Debt Reduction Mantras for Hospitals to Adopt to Ensure Survival

The average person has an impression that since hospital charges are normally very high, the hospitals must be making very large profits as businesses. However, like any other business, even hospitals have to manage their expenses and income very carefully;otherwise, they will end up in drowning in debt. Healthcare reforms in recent years have had a great impact on the reimbursement entitlements of hospitals. Very often, insurance plans that have very high deductibles can leave patients in a condition where they are not in a position to afford the bills that a few days in a hospital can rack up. This means that hospitals come under more pressure to recover the dues arising from unpaid bills and the negative implication of bad debt where the payment cannot be recovered.

Even though a larger number of Americans are now covered under the Affordable Care Act, all hospitals have to deal with lower reimbursements and a general tendency of patients to avoid inpatient care in favor of outpatient treatment in a bid to lower the expenses. According towww.forbes.com, the mix of paying patients is shifting to lower-priced patients. For many institutions, it means that the hospital infrastructure is not being used optimally and the beds are often going empty and in totality, the financial viability of the hospital may come under pressure. Faced with rising levels of debt, some hospitals are selling off properties in a bid to stop bleeding money. According to healthcare finance experts, the problem is compounded by the fact that many hospitals do not even know what their actual costs of operating their facilities are and what their cost of capital is. Some practical ways in which hospitals can reduce their debt levels:

Know the Cost of Operating the Hospital

The only way that a hospital can be financially viable is when it can make money consistently from extending care to patients. Like any other business operation, hospitals need to use a certain amount of debt along with their equity capital to fund business operations; however, the use of debt has to be proportionate to the leverage that can be sustained. For example, if a hospital plans to be a center of excellence in surgery, it is evident that it will require a large number of operating theaters with expensive equipment and doctors and nursing staff to match. In an ideal situation, when the number of patients undergoing surgery is large, the hospital will have no problems in servicing its debt obligations.However, if the number of surgeries is lower than anticipated, the revenues will be affected, and the cash crunch may prevent it from repaying its debt on schedule or default on the bonds that it might have issued.

Ensure More Accurate ICD-10 Coding on Claims Forms

One of the important reasons why hospitals suffer from poor reimbursements is their inability to improve the standard and accuracy of ICD-10 coding on the claim forms. The International Classification of Diseases, Tenth Revision, Clinical Modification (ICD-10-CM) is a system used in America by all providers of healthcare to categorize and encode all symptoms, diagnoses, and procedures carried out in the hospital to render patient care and treatment. Sometimes the code itself is entered incorrectly and the right amount of the time spent by the doctor on seeing the patient is also not properly recorded, which makes the reimbursement rates fall.  For the hospital to improve its revenues, it is vital that the physicians are trained to properly enter the right codes for the actual condition and its associated effects.

Restructuring or Refinancing Debt

If the hospital has already accumulated a lot of debt on its books, the interest expense can be pulling its profit down drastically. They should look to work with private financial institutions or capital market organizations to explore the possibility of consolidating the debt or refinancing it to reduce the interest expense. Consulting the debt consolidation ratings of these market intermediaries can give a valuable pointer to the companies you should be considering making an approach.

Increase Operating Efficiency and Staff Productivity

Hospitals can significantly add to their bottom lines by ensuring all healthcare practitioners, including LPNs, nurses, etc. are given responsibilities that are at the top end of what they are qualified for. For example, many nurses can perform some tasks that are routinely done by the physicians and lower the cost of healthcare delivery by the hospital. The efficiency of hospitals can also be increased by embedding the pharmacy protocols and guidelines devised for driving best practices into their EHR systems. According to industry experts, it is becoming increasingly important for hospitals to focus on improving their operational efficiencies in view of the fall in reimbursements. At a bare minimum level, hospitals should endeavor to improve their productivity by 0.8% per year for the next five years to keep afloat.

Renegotiate Reimbursement Rates with Insurance Companies

It is commonly seen that the larger hospitals or hospitals that have a bigger reputation are able to convince the insurance companies to give them reimbursements that are much higher thanthat given to the smaller hospitals even when they are located in the same area. It is important for the smaller hospitals holding the short end of the stick to convince the private insurers to increase the reimbursement rates but to a level that they can still have a competitive advantage due to lower expenses for patients.

Manage Risk Effectively

While the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) mandates all hospitals to manage the risk of business, hospitals need to think proactively on ways of cost reduction and eliminating high-cost debt. A strategic plan to reduce costly inpatient stays for high-risk patients can contribute significantly to the bottom line of the hospital. Additionally, the development of networks high-quality but low-cost physicians increase the opportunity of health plan referrals and boost the rates of reimbursement.

Conclusion

It can be a real tightrope walk for hospitals to maintain a healthy bottom line. Not only do they have to contend with the increased competition but also makeup for the reduced level of reimbursements from health plans and the general tendency of patients to avoid getting admitted unless really necessary. It is only by increasing the operating efficiency, focusing on reducing costs and working actively with insurance companies that they can survive and do well as a business.