What are Margin Fixes that Last?
By Ron Benfield and Craig Wilcox
When we use the tagline “Margin Fixes that Last” and talk about sustainable margin fixes, what does "sustainable" mean?
It means finding things (processes) that are broken or eroding hospital margins and fixing them so that the problem doesn't reoccur or cause adverse unintended consequences. By fixing things that are broken, rather than cutting costs haphazardly, leaders can best ensure continuity of their organization's mission into the future.
One of the approaches we use sets up a small dedicated revenue recovery unit within a hospital whose sole purpose is to find underpayments, identify their causes and fix the problems at the root cause. Even hospitals with otherwise healthy-looking revenue cycle indicators like low days in accounts receivable can surface enough underpayment opportunities to impact their operating margin by two to three percentage points rather quickly. The secret to finding broken processes lies in looking at all the facility's zero-balanced accounts within logical service lines for all related inpatients and outpatients. By identifying 500 to 1,000 suspected underpaid accounts each month and tracing back to what may have gone wrong, any process flaws that may exist stand out for remediation. Often these process issues are not in the traditional revenue cycle departments, but in operational departments.
When an issue is found, rebilling may be necessary, but the real goal is to work with internal teams to correct the problems prompting the underpayments in the first place.
In one instance this type of revenue recovery unit helped take a 180 bed hospital from an operating margin of -2.2% to +9.8% in less than three years. In the first couple of years they identified $5 million of improvement, which eventually grew to $7 to 8 million with modest investment of 2 to 3 dedicated staff. Hospital leadership obviously saw value in this function, because it was still producing results over a decade later, last we checked.
In contrast to long-term fixes, layoffs are an example of margin fixes that are usually not sustainable, for reasons we'll cover in a future post. Outsourcing service departments or cutting back on office supplies may be others. Some margin fixes are unsustainable simply because they cut arbitrarily, actually breaking things, causing unintended problems down the road.
ABOUT MILLWOOD ASSOCIATES: We’re a healthcare consulting group that helps hospitals improve their financial margins to ensure sustainability of mission. All of Millwood’s solutions are designed to fix broken processes which erode hospital margins. For example, by helping hospitals get paid fairly for the services they provide, we can remove the pressure and damage of harmful cost cuts, typically adding 2 to 3 percentage points to their margin. Follow us on LinkedIn or email me to find out how to get started with sustainable fixes for your margin challenges.