Hospitals are seeing attrition in profits for the first time since 2008, due in large part to rapidly rising expenses. Not only are profits growing slower than expenses, the growth is less a result of an increase in patient volume, and more from higher payments from state provider fee programs and the federal meaningful-use incentive program. Of course those factors that helped to increase profits also contributed to a further increase in operating expenses.
There is a solution.
According to a report from Standard and Poor’s, hospital margins are dwindling. In 2013 hospitals saw a 7% increase in expenses, with only a 5% increase in profits.
S&P’s analysis showed the average operating margin for hospital systems in 2013 was 2.2%, down from 2.9% in both 2012 and 2011. Similarly, stand-alone hospital margins fell to 2.1% in 2013 from 2.6% in 2012 and 2.7% in 2011. And the agency does not see the downward trend letting up any time soon.
Ever increasing administrative expenses, higher supply costs, taxes to fund the expanding Medicaid fee programs and increasing technology costs are surpassing the benefits of the programs driving them.
Administrative Expenses: the $360 billion elephant in the room
According to an estimate by the Centers for Medicare & Medicaid Services (CMS), $360 billion is spent annually on healthcare administrative costs. The Forbes Physicians Foundation holds that 85% of that cost can be attributed to the insurance system. They further attribute two thirds of that cost to product design, underwriting and marketing expenses incurred by a complex private system of insurance companies.
A cost study completed by Health Care for All Oregon indicated that the publicly managed Medicare plan spends about 5% of every dollar on administrative costs, while private insurers take about 17% for the same services.
In addition to the enormous expense, working with a complex network of private insurance companies and uninsured patients results in the need for a large billing department in every hospital and medical staff losing hours of time to paperwork.
Technology advancements: an expensive incentive
Technology adoption and upgrades may be the most important driver of increased spending. The federal meaningful-use incentive program incentivizes hospitals to implement, upgrade or demonstrate the meaningful use of certified electronic health record technology. However, according to Forbes, it can cost up to $25,000 per doctor to install in addition to the monthly fee charged for use.
Another major cost to consider is the time it takes to implement a system. Training an entire staff on using a new EHR system, and integrating the system into the existing processes, devours a significant amount of staff members’ time, not to mention the cost of training programs piled on top of the cost of the systems.
Process inefficiencies: The unquantifiable costs on your expense sheet
Rising administration, insurance management and technology costs are easy to pinpoint and calculate, even if they are not easy to manage. But healthcare organizations have other, less quantifiable costs in their budgets. Process inefficiencies contribute to significantly higher costs and decreased revenue.
According to Owen Dahl, consultant and keynote speaker at this year’s annual Maryland MGMA State Conference, people waste 25% of their work day on average. If staff productivity was improved by only 5%, six minutes per day per person, organizations could gain an hour of work for every ten employees.
Similarly, long wait times and additional billing time for patients cost healthcare providers revenue every day. If a single provider sees 20 patients in a day, and can decrease each patient’s visit by 1 minute with a more efficient billing or intake system, he could see one more patient every day.
Finally, Dahl calculated that each insurance denial received costs a provider $25 in staff time. These inefficiency costs are further compounded by overhead staff costs.
Every hospital and hospital system struggles to decrease their costs, but when a large percentage of costs to a healthcare organization come from outside of the organization they can be hard to control. The solution is developing relationships with the right third-party vendors.
AR Logix’s customizable extended business office solutions can decrease these costs as well as increase revenue. And we can do so while improving patient satisfaction and maintaining patient relationships. We are experts in the healthcare industry, with over 25 years of experience in medical revenue cycle management.
Many business process outsourcing companies will say they can do this.
- Decrease administrative costs with insurance follow-up and denial management services: We can handle your claim follow up, denial management and insurance resolutions to ensure optimum revenue recovery. Stop paying $25 per denial, and let our expert team alleviate the costs of a large billing department.
- Eliminate the cost of patient statements: We want to pay for your patient statements. This simple case study can show how much money two of our current clients saved last year in statements alone.
- Increase revenue by utilizing industry-leading call blending technology: What if you could call every patient who owes a balance in less than 2 hours? We have the ability to blend inbound calls and outbound calls to eliminate representative down time and reach more of your patients earlier. Our technology allows us to make more than 1 million calls per month so we can reach your patients, make and monitor payment arrangements.
- Maintain patient relationships: We understand the importance of the relationships you build with your patients, especially now as competition increases under the healthcare reform. We record all phone calls and make them available to you for quality assurance. We can also provide consistent feedback on patient satisfaction by offering a patient survey at the conclusion of every call. The results can be sent to you in a weekly report.
Operating costs are on the rise. As margins dwindle and regulations tighten it is important to develop exceptional vendor relationships. Our customizable solutions can pinpoint your revenue needs and provide expert service for as low as 7 cents on the dollar.
Contact us for more information today!
Written by Ali Bechtel, Public Relations Coordinator
This information is not to be construed as legal advice. Legal advice must be tailored to the specific circumstances of each case. Although we attempt to provide up-to-date information, laws and regulations often change. We make no claims, promises, or guarantees about the accuracy or completeness of this document. For legal advice, please consult an attorney.