Improving Revenue Cycle Performance in Medical Labs
By: Tim Kuruvilla
It is widely accepted that up to 70 percent of clinical decisions are based on results of lab tests. Yet medical laboratories account for a relatively small fraction of healthcare costs. This incongruity raises an important question for healthcare organizations: How can the financial value of labs be made more commensurate with their clinical value?
One area in which the financial performance of the lab may be improved is the revenue cycle. Healthcare executives naturally prioritize high-dollar areas when they tackle revenue cycle improvements, so they tend to overlook the billing and collections operation of a low-dollar space such as the lab. Considering the massive volume of lab tests today, coupled with the likelihood of high-dollar genomics tests around the corner, this approach could end up leaving revenue on the table. CFOs should find ways to use business intelligence to improve the revenue cycle performance of their organizations’ lab operations—and lay the groundwork for optimal management when sophisticated, expensive molecular tests become routine.
The Present: High-Volume, Low-Dollar
With more patient touch points than any other function in health care, the lab is constantly handling sensitive and specific patient demographic information along with blood and other test results. One of the key challenges is to accurately and efficiently transfer this information from the draw site. If any piece of this information is transcribed inappropriately when it is sent to the payer, the insurance company will likely deny the service. Labs should understand which bills are being denied and why. Which tests encounter the most problems? Which payers continue to present challenges in terms of denials? Insight into patterns of denials can influence staffing, business, and even clinical decisions and can help an organization realize revenue cycle gains in the current healthcare environment.
The Future: High-Volume, High-Dollar
Authorizations for lab tests are not much of an issue currently, as general laboratory tests typically do not require prior authorization for payment. Within five years, however, genomic and other molecular tests are likely to play a much larger part in the diagnostic process—consider, for example, the possibility of gene sequencing being made available to consumers on a smartphone app.{a}
Without an active revenue cycle management (RCM) plan, labs could lose out on major dollars as molecular tests become the norm. Through the administrative and management functions encompassed in RCM plans, labs can capture and collect revenue associated with testing services by reducing unpaid claims and by improving coding, billing, and collections processes.
Knowing which payers are reluctant to reimburse such tests—and tracking those practices as they shift—can help labs avoid service or billing denials precisely when the stakes get higher.
Anticipating Compliance Issues
Another focus that could have an even greater impact on revenue is the use of revenue cycle business intelligence in meeting reporting requirements. The Healthcare Effectiveness Data and Information Set (HEDIS) is an 81-measure tool for evaluating the quality of health plans in the United States. Overseen by the National Committee for Quality Assurance, HEDIS enables the direct comparison of health plans on important dimensions of care and service, and is increasingly used to comply with federal regulatory demands.
The same data analytics software that can pinpoint areas for improvement in RCM can be shared with payers for their HEDIS reports. Examples of the types of data reported include:
- Top tests ordered per payer member population
- De-identified cross-comparative payer analyses
- Comparative test result analyses by patient’s age and test result range
- Physician-ordering patterns by test-ordering frequency
The stakes are only getting higher for this type of reporting, even aside from HEDIS reporting. Under the Protecting Access to Medicare Act of 2014, by January 2016, many clinical laboratories will be required to perform extensive and detailed lab value reporting—with penalties for noncompliance as much as $10,000 per day.{b} This legislation requires reporting of private payer rates for advanced diagnostic tests and of the volume of those tests every year—unlike the reporting requirement of every three years for traditional tests—to allow the federal government to set Medicare payment rates.
The prospects of this provision of the law have raised concerns. One industry analyst, Robert Michel, notes that any aggressive cuts that the Medicare program seeks to make on high-volume—or, indeed, advanced genetic—lab tests may “wreak financial havoc among the nation’s community labs and hospital/health system labs.”{c} Providers should take steps to get ahead of this legislation.
Offering Value to Payers
Healthcare organizations also can benefit indirectly from sharing the unique business intelligence that labs can produce. Translating information stored in medical lab records into reportable HEDIS data has become a crucial capability for healthcare organizations, with substantial revenue from payers potentially at stake. Labs are not required by law to send HEDIS data to payers, but those that do not comply with a payer’s requests could end up being treated as out-of-network providers by the payer and risk losing all business from that payer.
As payers become more sophisticated with data analytics in the context of population health management, they increasingly will seek to capture a missing piece of information: individual lab test results that are associated with the billing and demographic information they already have. Hospitals, in turn, should interpret and communicate the data housed in their laboratories, because individual lab results with billing information are becoming increasingly valuable in the broader healthcare marketplace. The labs that can deliver this intelligence are finding they have a much better position at the negotiation table with payers.
Next Steps: Improving Patient Care
Tying clinical data to financial billing data is useful not only to payers, but also to providers. For example, labs can give providers a quantitative evaluation of patient populations across a variety of criteria, including time, disease state, and patient demography. By analyzing patterns among these data, decision makers can identify ways to improve care—and track the success or failure of new efforts as they progress.
As payment models change and consumer empowerment grows, hospitals are under increasing pressure to optimize revenue cycle operations across their organizations. Finance leaders should recognize the potential of the medical laboratory as one of the most promising, if least used, revenue generators they have.
Footnotes
a. “Illumina Plans to Tap Consumer Market for its Smartphone-Ready DNA Chip: Will This Create Diagnostic Consulting Opportunities for Pathologists?” Dark Daily: Clinical and Pathology News and Trends, Dec. 29, 2014.
b. See H.R. 4302, “Protecting Access to Medicare Act of 2014,” April 2, 2014.
c.“New Federal Law Has Potential to Financially Devastate Local Clinical Laboratories, While Favoring Larger National Medical Labs,” Dark Daily: Clinical and Pathology News and Trends, May 5, 2014.