Beyond Denial Rates: Metrics for Hospital Financial Health

Originally published on Becker’s Hospital Review

The healthcare sector faces a critical juncture due to mounting macroeconomic challenges, particularly from the increasing complexities and financial pressures of Medicare Advantage Organization’s (MAO) reimbursement processes. This situation is intensified as a significant portion of the population ages into Medicare. Dr. Jerilyn Morrissey, CMO at CorroHealth, notes a striking trend: “At the end of 2022, across the nation, as patients were electing their Medicare benefits, 50% were opting for Medicare Advantage Plans. This is a huge number.” This surge represents a significant macroeconomic turning point, giving MAOs more power and significantly influencing hospital finance and patient care strategies. This is further amplified by how hospitals utilize their key performance indicators (KPIs), such as denial rates, case mix index (CMI), and length of stay (LOS).

Compounding this issue is the financial distress many hospitals face, with many operating at a loss. “Half of all hospitals and health systems are still operating at a financial loss,” says Dr. Morrissey, “According to the American Hospital Association, with many more barely covering their costs… The median hospital operating margins were negative for over a year between January 2022 and February 2023.” This situation requires reevaluating financial management and metric analysis in health systems, shifting from old metrics that payers capitalize on to targets centered around a hospital’s financial goals. However, making this shift isn’t accomplished easily.

Embracing Change for Financial Health

Hospitals aiming to boost their financial health must first navigate the challenge of change resistance. Leaders need to adopt a new mindset to drive change across their teams. The task is daunting, as people naturally resist shifting away from legacy practices, even in the face of necessary evolution for the hospital’s future.

To break through this barrier, leaders should cultivate an environment that welcomes change. This involves clear communication to educate staff about the benefits of new methods and providing the necessary tools for a smooth transition. A balanced approach that understands staff concerns but firmly guides them towards new performance measures is crucial. It’s about ongoing support and tracking progress to ensure these changes take root and lead to lasting financial improvement.

Shifting from Payer-Centered Metrics to Hospital Revenue Goals

Denial rates, a fundamental metric in revenue cycle management, indicate the proportion of claims payers reject. While hospitals traditionally aim to keep these rates low to reflect efficient coding and documentation, Dr. Morrissey warns this focus can be a hindrance to broader revenue goals.

Focusing narrowly on reducing denial rates can inadvertently lead to revenue loss, as revenue cycle management teams often claim only what MAOs are likely to approve, resulting in lower reimbursements. Dr. Morrissey refers to this as “self-denial,” which, despite lowering denial rates, leads to reduced revenue and inadequate patient care reimbursement. She observes, “Unfortunately, denials are often viewed internally as a failure on the part of the Utilization Management professional or of the treating physician when denials come from the payer, not from anything we do at the hospital.”

Dr. Morrissey suggests that hospital leaders reevaluate how their current metrics are measured and achieved to ensure they align with revenue goals. The primary objective should be to use reliable metrics that accurately measure progress toward the revenue goals. This involves using actionable analytics to compare performance among cohorts, identify payer strategies, and understand payer’s specific tactics that impact net revenue.

Success is not just about denying less or overturning more appeals but about getting inpatient cases paid accurately. Crafting customized strategies for each payer is crucial to ensure proper billing and reimbursement, leading to true fiscal health and increased revenue despite potential denials.

Redefining Metrics for Hospital Success

Denial rates are just one of many KPIs that can be utilized to identify gaps and improve reimbursement. Traditional ‘transactional’ metrics such as the number of cases reviewed in Utilization Management, number of overturns, observation rates, length of stay, and readmission rates often slow down a hospital’s ability to respond to changes in payer behaviors. Instead, meaningful benchmarks and root cause analysis offer more effective measures. Hospitals must pivot from focusing on process-driven metrics to goal-oriented ones, ensuring alignment with the broader goals of quality, efficiency, patient care, and compliant reimbursements.

Looking to the future, the healthcare sector is poised for transformation. Dr. Morrissey puts it succinctly: “I think 2024 is going to be another momentous year in healthcare full of challenges waiting to be turned into opportunities. With that, we’ll be able to optimize healthcare delivery, patient outcomes, as well as hospital fiscal viability.”

If you are ready to improve your hospital’s financial integrity and resilience, you can book a strategy call with CorroHealth. Their team of experts can facilitate and ease the burden of change for your organization.

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