Guide to Different Types of Healthcare Contracts

Health Care Financial Consultant Contracts

Contracts are the glue holding every operation together within the healthcare industry.

They connect employees and employers, suppliers and buyers, ensuring each party remains protected. Whether dealing with hiring, your supply chain or equipment, contracts can be long and complex and require time and effort to ensure they’re structured in your best interest. Understanding the different types of contracts and how they work is the first step to an effective contract management operation.

Supply Chain Contracts

Healthcare organizations depend on countless materials and products to complete daily tasks. Some of the most common products used throughout healthcare centers and hospitals include syringes, defibrillators, sterilizers, gloves and masks.

You can create supply chain contracts to secure these raw materials, products and services from reliable suppliers. These written agreements guarantee the supplier will provide specified goods or services for a pre-determined period at a fixed cost. They also outline delivery schedules, consequences for failing to adequately buy or supply and termination conditions.

Types of Supply Chain Contracts in Healthcare Facilities

Healthcare professionals use expensive instruments daily, and they might have equipment lease contracts rather than buying items outright. This strategy provides additional flexibility and security to obtain the required tools at a more convenient price. However, there are other solutions healthcare providers might employ to get the resources they need. Common types of supply chain contracts found within healthcare facilities and organizations also include:

  • Purchase orders: A purchase order is a binding contract the buyer produces detailing what they want to purchase from a supplier. This document includes information like quantity, payment terms and delivery.
  • Service agreements: These contracts are lists of all the services a supplier agrees to provide. It also outlines pricing, timelines and the rights afforded to each party.
    Distributor agreements: Distributor agreements are formed between suppliers and merchants. The seller, or distributor, agrees to market and sell specified providers’ products for a fixed fee.
Labor Contracts

Standard labor agreements are legal contracts outlining the terms and conditions of employment at an organization or company. These documents vary by company and position and provide explanations of employee responsibilities and duties, employment terms, compensation and benefits and conditions of termination.

Commonly used labor contracts in every industry include:

  • Union contracts: A single, written agreement between the employer and a group of employees agreed upon using collective bargaining. These documents detail wages, hours and scheduling, time off, working conditions, advancement and more.
  • Non-union contracts: Customized documents that employers and individual employees negotiate. Individual employment agreements state conditions of employment and are often subject to governmental regulations.
  • Independent contractor agreements: Contractors are not employees and agree to perform specific services for a company in return for payment. These contracts outline the scope of work, compensation, deadlines and partnership length.
Special Healthcare Labor Contracts

Labor contracts are required for every employee within your organization. Which one you use depends on their position and union status and must meet all state and federal employment laws. However, there are special circumstances in which you must utilize other contract types, such as hiring a physician.

Many states prohibit medical facilities, like hospitals, from employing physicians directly. Detailed physician employment contracts or independent contractor agreements are often necessary.

They include schedule expectations, wages and benefits, on-call requirements and a restrictive covenant outlining non-compete conditions. If you are hiring for the role of medical director, a separate contract is also required and includes similar information.

Purchased Services Contracts

A lot goes into running and maintaining your healthcare facility. It takes time, effort and money to provide patients with the care and attention they deserve. Partnering with outside companies will ensure your operations are sustainable and run smoothly while saving you money. These partnerships are usually called purchased services and are part of your non-labor spending budget.

Purchased services agreements are the contracts between your organization and outside businesses. They include information regarding contract terms, scope of services, pricing structures and scheduling. Standard outside services many organizations choose to outsource include:

  • Laundry and linen
  • HVAC
  • Marketing
  • Rehabilitation services
  • Specialty equipment
  • Legal services
Types of Purchased Services Medical Contracts

Your healthcare business depends on the services you source from outside businesses and contractors. Outsourcing activities like coding, transcriptions and billing collections require managed services agreements (MSAs) and outsourcing agreements. These examples of healthcare contracts outline the promised service, payment structures, liability protections and timelines. They can also include penalties, fines and exit strategies.

Professional service agreements (PSAs) are another form of purchased services contract that aims to reduce company expenses. Facilities like hospitals often use PSAs to enlist the help of specialized physicians such as anesthesiologists, radiologists, hospitalists and many other professionals.

These professionals remain independent from the business while adhering to a contract tailored to fit the needs of your business or organization in return for payment. You can create them for a single service provider or a whole department, varying in term length, schedule type and responsibilities. These contracts tend to be more complicated, yet they can be extremely powerful when they are done right.

Informational Technology Contracts

As technology has continued to advance, it has become a staple of the healthcare world. Healthcare companies everywhere depend on cutting-edge technology and software to treat patients effectively and deliver reliable services.

Technology contracting is critical to these companies acquiring the resources they need. Most applications, software and information-based technology require licensing agreements detailing necessary fees, the duration of the agreement and prohibited activities.

Examples of Healthcare Informational Technology Contracts

The healthcare industry is extremely reliant on innovative technology to continue meaningful growth. With this, you may see various types of healthcare contracts, including:

  • Software licensing agreements: This is a legally binding contract between your healthcare organization and a technology company permitting the use of specific software. It defines where a purchaser can install the software, how to use it, how much it costs and how a party can terminate it.
  • Software development contracts: These agreements enlist the help of developers to design and implement custom programs and applications to expand business offerings and capabilities. A software development contract offers an overview of the project details and expectations, including the timeline, expectations, budget and other information.
  • Information technology outsourcing (ITO): ITO agreements are legal documents describing all the work to be handled by a third-party partner. You can establish relationships with vendors for infrastructure management, data center services and application development and maintenance.
  • Data use agreements (DUA): Providers use DUAs with patients when transferring protected health information, like limited data sets and identifiable data. This contract establishes both parties’ rights, responsibilities and obligations regarding permitted use, ownership and liability.
  • Application service provider (ASP) agreements: Healthcare companies can work with vendors to obtain the right to use their software or application. Instead of licensing and receiving a copy of the software, organizations rely on vendors to operate and manage the software on their behalf, often charging a usage fee or subscription.
  • Business process outsourcing: Organizations choose to streamline their technological supply chain by subcontracting specific jobs to third-party service providers. Popular online sectors that healthcare facilities create agreements for include finance and accounting, human resources and customer call centers.
Pharmacy Contracts

Drugs and medications are heavily regulated at the state and federal levels. Contractual agreements are used between healthcare organizations and pharmacies to protect each party’s rights and meet legal restrictions.

Pharmacy contracts are legal agreements between pharmacies and healthcare organizations. These detailed documents establish the terms and conditions regarding various operations, including purchasing, dispensing and paying for drugs and related services.

Types of Pharmacy Contracts

Pharmacy contracts will likely vary from pharmacy to pharmacy, and they are heavily dependent on provided services. Essential terms covered within these types of medical contracts include the scope of services, pricing, confidentiality, compliance and termination. Whether you run a pharmacy or work side by side with them, you should be aware of the following contracts you might encounter:

  • Manufacturer rebate agreements: Also known as vendor rebate agreements, these arrangements act as incentives to increase manufacturer sales while offering businesses reduced price points. This contract details the conditions a healthcare organization must meet before they receive a rebate check or future discount.
  • Group purchasing agreements: Specialty healthcare entities and pharmacies can enter into group purchasing organizations to secure supplier discount pricing. Organizations use these agreements to increase their buying power and negotiate with manufacturers, vendors and suppliers.
  • Pharmacy benefit management (PBM) contracts: These documents facilitate the relationship between pharmacy benefit managers and employers, health plans, labor unions, wholesalers and other organizations involved in healthcare. PBM contracts describe the manager’s role in processing and paying prescription drug claims and outline pricing areas and unique exclusions.
Choose Pathstone Partners to Handle Your Healthcare Contracts

Legal contracts come in all shapes and sizes within the healthcare industry, facilitating integral services that businesses and organizations rely on to succeed. Understanding how each operates and how to navigate through each situation accurately is crucial to your growth. It will ensure you’re capable of effectively helping and caring for customers and patients.

Pathstone Partners is devoted to providing your business with a broad spectrum of exceptional healthcare consulting services to manage all your medical contract needs. We have a long history of working with healthcare organizations of all sizes, identifying challenges and capitalizing on opportunities to enhance performance. Our healthcare consultants have unrivaled expertise to oversee contracts across all your business ventures. Get in touch with us to get started today.

10 Key Metrics in the Healthcare Industry

Health Care Financial Consultant Metrics

Measurements in the Healthcare Industry

Like any business, hospitals must collect and analyze data about their processes and procedures to streamline operations, improve patient care and avoid overspending. Healthcare performance metrics are essential data points that indicate how efficiently an institution is running and allow hospitals to monitor their quality of care and spending habits.

In this guide, you’ll discover the common healthcare metrics that hospitals and facilities should leverage to provide outstanding patient care and remain as efficient and profitable as possible.

Metric #1: Length of Stay

The average length of stay measures the duration of a patient’s hospital stay from their admittance to discharge. According to the Centers for Disease Control and Prevention (CDC), the average hospital stay in the United States lasts 5.4 days.

Hospitals can track and segment this metric by hours, days, weeks, months or quarters. If desired, they can further categorize length of stay metrics by diagnosis or department. However, most hospitals typically track their average stay length using months or annual quarters as units of measurement.

Stakeholders can use this metric to measure efficiency and financial performance. The longer a patient stays in the hospital, the more their care costs, meaning shorter stays reduce a hospital’s cost per discharge. Post-acute care is also generally less expensive than inpatient care.

Metric #2: Readmission Rates

Patient readmission rate refers to the number of patients readmitted to the same hospital for the same condition after being discharged for less than 30 days. The most recent data from the Healthcare Cost and Utilization Project (HCUP) indicates the average 30-day hospital readmission rate for Medicare patients was 16.9% in 2018.

This metric fluctuates depending on the type of patient and condition. For example, the average 30-day readmission rate for Medicare patients with heart failure in 2018 was 22.9%.

Readmission rates demonstrate a hospital’s quality of care, as a higher hospital readmission rate indicates that care providers likely overlooked complications and prematurely discharged patients.

Hospitals also use readmission rates to measure financial performance, as hospitals with higher readmission rates might not receive full reimbursements from Medicare.

Metric #3: Bed Occupancy Rate

Bed occupancy or bed utilization rate measures the number of occupied hospital beds at any time. This healthcare performance metric helps providers to see the ratio of available beds to those awaiting care. Current data indicates the average national bed occupancy rate in the U.S. was 64.4% in 2019.

Much like a hospital’s readmission rates, bed occupancy rate helps hospitals evaluate their quality of care and financial performance. The higher the bed occupancy rate, the more staff is needed to care for patients. Adequate staffing is paramount, as quality of care could suffer if a hospital is understaffed.

Conversely, if a hospital’s bed occupancy rate is too low, the facility might lose money due to overstaffing and maintenance costs.

Metric #4: Incident Rate

A hospital’s incident rate measures the occurrence of care complications, including issues such as bed sores, infections, reactions or postoperative respiratory failure, hemorrhages, sepsis and pulmonary embolism.

According to a 2018 report by the U.S. Department of Health and Human Services Office of Inspector General (OIG), 25% of Medicare patients experienced harm during a hospital stay. These adverse events included pressure injuries, intraoperative hypotension and respiratory infections, resulting in the need for life-sustaining measures and prolonged hospital stays.

Having a lower incident rate indicates a hospital’s ability to provide high-quality curative care without adverse reactions. Better care also reduces a hospital’s financial losses because it minimizes the need for additional treatment, meaning that this specific performance metric has a substantial impact on other areas of operation.

Metric #5: Average Cost Per Discharge

The average cost per discharge is the median cost per hospital visit for each discharged patient. As with average length of stay, hospitals can segment the average cost per discharge based on diagnosis or department.

Current data indicates that the average cost per discharge for Veterans Affairs Hospitals was $40,763 in 2020. According to the HCUP, the average cost of a common hospital stay in the U.S. in 2017 was $12,100, compared to $11,700 in 2016. Septicemia, osteoarthritis and heart failure were among the most expensive inpatient conditions in the U.S. in 2017.

Hospitalization continues to be one of the most expensive aspects of medical treatment. Tracking the average cost per discharge helps hospitals measure inpatient costs to assess their spending efficiency and monitor areas of overspending. The average cost per discharge metric also showcases where hospitals routinely profit.

Metric #6: Operating Margin

A hospital’s operating margin is its net revenue minus its operating costs. Operating costs include but are not limited to staff salaries, medical equipment, supplies, utilities, liability insurance, treatments, medications, meals and marketing expenses.

According to the American Hospital Association, one report indicates the average operating margin for over 900 U.S. hospitals at the beginning of 2022 was -3.45%, meaning that many U.S. hospitals did not turn a profit early in 2022.

A hospital’s operating margin is an essential healthcare performance metric that demonstrates the institution’s financial health, as a higher operating margin translates to greater profit for the hospital. Higher operating margins also indicate excellent management revenue cycle and patient care.

Metric #7: Inpatient Mortality Rate

Inpatient mortality rate refers to the percentage of patients who die in a hospital’s care. Mortality rates differ based on patient demographics and diagnoses.

For example, a National Health Statistics Report from the CDC asserted that 35% of patients hospitalized for pneumonia in 2016 died during their hospital stay. Other serious conditions, such as congestive heart failure, will naturally involve a higher mortality rate, while more minor issues and illnesses are less likely to result in a patient’s death while under care.

This metric is especially important for informing stakeholders of an institution’s performance because it is an Inpatient Quality Indicator (IQI) demonstrating a hospital’s ability to stabilize and adequately care for patients. Though variation is expected based on patient demographics, higher overall patient mortality rates indicate care deficiencies.

Metric #8: Asset Utilization Rate

A hospital’s asset utilization rate refers to the percentage of time its hospital equipment is in use, with a higher asset utilization rate indicating better performance. That’s because the more a piece of equipment is in use — or the higher the utilization rate — the more the hospital generates revenue from that investment.

A lower utilization rate might mean a hospital has more equipment than is reasonably necessary, hinting at overspending. Without knowing how often a hospital’s staff uses its assets, it’s challenging to budget for or justify equipment expenditures, so this metric is vital for assessing a facility’s financial status.

Metric #9: Patient Satisfaction

Patient satisfaction refers to a patient’s satisfaction with the care and service provided during their hospital stay. Factors that might influence a patient’s satisfaction include staff temperaments, wait time, visit length, technology, facility condition and diagnosis.

According to a 2019 study by the Centers for Medicare and Medicaid Services, only 8% of U.S. hospitals received a 5-star rating on patient experience. In the same study, it was found that the majority of U.S. hospitals receive 3-star ratings.

Why is measuring patient satisfaction important? Patient satisfaction provides actionable feedback and data hospitals can use to improve care and optimize services.

Patient satisfaction also affects the likelihood of a patient recommending a hospital to their loved ones, contributing to its reputation. A positive reputation can bolster a hospital’s bottom line.

Metric #10: Time to Service

Time to service refers to the time it takes a patient to receive care at a hospital, from the first arrival to when they receive healthcare services. This metric also includes the time it takes for a patient to see a physician.

Hospitals can segment time to service based on diagnosis, discipline or department, such as in the case of emergency room (ER) visits. The current time to service for U.S. emergency departments differs by state, with North Dakota having the lowest wait time at 104 minutes as of 2022.

Time to service is an important metric for hospitals to track because it provides information about their ability to provide prompt patient care. Wait times also directly impact patient satisfaction, meaning hospitals can improve their patient satisfaction rates by focusing on improving service times.

Leverage Hospital Performance Metrics With Pathstone Partners

If you’re looking for ways to leverage healthcare performance metrics data to improve your hospital’s operations and finances, consult the experts at Pathstone Partners. We’re a leading healthcare management consulting firm that assists healthcare organizations with developing streamlined operational strategies. We’ll help you identify trends that can enhance your facility’s operations to improve your quality of care and boost your bottom line.

Contact us today to learn more about improving your healthcare organization’s efficiency by analyzing healthcare performance metrics.

Medical Billing in Healthcare: In-House vs Outsourced

Health Care Financial Consultant Medical Billing

Understanding Medical Billing in Healthcare Practices

One of the more complex components of running a medical practice is managing your organization’s medical billing process. With thousands of potential medical codes for different diagnoses and procedures, on top of the numerous payers in the market, having the ability to effectively manage billing is a key driver of success in today’s healthcare industry.

In-House vs Outsourced Billing: No One-Size-Fits-All Solution

There is no “one-size-fits-all” as it relates to medical billing solutions; however, the two primary options for a healthcare organization are in-house medical billing and outsourced billing. There are three overarching considerations when evaluating whether to implement in-house or outsourced billing:

  • The cost
  • An organization’s capacity to execute billing
  • Maintaining confidential health services while billing
Evaluating the Cost of Medical Billing

Evaluating the cost implications of your selected billing option is critical for revenue management. For small clinics, there may not be enough revenue generated to cover the fixed costs of billing and turn a return on investment (ROI). It is important to do a cost-benefit analysis to ensure that the clinic can expect a net income.

Essential Internal Billing Activities

Whether or not your organization elects to keep billing in-house or outsource billing, a handful of important billing activities must be maintained internally. As an organization, you are held accountable for submitting accurate and timely billing information to the outsourced billing agency or to individual third-party payers. The organization is also responsible for:

  • Insurance verification
  • Medical patient registration
  • Coding
Maintaining Confidentiality: Written Billing Policies

Finally, it is of utmost importance to have clear written healthcare billing policies on how to manage bills and balances to ensure private patient information is managed appropriately.

Exploring In-House Billing

In-house billing includes the staff of a clinic or healthcare organization being responsible for all aspects of revenue cycle management. They submit claims to a clearinghouse, directly to Medicaid, or to the insurance company for reimbursement. They also set charges, collect patient fees (copays and deductibles), and manage the accounts receivable.

In-housing billing comes with several advantages all of which include:

  • More visibility over the billing process
  • High flexibility
  • Increased control over patient accounts

Nevertheless, it’s essential to be mindful of the potential difficulties linked with in-house billing, which encompass:

  • High upfront expenses for labor and technology
  • Ongoing training needs
  • High dependency on your staff members
Outsourcing: A Common Solution to Medical Billing

Many healthcare organizations opt to outsource their medical billing to a third party. These third-party companies typically take a percentage of a healthcare organization’s collections as payment for managing many aspects of a revenue cycle, on top of recurring monthly fees.

Outsourced billing has countless benefits which may include:

  • Having more experienced parties managing your billing
  • Advanced software options
  • Saving on internal time and resources

However, outsourced billing requires your organization to:

  • Maintain and oversee contractual obligations to the selected third party
  • Outsourcing gives your organization less control over patient accounts
Weighing the Choices: Outsourced vs In-House Medical Billing

The decision in outsource medical billing versus billing in-house is very dependent on your organization’s needs and resources, and each option has its own benefits and disadvantages.

To learn how Pathstone Partners can help your organization with medical billing, contact our team of healthcare experts.

How to Stop Revenue Leakage In Healthcare

Health Care Financial Consultant 15

Identify and Evaluate Opportunities

Your organization can prevent revenue leakage by implementing a few best practices that ensure accuracy and efficiency and promote optimization. Addressing points of leakage will enable your organization to increase revenue while maintaining quality patient-provider relationships.

Consider your organization’s practices and determine what processes could be optimized to promote more efficiency. A few areas to evaluate include:

  • Patient scheduling and registration: How do patients schedule appointments? Do they need to fill out paperwork or an electronic form when registering? Where do data entry inaccuracies occur?
  • Recording of medical supplies, procedures and equipment used: Who records information during a patient’s visit? How are procedures documented? Are responsibilities established among staff members?
  • Insurance verification: When does verification take place? Who handles insurance? Where do errors happen in the process?
  • Claims management: Who is responsible for follow-up when claims are denied? Who is responsible for issuing claim submissions? What is the current timeline for claim processes?

Some solutions may be as simple as cleaning up common clerical errors, while others may be more complex, such as implementing digital transformation and integration. Reviewing your processes will reveal opportunities for improvement, expose inaccuracy or inefficiency and enable your team to resolve problems and create a smoother revenue cycle.

Ensure Accuracy

Revenue leakage often occurs from issues at the beginning of the revenue cycle when patients first register or schedule an appointment. Ensuring accuracy in the information collection process will drastically improve how practices capture revenue, enabling them to create claims with correct patient information.

One way to ensure accuracy is to utilize electronic capabilities. Requiring patients to register or schedule appointments online will decrease data entry errors from paperwork. Electronic referrals will help your practice keep track of potential patients and encourage them to schedule.

Verify Insurance

Checking insurance eligibility and approval is another way to prevent revenue leakage by ensuring your services will be covered. Maintaining accurate insurance information will enable your practice to submit claims with precise data.

Establish correct insurance information by reviewing it with patients at the beginning of their appointment. Update any changes to insurance carriers, coverage or contact information. Adjusting any changes will be easier to complete before the visit rather than tracking down patients after they leave.

Set Financial Responsibility Expectations

Keeping patients informed of their responsibilities will improve your revenue cycle and increase patient satisfaction. Providing estimated costs to patients before their appointment will keep patients informed and prepared to complete their payments.

Collect copays and coinsurance during check-in or after an appointment to ensure accurate and timely payments and decreased revenue leakage.

Organize Claim Management

Commitment to timely claim submission and appeals will enable your practice to improve your revenue cycle. Accurate patient data will decrease the number of claims denials you receive, and a dedicated management team will be able to appeal denied claims quickly and efficiently. Taking the time to evaluate, revise and resubmit denied claims will greatly decrease revenue leakage.

Simplify Payment Processes

Creating an easy payment process for your patients will improve revenue and boost patient satisfaction. Make bill pay convenient by offering an online payment option or a payment plan to give patients the flexibility to meet their bills.

Prevent Revenue Leakage With Help From Pathstone Partners

Revenue management and leakage prevention can be complex, but you can find understanding and empowerment when you work with Pathstone Partners. Our consultants will help you tackle financial and operational processes to identify opportunities, implement solutions and sustain beneficial practices for the success of your healthcare practice.

Our variety of services will enable your organization to manage revenue cycles easily, provide quality patient care, exceed business goals and ensure success. Contact us today to learn how Pathstone Partners can drive value for your healthcare practice.

What do firms look for when hiring a healthcare consultant?

Health Care Financial Consultant Jobs

Our Team Shares a Handful of Qualities

While there is no exact template for success in consulting, our team shares a handful of qualities that help make us successful in what we do. The following list contains a few qualities that can help new hires be successful in their new role:

Problem-Solving Skills

Helping clients solve complex problems and develop solutions requires strong intellectual abilities, as well as a practical sense of what works and what does not. If you have the experience, make sure you can talk about instances where you took initiative and the impact of your contribution to solve complex problems.

Teamwork

Consulting is a team-based career, so your ability to work well in teams is incredibly important. We are looking for someone who can work both independently, under their own guidance, as well as someone who engages well with the rest of the team.

Experience

Although new hires are not expected to have vast work experience, it is important to have shown an effort to be involved in applicable life experiences. This may include involvement in internships, extracurricular organizations, and volunteering. It is especially important to communicate the transferable skills gained from these experiences, such as data analysis, presentation skills, or teamwork.

Communication

Communication is essential to a consultant’s success and all consulting firms look for evidence of both written and verbal communication skills. Candidates must be clear and concise, both in client-facing scenarios and when communicating with your team. Your first opportunities to display this skill will be through your resume and initial interview discussions with the firm.

Business Acumen

Consultants work to solve a wide variety of complex business problems. It is critical to understand business fundamentals across different domains such as finance, operations management, and information technology, as we apply this knowledge to help businesses solve complex problems and ultimately achieve their goals.

Personality

Consultants spend a lot of time with their coworkers and clients. The ability to develop strong relationships with each of these groups is maybe the most important skill in this list. Almost all aspects of our job are social: collaborating effectively, appropriately, and professionally with peers, superiors, and clients.

The Value of Revenue in the Hospital Supply Chain

Health Care Financial Consultant Revenue

What is Revenue?

This value lever can be defined as any revenue, rebate or reimbursement generated from a purchased product or service. Revenue is often overlooked by healthcare supply chain due to the department’s traditional focus on reducing costs. However, many products and services provided by suppliers can play a significant role in generating revenue, rebates or reimbursements for the health system.

Key benefits of this value lever include:
  • Financial benefits ranging 5-25% depending on the category
  • Increased revenue and reimbursement when cost reduction opportunities are limited
  • Enhanced supplier or contract rebates
  • Creation of funding to upgrade or expand products and services
Key Opportunity Indicators

Limited Discussion on Any Supply Chain Driven Revenue Opportunities

If your organization is not recognizing revenue as a value lever within supply chain, this may be one of the first signs of opportunity. Once spend categories with potential revenue opportunities are identified, negotiations with suppliers in those categories should include conversations around incorporating revenue or rebates into new arrangements.

  • Client Example: Pathstone worked with a client that received a cost reduction proposal from its release of information (ROI) provider. Though the client was eager to accept the offer, Pathstone understood that the supplier was funding the client’s program with revenue associated with billable patient requests that were not visible to the client. By analyzing program revenues, Pathstone was able to help the client negotiate a revenue share agreement that generated 30% in additional financial benefit to the organization.

Lower Supplier Prices Charged Compared to Market Rates

If supplier prices charged for an outsourced service are lower than what the market typically commands, this is another indication of the potential for hidden revenue opportunities. If the organization’s prices are well below market averages, it may be a sign that the vendor is capturing significant revenue to offset costs of the program being delivered to the client. Further investigation may uncover opportunity for the client to at least share in that revenue. Auxiliary services such as parking and cafeteria are common candidates for these types of evaluations and opportunities.

Shrinking Revenue from Existing Programs

If volume for a revenue generating product or service is decreasing, this may signal the current program needs to be modified to align with the current environment. Decreasing volumes may be caused by unexpected factors such as changes in supplier pricing, evolving market forces impacting demand or new supplier/end-user resistance.

  • Client Example:  Pathstone evaluated a health system’s accounts payable commercial bank card program, which offers a quicker payment platform for the health system’s suppliers in exchange for a rebate paid by the supplier to the health system. Our analysis showed low levels of card adoption by suppliers, translating to lower rebates for the health system. A deeper dive into the data revealed most suppliers were already being paid quickly without the use of the card program. By reconfiguring standard payment terms to exceed the card program, the health system created an incentive for suppliers to adopt the card program and thereby increased card program participation and rebates by 10%.
Key Success Factors

Develop Business Cases

Organizations that utilize a comprehensive business case to evaluate the pros and cons of an in-sourced or outsourced model will increase their chance of success. The business case is a fact-based tool that allows teams to have an open and objective dialogue when selecting the best strategy. For complex categories, engaging third parties to develop business cases can provide market information and objective analysis necessary to make the best decision.

Evaluate Program on an Ongoing Basis

Since costs, quality and performance of programs can change over time, organizations that continuously evaluate make vs. buy opportunities position themselves to generate more value over the long-term. Continuous self-assessment can uncover opportunities resulting from minor improvements in supplier relationships to complete transformations for an organization’s service delivery model. For example, one important question for an organization to ask about an insourced operation is: “What else can we do with these resources?” The opportunity cost of those resources can help identify alternatives that drive more value for the organization. Furthermore, alignment of the service with the organization’s overall mission should be evaluated.

Access to Market Intelligence and Best Practices

Hospitals that have conducted extensive market research are well positioned to evaluate existing outsourced or internal programs. Market intelligence on leading practice cost metrics and performance indicators can be an effective barometer to measure financial, quality and operational performance. Partnering with third party providers that can provide insight on market benchmarks can help an organization set the right targets to measure the competitiveness of existing programs.

Six Ways to Increase Hospital Profitability

Health Care Financial Consultant Improve Hospital Efficiency

Healthcare is an ever-evolving industry

To serve patients and meet business goals, hospitals must adapt to a new landscape, with different technologies, regulations and reimbursement models always appearing. Maximizing profitability and efficiency are two goals that often pose a challenge, as healthcare providers work to balance costs with effective, timely care and innovative services.

Since hospitals can be particularly complex healthcare systems, reaching these goals requires efforts across many parts of the business. Let’s explore some ways to increase profit in hospitals and healthcare systems and boost efficiency.

Understand Revenue Cycle Performance

If you want to find opportunities and areas for improvement, you’ll need to know your revenue cycle on a deeper level. Better data can also help executive team members quickly make informed decisions.

To dive into your revenue cycle, consider implementing revenue cycle analytics. These solutions can turn the raw data into visualizations like graphs and charts and display them in an easy-to-understand dashboard. You can also improve the quality of the data that enters your analytics solution with better reporting tools.

Invest in Healthcare IT Systems

Technology has seen huge advancements in recent years, so if you’re still running on outdated legacy technology, you’re likely missing out on significant profits. Some examples of cost-saving IT initiatives include decision support systems, electronic medical records (EMRs) and computerized physician order entry systems for prescriptions.

These digital technologies could offer significant benefits to hospital profitability. Annual savings from efficiency benefits alone could exceed $77 billion. By improving scheduling and coordination, for instance, a hospital could reduce hospital stays, increase productivity, and nurse administration time.

The safety benefits of healthcare IT can also boost your bottom line. A medication order system could alert physicians to potential drug reactions, helping eliminate adverse events overall. Healthcare IT technology can provide innumerable benefits for disease prevention and chronic disease management, which are becoming especially relevant in value-based care initiatives.

Reduce Readmission Rates

Readmissions are costly for the patient and the practice, and many of them are preventable. By collecting and analyzing data across the continuum of care, such as follow-up care, hospitals can focus on reducing readmission rates. Lower rates can help achieve maximum reimbursements and avoid penalizations from the Centers for Medicare and Medicaid Services (CMS).

Properly Negotiate Vendor Agreements

The vendors you work with have extensive training and resources to devote to contract negotiation, ensuring that their company has the upper hand. Hospitals typically don’t have the same kind of resources, which can put you at a disadvantage. Spend some time on training to ensure that anyone making these agreements knows the basics of successful negotiation.

You may also want to consider working with a healthcare consultant. At Pathstone Partners, we come to negotiations prepared to make hospital profit improvements. We might collect data on supplier relationships, out-of-line pricing benchmarks, hospital growth and reimbursement rates to gain the most leverage before meeting with a vendor.

Perform Line-Item Analyses

Your line-item analysis is a key part of understanding your monthly spending. Many hospitals are overpaying. A line-item analysis can provide additional security by confirming that all listed items and invoice pricing are included in the vendor contract and that hourly rates are consistent. Manual analysis is virtually impossible, even for smaller hospitals. Automated line-item analysis is another area where IT investments can help significantly.

Consider a Telehealth Strategy

Telehealth has seen a 38-fold increase from pre-pandemic numbers. Offering these digital service options can open up new revenue streams and expand your reach within a community. Telehealth is especially valuable in rural settings or in areas facing provider shortages, where it can make healthcare possible for people who would otherwise struggle to get to a doctor. Telehealth is also an excellent tool for managing chronic conditions and improving patient relationships.