Managing Revenue Flow, Uncovering Challenges

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Original story posted on: October 28, 2020

LOS versus MSPB—the same or different.

Length of stay (LOS) and Medicare spending per beneficiary (MSPB): are they both necessary? Are they complementary, or different metrics?

In pre-COVID times, revenue in general was good. Yes, there were challenges to be dealt with, but those challenges have worsened in times when gross profit and profit margins have been significantly reduced. In some cases, these metrics have plummeted to the point of tightening budgets, imposing layoffs, and even hospital closures.

Using the analogy of a brook, during certain seasons of the year, waterflow is good, unimpeded. During times of drought, waterflow is reduced, and can be affected by rocks and debris in the riverbed, changes in ground levels, diminution of the water source, and many other factors. Dropping of the water level has made problems more visible, creating greater negative effects. That is what we are seeing now in revenue cycle: revenue flow has dropped and revealed and highlighted the rocks – the problems.

Hospitals and healthcare systems may not have looked so intently at process challenges during the good times, while revenue flow was optimal. Yet, even with that, they did not neglect improvement in processes, with the many aspects of LOS, in an attempt to improve profit margins. So too, Medicare, in order to improve quality of care and preservation of the Medicare Trust Fund, which has been said to have a limited future, has looked at MSPB as a measurement. It is being utilized as a comparison, an incentive, to increase efficiency and reduce the cost of care, while not affecting the quality of delivered care. Both are part of a necessary paradigm shift, but for different reasons.

Cost management has always been important in revenue flow, but even more so today, and both of the aforementioned measures play a role. According to Becker’s Hospital Review, “cost management can be defined as the process of collecting, analyzing, evaluating, and reporting of cost information that is used for budgeting, forecasting, pricing, profitability analysis, and performance reporting.” Revenue cycle management (RCM), when it comes to revenue flow, looks at two different costs:

  • Direct Cost – products and services related to patient care, such as:
    • Labor
    • Supplies
    • Equipment
  • Indirect Fixed Cost – Simply, overhead

One may get very prescriptive and state that LOS affects only direct cost, or what happens during the inpatient stay. But in reality, decreasing LOS can have a collateral effect on indirect costs. For example, overhead is a fixed cost, but two days of these fixed costs is a less amount than three days of these fixed costs. Also, in order for LOS to be useful, whatever gets measured must be measured with the same data points, and during the same time of recording that data, in order to reduce variability in the results. Process issues greatly affect LOS, and here are some examples; remember that they will vary from facility to facility:

  • How long does it take a patient in the ED to get up to the floor for their bed?
  • How long does it take for the attending physician to see the patient for the first time?
  • What is the bed turnover rate?
  • Are there delays in testing and results getting to the chart?
  • How long does it take for utilization review (UR) to see the patient for level-of-care determination?
  • How long does it take for a consultant to see a patient, once requested?

There are a lot more issues to measure, and dashboards  are an absolute necessity.

MSPB looks at more than the inpatient stay. The other two areas included are the three days prior to admission and the 30 days after discharge. MSPB also takes into account more than just the inpatient claim. The indirect costs, the other claims taken into account, include those of the carrier, skilled nursing facility, outpatient center, home health, hospice, and durable medical equipment. They are a combination of direct and indirect costs and are extremely variable, but measureable.

LOS tends to compare the data within one’s own facility, and not as much to national standards and benchmarks, while MSPB compares facilities to all other facilities. It shows the data in dollars and percentage of the national figures.

The goal of analyzing both LOS and MSPB is improvement. I believe that LOS improvement will result in MSPB improvement for the inpatient claim, the inpatient stay. But one must look at what can be done to improve the pre-hospital and post-hospital segments, and that has to do with direct costs. Indirect costs are not so variable. MSPB will not replace LOS.

This is important to understand because it is these areas of the cost of delivering care where LOS and MSPB will have an impact. We as physicians for the longest time have practiced care delivery without acknowledging cost of that delivery, but times are changing. Physicians must be educated to get away from “this is what we’ve always done” thinking. Revenue cycle cannot be clinical, but clinicians can add the perspective of revenue cycle to what we do. Budgets are not unlimited, as reimbursement for services provided are dropping, and if we do not change, the cost of healthcare delivery will become unsustainable.

When looking for areas of process improvement and cost reduction, ask yourself these questions:

  • What are you trying to accomplish?
  • Why?
  • What have you tried before?
  • What are your goals?
  • What are your indicators of success?

I ask again, LOS and MSPB, are they both necessary? Are they complementary, or different metrics? You decide.

John Zelem, MD

Dr. John Zelem is a board-certified surgeon-turned healthcare consultant. He is the founder of Streamline Solutions Consulting, Inc.

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