To say that the payer mix at Denver Health and Hospital Authority is “not the ideal business model” is an understatement.
Denver Health and Hospital Authority
At Denver Health, Denver's hospital-based public healthcare safety-net system and the largest provider of care to the uninsured and Medicaid patients in Colorado, about $374 million of billed charges are generated by uninsured patients. This represents 31% of DH's billed charges. The collection rate from patient payments on this amount is approximately 5 cents on the dollar, with the remainder written off to charity care or bad debt.
While DH receives some government funding to offset this gap, it does not make up the full difference. Also, 35% of DH's billed charges are from services to Medicaid patients, and Colorado Medicaid payment rates are typically less than cost. The large number of uninsured and Medicaid patients are a reality of DH's mission, which is to serve all residents of Denver county regardless of ability to pay.
An important strategic imperative at DH is to maintain financial viability and stability. In order to reconcile its mission with this imperative, DH embarked in 2005 on a revenue cycle improvement project. DH's billed charges in 2005 totaled $750 million. As it was noted that every 0.5% improvement in collections had an impact of nearly $4 million, focus on the revenue cycle was a logical way to improve financial performance.
A key component of the revenue cycle improvement project is utilization of Lean as the performance improvement methodology. Lean Production, based on the well-known Toyota Production Systems principles and tools, was selected as the performance improvement methodology for the entire organization in 2005 through the vision of DH's nationally recognized CEODr. Patricia Gabow.
The revenue cycle was selected as a Value Stream, a Lean term defined as “all of the steps, both value and non-value added, within a process” for DH's rollout of Lean. Utilizing this system, the entire revenue cycle process is mapped from start to finish using a tool called “value stream map”. Based on the VSM, “rapid improvement events” are planned to occur throughout each year focusing on areas that will have the highest impact and will reduce or eliminate wasteful actions in the system.
For example, in the revenue cycle VSM, it was noted that there was a potential for improvement of collections from insurance on patients who enrolled in a research study. During the resulting Lean event, it was discovered that an immediate approximately $1 million could be collected through an improvement in the process of communication between the billing staff and the research coordinators responsible for enrolling patients in studies and providing billing information. Since the improvement was rolled out in 2006, the return on this single RIE has been calculated at $2.7 million in increased collections as of October 2010.
The key components of utilization of Lean in the revenue cycle at Denver Health are:
- Intense training of selected staff as “black belts” in Lean—there are now 16 black belts in the revenue cycle departments
- Rigorous tracking of metrics to ensure sustainability
- Strict accountability for results evidenced by direct involvement by the CEO in the program and assignment of an “executive sponsor”—the chief financial officer in the case of revenue cycle—to each value stream.
An RIE is a structured process under which a team is selected by the executive sponsor to conduct the event during a planned five-day timeframe.
Rigorous metrics tracking has been important to success of the program. RIE metrics relate to each event. For example, in the case of the research study project noted earlier, turnaround time and total dollars in accounts receivable for the research study payer plan code are the RIE metrics for that specific event.
Value stream metrics are broader and represent the ultimate goals of all revenue cycle projects. For the CFO and revenue cycle leadership, the bottom line is about whether cash collections improved. The value stream metric for that indicator is “cash collections per 100 discharges.” Evidence that the revenue cycle programs have worked is that this indicator has increased by 44%, from $1.036 million per 100 discharges in 2005 to $1.492 million per 100 discharges as of October 2010. This has occurred despite significant rate reductions in Medicaid, the hospital's largest payer, totaling 9% beginning in 2009. DH's Lean program has generated $70 million in savings or increased revenue since 2006, and the revenue cycle component accounts for $17 million, nearly a quarter of that total.
The cost of the Lean program at DH includes a team of Lean facilitators, a senior facilitator and consulting service for an outside “Sensei.” As DH has progressed in knowledge of Lean, the Sensei function was brought in-house in 2010. The cost for each event week including the Sensei, facilitators and time spent by team members participating in the event for the revenue cycle in 2010 is approximately $20,000 per event, and the return is approximately $522,000 per event, or 26 times.
While the business model inherent to a safety-net provider like DH is not a CFO's dream, DH has demonstrated the ability to generate a verifiable ROI and improved financial position through the implementation of Lean in the revenue cycle.
Peg Burnette is chief financial officer at Denver Health and Hospital Authority.
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