Updated on: November 9, 2021

The Business of Healthcare: Preventing, Not Correcting the Problems: Part I

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Original story posted on: November 8, 2021

The problems are real, but the solutions are within reach.

EDITOR’S NOTE: This is the first in a series in which Dr. Zelem explores issues confronting hospitals while providing a systematic approach for correcting those issues.

When we hear the word “hospital” or “healthcare,” our thoughts automatically go to patient care, which is not unreasonable. Yet one must remember that there is also a business side to healthcare. If it is not treated as a business, there will not be enough revenue to fund it for survival. It has been said that the operating or profit margin for healthcare entities dropped by 55.6 percent in 2020, mostly due to the COVID-19 pandemic. Still, the pandemic put a squeeze on nonprofit hospital margins last year as well, according to a recent Moody's report that showed the median operating margin was 0.5 percent in 2020, compared to 2.4 percent in 2019.

Reimbursement for services provided is low, payors are constantly clawing back payments with denials, and pharmaceutical and vendor charges are high, among other financial challenges. This article will focus on hospitals and healthcare systems specifically, and the clinical revenue cycle.

To ensure the integrity of care and appropriate reimbursement, documentation, most of which is the responsibility of physicians, is a critical factor. There is a definite lack of education for physicians on the business side of healthcare. Other areas such as nursing, physical therapy, dietary, wound care, and others document in the medical record, but these components must be included in physician documentation to count. It is this documentation that must be accurate to support the codes utilized for final billing. This documentation involves telling the patient story from admission to discharge, with initial and final diagnoses, tests being ordered, medication given, test results, revised diagnoses, physical therapy, diets, patient progress or lack thereof, etc. All this information resides in an what is referred to as the electronic medical record (EMR). Everyone who has anything to do with a patient’s care has to properly document anything to do with that care in the EMR.

The EMR is also used in the business aspect of the hospital, as it was originally designed to be a billing tool. Since it contains everything there is to know about a patient’s stay, it serves as the basis for proper and accurate coding, for billing purposes. Only accurate coding will translate into sustainable revenue for services rendered. In today’s world, hospitals and healthcare facilities are constantly dealing with payment issues and denials, for a multitude of reasons. A major one is that insurance companies are constantly denying payments (and based on their contracts and standards, they have that right).

With that as background, it is important to note that from admission to discharge, a hospital stay is a complicated episode, wherein there are so many involved parts, multifactorials, collateral, and unique situations. As opposed to non-healthcare industries, the medical world tends to focus more on correcting the errors that occurred at the end of the episode, as opposed to finding means of prevention of the occurrence. If one looks at the Saturn V rocket that took astronauts to the moon, the number of errors that occurred were miniscule, due to extreme efforts to prevent them during development. Why cannot this concept be accomplished in healthcare?

In order to delve deeper into defining the myriad of problems that exist (and finding solutions of prevention), a small team of experts (all listed as co-authors) in their field was gathered to study this and brainstorm. These experts understand that there are people in healthcare living with these problems, and it is well-known that they are knowledgeable and extremely creative. They will always find a way to fix a problem, hopefully without resorting to workarounds. Their knowledge of the processes is priceless.

However, there is another side to this, because as much as they can help, they can also unknowingly impede improvement. They may be so involved on the tasks and functions that they might not have the ability to see the overall picture. The purpose of this team of experts is to serve as process improvement specialists, as they have the ability to see the entire picture from a 10,000-foot view – and they understand how the process should be. As the old expression goes, they can see the forest through the trees from that view. The staff doing the work, those boots on the ground, can be so entrenched that they do not have the ability to see the entire forest and can’t simplify the situation.

Think of it this way, with a football analogy: the moderator of this brainstorming team has a background as a coach of a football team. As we all know, the players play the game, and the coach doesn’t. However, the coach has the ability to sit in the press box and get an overall view of the entire field, which allows him to see things happening that the team can’t. Working together, they can make the right changes to win the game.

Contributing Authors

  • Jim Zelem EE, Process Improvement Engineer Author of "Stepping Stones of Leadership"
  • Tiffany Ferguson, LMSW, ACM, Chief Executive Officer, Phoenix Medical Management, Inc.
  • Jennifer Foskett, MBA, RHIA, CPC. Healthcare revenue integrity analyst, healthcare business intelligence analyst
  • Sonal Patel, CPMA, CPC, CMC, ICD-10-CM, Healthcare coder and compliance consultant, Nexsen Pruet, LLC; podcast creator, host Paint the Medical Picture podcast series
John Zelem, MD

Dr. John Zelem is a board-certified surgeon-turned healthcare consultant. He is the founder of Streamline Solutions Consulting, Inc.

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