Hospitals and health systems at every stage of COVID-19 response are experiencing significant financial and operational disruptions from the pandemic. A recent American Hospital Association report estimated the pandemic cost U.S. hospitals $202.6 billion in losses from COVID-19 expenses and lost revenue between March 1 and June 30, 2020.1
As hospitals and health systems continue to deal with pressures from the crisis, healthcare leaders must simultaneously focus on more strategic issues. In the months ahead, you’ll need to close major budget gaps, develop sophisticated plans for financial recovery, reshape your organizations’ strategies, and balance reduced capital capacity with investment strategies for a post-COVID-19 environment — all while staying agile and adapting to changes as the pandemic progresses.
Here are 5 strategies on how your healthcare organization can streamline its financial management:
1. Ditch Excel to Save Time and Money on Budgeting
Budgeting using stand-alone spreadsheets is error prone and lacks a meaningful audit trail. Organizations using Microsoft Excel or other inadequate budget software spend most of their time gathering historical data, managing inputs and assumptions, and routing spreadsheets for input and approval.
A modern healthcare budgeting solution should include intuitive budget input forms that allow non-finance users to easily review and submit budget requests. These tools extend budget input at appropriate levels to manage spending, which increases confidence in the budget process and fosters buy-in for financial plans. Workflow and collaboration tools automatically route the budget through each department’s specified hierarchy, allow for conditional approvals (e.g., new FTE requests are sent to Human Resources for special approval), and provide real-time tracking and reminders.
By adopting a budgeting solution that automatically consolidates data, manages planning assumptions, and provides real-time reporting, healthcare leaders can reduce cycle times and use driver-based planning models. This agility enables organizations to more clearly model options and make better decisions more quickly — a key to agility during the pandemic.
2. Implement Advanced Approaches to Costing and COVID-19 Analytics
Now is a great time to incorporate advanced costing methods where the impact is greatest. Areas such as surgery and other high-cost services will benefit from micro-costing and markup methods. Areas with a high amount of indirect cost will benefit from the Direct-to-Encounter method.
You can learn more specific COVID-19 cost accounting practices in our e-book, COVID-19: Costing & Reporting Considerations for Recovery.
Regardless of the changes an organization decides to make to the costing and decision support model, adopting a team approach to the roadmap and implementation of changes will ensure success and buy-in.
3. Restructure the Capital Review and Comparison Process
A structured capital review and comparison process is vital in uncertain times because it lets you focus on areas of inconsistency, quantifies the changes in portfolio value on a real-time basis, and provides a means to address evolutionary and innovative needs.
Organizations should consider substantial reductions to their capital budgets, perhaps postponing or cancelling certain large initiatives. The capital allocation analysis should focus on the trade-offs among mission, strategy, and financial return for the entire portfolio. This is best achieved if:
- All project proposals are evaluated on an apples-to-apples basis
- The portfolio of projects has a positive expected net present value
- Decisions are transparent, enabling management to reinforce support for all aspects of organizational strategy
4. Monitor Payment Variance Against Contract Terms to Determine Accurate Expected Payments
With the right contract management analysis, hospitals and health systems can accurately calculate an expected payment for all patient billings no matter the complexity of the reimbursement scheme. In the interest of efficiency, focus your analysis on areas where payment accuracy is difficult:
- Stop-loss terms
- Carve outs
- High-cost drugs
- Outpatient ASC/APC/EAPG
- Medicare Advantage HMO claims
- Newly negotiated payment methodologies
Additional quick steps to help ensure payment compliance include:
- Asking payers to provide a current fee schedule, particularly the top 50 modifiers
- Maintaining and updating the fee schedule as rates change and addendums are added — it’s not uncommon to see mid-contract addendums that aren’t communicated by the payer
- Running payment reports, which should be done with 100% accuracy, to identify contractual variances
- Ensuring your contract management system can incorporate true costs into reports
- Addressing anomalous patterns immediately, working with both internal resources and payers
Calculating an accurate expected payment is the key to payment compliance. Assess your current position by mining your claims reimbursement books retrospectively and prospectively.
A proven contract management system will help you avoid manual errors and validate payment compliance easily.
5. Use market-based insights to quickly identify opportunities to reduce costs
In the new healthcare market evolving out of the COVID-19 pandemic, data insights will help financial and strategic leaders answer emerging questions by providing context that helps healthcare leaders make the right investments and strategic choices. Comparative data helps leaders see how their organization’s performance compares with other similar hospitals or health systems and can uncover areas of improvement based on trends.
Manually compiling and interpreting data is generally resource-intensive and provides little value to the organization. Instead, use a dashboard built with an algorithm that uncovers areas of improvement for your organization and highlights the actions that will have the greatest impact on performance and efficiency.
In most hospitals and health systems, fragmented budgeting, productivity reporting, capital planning, cost accounting, and comparative benchmarking processes work against Finance by requiring more manual intervention and reducing the time for value-added analysis and decision support activities.
Now is the time to adopt an integrated platform for financial planning and management that can scale and evolve to address the ever-changing and increasingly sophisticated business modeling that is required as the pandemic and healthcare industry evolve.
1 Hospitals and Health Systems Face Unprecedented Financial Pressures Due to COVID-19. American Hospital Association, May 2020. https://www.aha.org/system/files/media/file/2020/05/aha-covid19-financial-impact-0520-FINAL.pdf