Find Your Revenue Cycle Levers: Models To Increase Cash Yield & Reduce Revenue Cycle Cost
“All models are wrong, some are useful” is a George Box quote I have always liked. It was meant as a caution to statisticians that mathematics can be a useful and powerful descriptor of the world we live in, but we need to realize that any model has limitations, and we need to be aware of what they are.
The same applies to any model. Models help guide our work and create structure, they make us productive and effective. Having led re-engineering and transformation of revenue cycles for over 15 years with many of provider organizations, we have developed some models and lenses to help us see, categorize, and execute on a logical pathway that delivers results quickly. Here are a few of our model thoughts:
1. Start with the end in mind. The first thing before doing anything else, is to gain complete clarity of what it is we are trying to accomplish. This does not have to be a fancy statement, but it must be clear and easy to communicate. For PFS, as an example, this is fairly straight forward: Convert earned revenues to cash. We can get into finer points, like, is there an impact on what those revenues are (yes, there is!), but in the end, this is it. Once we have the purpose clearly defined, we can think about what we the “end” is. Say, we want a revenue cycle that maximizes cash from earned revenues with minimal cost (I know, this sounds trivial, but if we are honest, how many revenue cycle leaders you know articulate this very clearly?). This is then further defined in detail as we move along.
2. Determine the correct, versus the convenient, measurements. In other words, how do we know how we are doing? This is a much trickier exercise that it first appears. Everyone thinking we look at cash as a percent of net, cash received and net A/R days, sorry, those measures won’t work. These are accounting measures, not operational revenue cycle or PFS measures. Sticking with the PFS example, cash yield, the cash received as a percent of earned net revenues is a key measure here. We patented this measure years ago precisely because it is so powerful if done correctly, and it is finally making its way into the mainstream. Another key measure is cost, how much are we spending to do this job? Once we have the measures defined, we need to figure out exactly where we stand, and how much volatility we have in these measures, in other words, we need a precise scorecard.
3. Set aggressive objectives. This element really has two sub elements, objectives, and aggressive. Let’s start with aggressive. Incremental objectives lead to, well, two problems, and limited results. One, no significant change. We try to twiddle our way to success, and don’t challenge anything fundamentally. We are shining the apple. This does not require significant change at all. Second, the objective is rarely above the noise of the measure, so making goal becomes a game of luck, the variation in the business may take us there, or not. How often to you set incremental goals and end up making it about 50% of the time? There is a reason for that. Randomness got us to the goal, not hard work and fundamental change. If the objective is not at least a 10-20% improvement in key numbers, it won’t work by design. Recently most of the financial leaders we work with state a need for dramatic cost reduction in revenue cycle operations and/or a large increase in cash yield, and that is not accomplished unless the stated objectives are aggressive. I understand that there is always concern about being too aggressive, and unrealistic expectations squashing morale. This is less a matter of objectives as it is a matter of the approach of how to get there. With the right tools, methods and approaches, aggressive goals are achieved all the time.
4. Find the levers. Next, we need to spend some time thinking about what the levers really are. What will let us make large gains with realistic effort. Leverage is one of the oldest concepts in history, and one of the most useful in business. No matter the challenge, these are always just a few of these levers. If the list is longer than 5 categories or items, then we are still not serious, we are too close to it all, missing the forest for the trees. So, what is a good mental model of levers for the revenue cycle objectives for cost reduction and yield improvement? Here is a model we have found useful:
a. Unlock staff performance. Here is the challenge: If we were to fully enable our staff, make sure everyone is focused on the right work, make sure everyone has the tools they need, and make sure everyone has the skills to be successful, can we produce 20% more output with the same staffing levels? Or can we do with 10-20% less cost? Would that be worth doing? Will that have an ROI? In 25 years of re-engineering and transformational work the answer has never been “No”. Ever. At the detailed level, this requires doing some serious work. Challenging process, looking at the use of technology, measurement at the individual, team and organizational level, focused audits and root cause corrective action, among other items.
b. Enable managerial focus. The basic job of managing comes down to resource allocation and problem solving. Managing resources like staff labor, financial and other resources. A similar question holds, if we focused resources on the most critical path at all times, how would that impact the results? Again, in 25 years of re-engineering work, this lever always produces. Most managers today are content experts versus leaders of their area, often we have not equipped them to do their job. We need to change that. We live in a world of data SMOG, we are data rich and information poor. Enabling managerial focus means providing information in a useful format, heatmaps for example, and providing tangible ways to not only identify root cause, but to eradicate them.
c. Remove labor. Reality is, a lot of manual labor can be removed from any operation. Within this category we have a few sub-categories. One, we should stop doing tasks that add no value at all, so the classic Re-Engineering and Lean approach, the removal of non value added steps. The pitfall here is, again, the shining-the-apple tendency. As Michael Hammer artfully points out, fragmented processes need glue to hold them together, and the glue is labor. If you want less glue, start with less fragments. Lean teams assigned to micro level sub project can’t deliver what we need here. Two, we should allocate work using mathematical and economic approaches, only work on the most critical work at any given point in time, and use algorithms to figure this out. For example, make use of computer assisted follow up technology to focus our costly labor on the most relevant work at all points in time. We have to know what is most important, and that is what models and algorithms are good at. Worklists that sort by Dollars, date or alpha simply don’t do that, they waste a lot of labor and therefore money. Third, and this element is gaining more and more traction, automate. There are many revenue cycle tasks we can automate, be it in the host system, making use of payer/provider EDI feeds and, of course, the use of bots. A word of caution: Automating poor process, as one of our clients once found out, creates “fertilizer at the speed of light”. Automation with bots is a wonderful thing, but we recommend streamlining first so you don’t automate the un-necessary. As Michael Hammer said, don’t automate, eradicate. We suggest automate what’s left, and sensible, after that.
d. Reduce vendor cost. The revenue cycle generates its share of vendor costs, ranging from tech, real estate to outsourcing costs. Many of the business models in use, especially with outsourcing agencies, are beyond problematic, and that is being kind. Commission based agreements lead to high cost, cherry picking and generally unhappy relationships. New models of engagement, like on demand, domestic and virtual teams can break the mold here, reducing vendor cost on outsourcing by as much as 50%. Another powerful model is to join the remote workforce revolution, eliminating real estate cost and usually improving productivity and efficacy if the right environment is used.
These levers now become guideposts in everything you do. If it does not relate to a lever, stop doing it, it won’t get you there.
5. Lastly, create a comprehensive playbook using the levers. Once the levers are identified and quantified, it is time to create and implement the new playbook for the operation. The trick is to not fall prey to a Chinese menu approach and stay within the context of a model, otherwise we will slide into a game of whack-a-mole and end up where we started.
The bottom line? Having a model, that is hierarchical and logical, really helps deliver the step function improvements we need in healthcare. An extra 4-8% cash yield is possible, as is a labor reduction in the 10-20% range. Truth be told, those numbers are not even all that aggressive, but it takes a model and discipline to get there.