Making sense of a complex market

November 1, 2004

Unfortunately, many providers can't squeeze much more money out of cost reductions.

Rather than conducting business transactions directly between a willing buyer (the patient) and a seller (the provider), healthcare industry transactions take place among a buyer (the patient), a seller (the provider), and a third party (an insurer or the government) who is paying the bill.

Obviously, patients want the best care possible using the latest technological advances. They usually pay a flat monthly fee for healthcare through their employers, and they often don't consider alternatives of how and where care is consumed because, historically, their own out-of-pocket expenses have been relatively low. Providers, in turn, are trying to meet patient demands for more and better services. At the same time, the objective for third-party payers is to keep their payments to providers as low as possible-based upon a concept of reasonable and appropriate medical care-while operating on a flat budget from the employer premium payments they receive.

Smaller provider organizations are failing. Larger organizations are losing lots of money. How can providers make sense of this nonsensical market? How can they build and sustain financial strength and stability? The answer often lies in effective management of the revenue cycle.

TODAY'S MARKET Revenue cycle management can improve providers' financial position. Assuming that the healthcare industry's basic transactional model will not change any time soon, providers need to take a multi-pronged approach to regain financial viability.

In the tax-exempt world, providers need to ramp up fundraising efforts and go after more charitable contributions. All providers, whether tax-exempt or for-profit, have to either generate more revenue or reduce costs.

Providers reduce costs by streamlining the supply chain, redesigning facilities, re-engineering clinical and support services, installing new systems and using resources -especially staff-more wisely. These are not new ideas; providers have been working for years to reduce costs. Unfortunately, many providers can't squeeze much more money out of cost reductions. Their only choice to improve operating margins is to concentrate on revenue generation. There are three major ways providers can do this: