COVID-19 hastens hospitals' revenue cycle outsourcing moves

The COVID-19 pandemic lit a fire beneath a trend that had already been heating up: hospitals hiring outside help to handle their billing and revenue collection.

Experts who follow the industry and companies that offer revenue cycle management—the process of patient registration, billing and collecting money owed—say they’ve seen renewed interest this year from hospitals that more than ever need to collect every penny owed to them and spend less money doing it.

While an increasingly popular way to save money, revenue cycle outsourcing can take a toll on employees who often transition to working for the billing vendor and, consequently, on a hospital’s internal culture. It’s a shift that previously just a handful of health systems would consider, said Stephanie Davis, a managing director at SVB Leerink who covers health technology.

During the pandemic, however, “it’s really expanded to all health systems,” Davis said. “They’re arguably all struggling in some respects.”

Annual surveys of hospital finance chiefs conducted by investment firm Baird have captured a distinct evolution toward hospitals outsourcing their revenue cycle operations. Whereas in 2016 only 5% of chief financial officers said they currently outsourced their revenue cycle, that was up to 51% in the latest survey, conducted in October 2020.

Matthew Gillmor, a director and senior research analyst with Baird, cautioned that the surveys have a small sample size—80 CFOs participated in the latest one—and respondents differ year to year. Regardless, he said the prevailing trend is clear.

“It’s completely flipped where to now a minority say they would not outsource revenue cycle and a majority already do or are planning to do it,” Gillmor said.

Hospitals also appear increasingly eager to outsource the whole operation rather than only certain components of their revenue cycle. That’s a good sign for companies like Chicago-based R1 RCM and Cincinnati-based Ensemble Health Partners, that tout their so-called “end-to-end” approaches.

R1, for example, has shared with Baird estimates that it can perform revenue cycle functions for 30% less than doing the work in-house while boosting cash collection by 4%, Gillmor said. R1 declined to comment.

That’s enticing for hospitals, forced to put cost-cutting into overdrive this year after the pandemic sent revenue plummeting in March. The American Hospital Association estimates hospital losses will top $320 billion in 2020.

“Conservatism has driven them to say, ‘How do I continue to reduce costs to become more efficient?’ ” said Ensemble CEO Judson Ivy. “That was there prior to COVID, but I think this really has shown the stress fractures there.”

Some hospitals furloughed revenue cycle employees, who then chose not to return. That trend prompted inquiries to nThrive, another revenue cycle vendor, to ensure they’d have adequate coverage, said Gabby Graham, nThrive’s vice president of patient-to-payment and strategic solutions. Earlier in the pandemic, nThrive helped hospitals transition to remote work.

For its part, Ensemble says it signed up four health systems for end-to-end contracts during the pandemic, which Ivy said was “kind of a record for us.” Ensemble’s new customers include Ballad Health in Johnson City, Tenn., Fairfield Medical Center in Lancaster, Ohio, Summit Healthcare in Show Low, Ariz., and VCU Health in Richmond, Va. Ivy noticed that the pandemic both sped up existing inquiries as well as triggered new interest.

Patients have long expected to be able to schedule appointments and register online, but COVID has underscored the importance of having a contactless check-in process when patients enter the hospital. Rather than signing in using a clipboard or kiosk—potentially exposing the patients and registration staff to the coronavirus—lots of revenue cycle vendors offer tools that let patients check in using their phones.

R1 RCM gets more attention from equity analysts than its privately held peers because it’s publicly traded and thus shares lots of detail about its performance quarterly. R1 has easily beat its goal of signing end-to-end customers with $3 billion in annual net patient revenue in 2020, having reached $5 billion by Sept. 30. R1’s profit was down 43% year-over-year in the quarter ended Sept. 30, 2020