Discovering Hidden ROI

Jan 15, 2015

Executive Insight
Experts share real solutions to improve health systems’ operating margins Health systems have historically been so focused on “home runs” that sometimes the “small stuff” can get missed. In the nottoo-distant past, “census hides all sins” was an approach many health systems used to use new revenue streams as a means to work out operational challenges. Today, higher census may not be the answer, especially with the constraints of the Affordable Care Act. Health systems need real solutions to improve their operating margins; they need to search for and access the “hidden ROI.”
CFOs must continually challenge health system departments to look for opportunities to run more efficiently. Certainly there are big ticket items, but many times the opportunities are in the small stuff staring at you. The small stuff adds up and can produce real improvements.
These opportunities can be found in the revenue cycle and supply chain.


Kevin L. Shrake, executive vice president and COO of MDR, a national best practices healthcare consulting firm, notes: “There is a great deal of change happening in healthcare at the moment, but I would suggest that there were dramatic change in other decades. Establishing Medicare and Medicaid, implementing the Prospective Payment System and introducing capitation payments for select patient populations are a few examples. This is simply another era in which executives have an opportunity to make a difference by leading in a fashion that demonstrates our beliefs and motivates others to follow.”
Shrake identifies key items often overlooked in the revenue cycles at health systems: n Intensify efforts to collect at or prior to time of service: This saves an expense collection process later that can cost more than the balance.
Contract management: Routine review of contract terms to understand/detect areas for improvement, comparability, exposures, renewal timing, etc.
Appeal/Denial teams: Aggressively and promptly file to obtain proper reimbursement and help with repeat issues.
Payer communication: Routine meetings with major payers to streamline the process.


Comparable Payer Analytics: Challenge the variances (e.g., why are the rates of payment or days in AR too high at a specific payer compared to the norm?)
Practice Management: Analyze and understand the variances between providers/settings/payers/specialties.
Automated Appeals Process: Use e-solutions to process appeals and collect small balance claims that you are writing off today.
EMR Analytics: Utilize the health system EMR to better understand your health system and its challenges and opportunities.
Transfer DRG Process: Did the transfer happen or do you have additional reimbursement coming?


Kirk Conole, partner of DCI Solutions, Inc. a, Los Angeles-based cost reduction consultancy, says healthcare companies invariably see attractive savings when SG&A is audited and benchmarked.
DCI provides savings methods utilized in a number of industries, including companies outside of healthcare.
Unlike most consulting engagements, cost savings consultancies can produce and be paid on the basis of verifiable, hard-dollar increases to the bottom line. Conole offered the following case study examples of savings achieved for healthcare clients.

Health System

Mobile telecom savings even though the person in charge said, “Telecom rep said that we already have best pricing.” n Parcel freight broker for hospital had excess margin built into brokered rates.
Print vendor won competitive bid but was still overcharging per contract plus arbitrary changes in pricing for exact same items.
Laundry and linen contract was higher than needed, after line by line audit conducted.
Landline telecom had never been audited.
Courier service had never been audited (the client kept no record of routes and let courier maintain critical route data.) As well, the fact that the client staff was afraid of losing intellectual capital if they were to go with another vendor gave the vendor improper leverage over staff. After being eligible for many years, the client finally did a totalization of meters, which cut power cost from their public utility by almost $1,000,000 per year.
Health System B
This system employed some of the same corrective items above, as well as the following:
Credit card processing fees were excessive.
Accounts Payable audit showed several anomalies and payment errors.
CIO did pooling of mobile cell phone minutes incorrectly.
Medical Group A
Again, some of the same corrective items were taken as noted Call 800-736-8257 to see if you qualify for a FREE ANALYSIS. Or email
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CFOs must foster an environment in their health systems that continually promotes challenges of the status quo and searches for more optimal operation.
above, plus:
Bank fees were unnecessarily high.
Conference Call charges 500% too high.
40 phone lines that rang with no answer (superfluous for years).
Added Conole, “A good consulting firm will not submit a thick binder of vague recommendations but will volunteer to implement every specific refund and rate reduction recommendation in the audit report to minimize the burdens and interruptions of client staff’s routine operations.
However, once the health system signs on for the savings, an onsite champion of the staff team needs to be assigned for the maximum savings to be achieved.”
Kevin Shrake has written about health systems cost controls. In “The Doughnut Dilemma: Loyalty vs. Cost,” Shrake points out that “we must measure loyalty against financial reality today because of the intense cost pressures of our environment.” The reason for using a vendor should be based upon quality, service and cost, not the excellence of the doughnuts. In the same manner that patient service quality initiatives are addressed, a true service partner continually addresses the supply chain needs of the health system.


Opportunities can be achieved if you think strategically and logically about processes. For example:
Optimize cash rebates for paying bills you have to pay anyway using a virtual credit card process.
Use a vendor registration and authentication process to identify errors, recover cash, lower risk and avoid cost.
Access data streams that allow you to identify physician practice financial performance, product line performance and downstream revenue to hospitals.
Establish secondary GPO arrangements to cover off contract spend and address specific niche areas such as specialty pharmacy items.
Use an industry expert to drive an equipment maintenance RFP to lower costs while improving service.
Lower energy costs without capital purchases by taking what you have and making it run more efficiently.
Review surgical supply cost trends in comparison to reimbursement changes and challenge the vendor to adjust accordingly.


CFOs must foster an environment in their health systems that continually promotes challenges of the status quo and searches for more optimal operation. Whether the solution is in the revenue cycle or the supply chain, the quest for routine improvement is necessary for sustainability in today’s healthcare environment.
Ironically, today’s healthcare cost constraints has limited the bandwidth available to address the hidden ROIs.
The healthcare CFO needs to trust key colleagues and delegate appropriately to be efficient and effective. The process does not end there, however. Delegation is appropriate but accountability is essential in optimizing performance. If team members do not want to pursue an opportunity, ask them why and listen carefully for the answer. If the answer is some version of “we are too busy,” “we tried that years ago” or “we have that area covered,” challenge them for better reasons or ask for their alternative plan. Routinely testing your systems is not only useful, but it is essential.
Regarding your revenue cycle, establish ongoing end-to-end comprehensive system reviews from patient presentment to application of payment. Focus on efficiencies, application of current regulatory/payer updates and consistent application of system initiatives. Third party consultancies, who are specialists in this area, can aid or guide these reviews in a prompt fashion.
With your supply chain, it is often helpful to ask the reverse contingency question. If it does not cost anything to evaluate a particular solution and the 3rd parties can document potential historical cost savings of approximately 25%, why would you not take a close look at this opportunity?