes was a challenge.

The healthcare industry had been an early adopter of HIS technology, but through consolidation, organic growth, regulatory change, ad hoc process modifications, and high levels of departmental autonomy regarding applications, health systems like our client were dealing with many disparate systems, processes and workflows that didn’t communicate with one another. And these had become embedded over time, creating significant inefficiencies. Our client was determined to address this problem and called on PwC to help. But the elephant in the room was that there was not a magic bullet - all things from people, process, organizational structure, and technology needed to be considered—and it was going to be hard for this health system.

“Working with the client and with our ResQ tool, we were able to quickly baseline accounts receivable and then focus on process improvement across the revenue cycle to drive both cash acceleration and net revenue improvements.”

Jon Souder, PwC Partner

Approach:

The triangle: There are three sides to every problem

PwC had been working with this organization on various projects for the previous three years, so we had visibility into what needed to be done to improve the revenue cycle. We knew that the first order of business was to baseline and stabilize accounts receivable (AR). We then recommended, and assisted with, implementation changes to the organization and operation of the internal workforce and the vendor model, which would allow the health system to leverage standard, simple and repeatable processes. Finally, we would address the drivers of net revenue. Over time we would involve PwC professionals from Advisory, Risk Assurance, Technology, Risk & Regulatory and People & Change.

Sounds simple, right? Not so fast. To put this in context, our client used a combination of status codes, audit codes, vendor codes, and various bolt-ons to manage the nearly 800,000 patient accounts with open balances. This led to confusion about the ownership and collectability of open accounts, and created multiple black holes. Fortunately, PwC developed a customizable tool called Resolution Queue™ (ResQ) for use with clients with exactly this problem. The PwC team programmed the logic and flow of the client’s revenue cycle into ResQ, which immediately gave revenue cycle leadership visibility into all AR, along with the ability to drill down. This allowed them to quickly understand and correct any accounts without owners, those that were past-due for follow-up, and begin to have staff accountability at the account level.

Now, let’s go back to the new VP of Revenue Cycle Management. With AR stabilized, it was now time to turn to the more fundamental issues driving improved revenue cycle performance. In a staffing analysis performed for the health system’s leadership, the PwC team outlined the lack of internal and external capacity under the current operating model to effectively work open accounts. In fact, our analysis showed that 45% of high-dollar aged accounts had greater than a 90 day gap in follow-up, and that vendors had not touched over 20% of the outsourced inventory. After being presented this information in the meeting, with only three weeks on the job, the VP stood up at the whiteboard and drew a simple triangle that had internal staff, vendors, and write-offs at the corners and AR in the middle. He announced to the team, “These are your only three options for resolving AR.” It seems obvious, but the new guy was right! There’s a dynamic balance that needs to be created between these three elements and adjusted in real time to achieve operational excellence, stability and profitability.

The team began by developing a specific approach for the most important accounts, keeping them with internal resources based on internal capacity and skill sets. The rest were handled by a mix of internal resources and outside vendors operating under strict service-level agreements (SLAs). Vendors were held to the same standards as internal collectors. Overall workload and capacity became predictably balanced. In addition, the team introduced process improvements focused on getting a clean claim out the door by increasing coding accuracy and the implementation of a playbook to streamline follow-up. The focus was to make the account workflow as efficient as possible in the context of the revenue cycle triangle. The result was that clean claim rates jumped from 59% to 85% and cash-to-net revenue collected in 60 days from discharge went from 78% to 84%.

Impact:

A triangle in balance, driving a significant revenue cycle transformation with material impact for an institution with a critical mission

After more than two years working with the (now the not so new) VP of Revenue Cycle Management, and the CFO and CIO, the results have been impressive. When we started at the end of FY16 (June 2016), cash collections were below net revenue. Over the next two years, by June 2018, cash outpaced net revenue by 3.87% resulting in a total gain of $249M. Other key metrics saw significant improvements as well:

  • Net AR days dropped from 53.9 to 48.3
  • AR > 90 days decreased from 29.2% to 18.1%
  • DNFB (post suspense) went from 5.1 days to 2.6 days

But those are just some of the quantifiable results. We’re most proud of how we worked with the client and the ongoing value we were able to help them achieve. We started with a focus on making immediate improvements to the health system’s patient accounting system, and they found that these improvements gave them the performance boost they were looking to achieve. As it turns out, they were able to achieve these improvements without implementing a completely new system as they had been considering. While a new system may provide other improvements across the health system, the revenue cycle was able to gain most of the desired improvement ahead of that major investment and initiative that will put the revenue cycle performance at risk, especially if it’s not functioning optimally going in. We kept addressing one issue after another, creating enough revenue improvement each time for the client to fund additional activity. And what may have seemed like a daunting challenge at the beginning of a new VP’s tenure, turned into a template for the rest of the industry to follow for successful Revenue Cycle transformation.

Contact us

Nikki Parham

Health Industries Advisory, Partner, PwC US

Jon Souder

PX Integrated Solution Champion, Provider Lead, PwC US

Jim Gaffney

Director, PwC US