How to Calibrate Hospital Lab Financial Performance, Part 1

Hospitals face fundamental challenges relative to financial targets and patient experience goals. When prioritizing and evaluating lab financial performance, it is fitting to consider tactical revenue cycle management (RCM) decisions in the broader context of these strategic financial and operational hurdles.

Historically, the lab has often been seen as a cost center, solely focused on supporting inpatient clinical needs with broad test access and rapid turnaround times. Another option is to view the lab as a profit center, capable of making a positive contribution toward larger organizational issues. This can be accomplished by sustaining growth and increasing profitability via successful outreach and outpatient operations, bolstered by an RCM platform designed for high volume, low-dollar claims processing. 

Macro Challenges for Hospitals and Health Systems

Collectively, a number of factors are constraining profitability, necessitating greater decision-maker scrutiny of people, processes, and technologies. For example, staffing issues continue to hamper financial performance. Although fewer hospitals are now reporting critical staffing shortages (down to 5% overall as of April 10, 2022), increased labor costs, driven by the surge in travel nurse usage and related tactics, are weakening profitability. In February, the median operating margin for hospitals and health systems fell by 11.8% month-over-month and dropped 42.4% from pre-pandemic levels.

Continually evolving payor requirements present ongoing challenges as well. Per a recent HFMA survey sponsored by XIFIN, the most challenging aspects of hospital outpatient RCM include denials and appeals management, prior authorization, and payor relations. Payor changes directly contribute to each of these factors.

Other macro challenges include:

Additional regulatory requirements, such as price transparency rules and the No Surprises Act, exacerbating the compliance burden.

The natural extension of consumerism into healthcare, driving patient demands for better digital engagement and service.

Interoperability challenges continuing to touch all aspects of health data.

Further increases in patient financial responsibility.

Nontraditional providers adding competitive pressures (e.g., Amazon, telehealth).

Continually growing cybersecurity needs.

Lab-specific RCM Challenges

Experience with XIFIN clients demonstrates that excessive reimbursement shortfalls tied to elevated denial rates are common to hospital labs. These issues typically stem from registration errors, missing information, lack of benefit or eligibility verifications, and related issues. Understandably, low-dollar claims cannot justify manual intervention, so they are written off in bulk as a policy. The scope of the problem is often obscured by reporting limitations and the misclassification of problem claims under “payor allowance” rather than bad debt. The full breadth of this predicament is often not fully captured until a purpose-built RCM platform is installed and a double-digit increase in profitability is realized.      

Beyond direct costs, high denials inversely correlate to patient and clinician satisfaction levels as well. Avoiding negative patient communications at scale directly contributes to a better overall patient experience rating.

Other lab-specific challenges include:

Limited access to scarce IT resources due to competing priorities (particularly for cost centers).

Margin pressure from PAMA, now reemerging following a COVID-related pause.

Issues specific to building an outreach program including competition from independent laboratories, pricing, and payor contracting issues. 

What Steps Should be Taken?

As indicated, laboratory outreach is a viable option for transforming the lab into a robust profit center. For more information, listen to Jane Hermansen of the Mayo Clinic in this on-demand webinar, discussing the 30% margin contribution achievable with an outreach program. 

Establishing and scaling such a program is a complex undertaking, typically requiring cross-functional subject matter expertise. The following steps are recommended to address revenue cycle management requirements in order to maximize financial performance:

  • Develop or acquire role-specific reporting capabilities for relevant stakeholders, including finance leadership, revenue cycle management, the lab director, and sales.
  • Define benchmarks/key performance indicators based on historical performance and relevant industry performance metrics.
  • Isolate problem areas based on actionable intelligence.
  • Employ automation and related technology enhancements for insurance discovery, eligibility verification, error correction, and patient financial responsibility estimation, as needed to increase clean claim submission rates.
  • Develop a monthly cadence for monitoring and tuning performance as benchmarks dictate.

Be sure to look for the next installment of “How to Calibrate Hospital Lab Financial Performance.” This blog series will provide more in-depth discussions of role-specific reporting needs and capabilities for finance leaders, the RCM team, the lab director, and sales.

Recommended Resource:

How to Calibrate Hospital Lab Financial Performance

Harley Ross, XIFIN Chief Commercial Officer
Stephanie Denham, XIFIN AVP, RCM Systems and Analytics

Hosted by Becker's Hospital Review.

Published by XIFIN
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