Leadership teams at hospitals and health systems are under constant pressure to grow their revenue, but at the same time, they’re stuck watching as margins shrink quickly. In 2014, 61.3% of hospitals reported a decrease in their profit margins over the prior year. One contributing factor is that costs are constantly expanding. According to Moody’s, hospital expenses are growing at a faster rate than their revenue.
On top of that, payments are getting increasingly difficult for providers to collect. The use of Medicaid and Medicare for patient payment is growing - in 2014, 53% of hospital revenue came from these government plans, with 58% expected by 2024. Making things even tighter, both programs are regularly cutting reimbursement rates. In 2015, Medicare cut their reimbursement rate by 21% and Medicaid cut their rate by 43%.
Waste or leakage in revenue cycle management is another major factor of the financial strain. It’s been estimated that 15 cents of every healthcare dollar - $400 billion annually - is wasted on revenue cycle inefficiencies. Taken together, this all adds up to very real - and very scary - implications for hospitals and health organizations. Healthcare providers want to focus on providing the best possible care for patients, but their attention is constantly being redirected to the bottom line. In fact, in 2015, the #1 challenge that hospitals reported facing was financially related.
There isn’t much that a hospital or health system can do about cuts to government programs, and often, controlling expenses is almost as much out of their control. But reducing leakage in revenue management, however, is where real action can be taken, and real returns can be realized. One of the best ways to start fixing revenue leakage is to take a look at how payer contracts are managed.
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