The Revenue Cycle System : a Critical Complex Sub-System within the Healthcare Economics Landscape

July 31, 2017

Posted by Nilza I. Cruz Ruiz
939-644-7683

What I cannot create, I do not understand...
Richard Feynman

Healthcare is not usually demanded, because it is in itself pleasurable. In fact, it may be unpleasant. Instead, it is demanded only to improve health. So even if healthcare is within itself unpleasant, it leads to more pleasurable than would otherwise have been the case.

Healthcare economics generally interprets a healthcare need as the capacity to benefit from it.

The demand for healthcare can be analyzed as if it were a good or service, but it does have peculiarities that may mean that the usual assumptions pertaining to resource allocation effects of markets do not hold. It may well be that people wish resource allocation to be based on the demand for health, or the need for healthcare, neither of which can be provided in a conventional market.

The following model is a representation of the value chain in the healthcare industry:

Before addressing the Revenue Cycle System, it is important we understand the  Emergence of the Universal Third Party Payer System and the Evolution of the Healthcare System in PR: 

I. Emergence of the Universal Third Party Payer System

The following context and illustration presents the emergence of the Healthcare Economic Model III:

The changes in the health-care system that led to sustained increases in the levels of health care consumption and medical prices began during World War II. The ramp up of military production created a scarcity of labor and materials needed to produce non-war goods and services, putting pressure on employers to increase wages and prices. To keep inflation under control, the federal government ordered a wage and price freeze, making it even more difficult for employers to hire or retain work and meet the market demand for goods. Under the wage freeze, American businesses uncovered a legal loophole that allowed them to offer  “in kind” wage increases by providing subsidized health care benefits to their employees. Even though the IRS attempted to tax the insurance benefit as post tax wages, Congress, responding to business and employee protests, codified the pre-tax status of the benefit, further increasing the value of health-care insurance as pre-tax benefit, and thus, promoting employers to contract with existing medical insurance companies to manage the reimbursement of medical expenses on their behalf.

In 1966, the federal government introduced Medicaid, a state-administered subsidy for qualifying low-income families, and Medicare, a federal subsidy for senior citizens, both modeled after the private sector health care insurance system and subsidized by a tax on working Americans. In 1966, the federal government introduced Medicaid, a state-administered subsidy for qualifying low-income families, and Medicare, a federal subsidy for senior citizens, both modeled after the private sector health care insurance system and subsidized by a tax on working Americans.

II. The Evolution of the Healthcare System in Puerto Rico

Over time, the overall model for the provision of health services in Puerto Rico has evolved. This model includes medical services (primary, secondary, tertiary and above tertiary), methods of financing, and the development of research and the training required for health professionals.

 In 1954, the Arbona Model was developed and implemented. It consisted of a stratified and regionalized health system in which primary services were provided in diagnostic service centers (CDT’s), localized at every municipality throughout the island. Secondary services in regional and area hospitals, and finally tertiary and above services in the PR Medical Center. The financing of these services was provided by the government general fund, providing 100% of health coverage from 1954 to 1993.  By the 1970's, the movement of the democratization of medicine emerged. This consisted of promoting regional, area hospital and CDT administrative partnerships between the Government and the private sector throughout the island.

In 1993, the health reform model was implemented in Puerto Rico through Act 72.  Said reform disrupted the economic behavior of the healthcare facilities, in particular within the government sector. This,  primarily because the government evolved from a provider of health insurance, to a purchaser of health insurance by transferring to the private (for profit) insurance companies the below level of poverty population health risk.  In addition to the responsibility for the implementation of government policy, the health reform, through the ASES Corporation (Administration for Health Services) aimed at promoting health prevention systems, the provision of health care to the indigent population and the creation and development of the infrastructure for the continuing education of health professionals. These objectives are not commensurate with insurance company policies within the private sector or their strategic objectives.

Hence, the reform deployment, under a universal Third Party Payer System model, forced government and private healthcare facilities be part of a network of health providers, and accept rates “dictated” by insurance companies.  

III. The Revenue Cycle System - A Complex Sub-System within the Healthcare Economics Landscape

We need to understand that the Revenue Cycle within healthcare facilities is a complex system, and as such, be addressed with the understanding and knowledge complexity science stands for.

This sub-system needs to be aligned and portrayed to represent the economic model for any healthcare facility which is part of the  Universal Third Party Payer System. It goes way beyond the traditional linear revenue cycle model focusing on  billing, collections and their respective ratios.

The  Revenue Cycle environmental landscape should be designed to promote the interrelations between the agent components within this complex system. As such, it should at least  incorporate the following mayor drivers as part of the landscape structure:

a. Administration focused on Organizational Complexity (this includes existing model assessments and alternate model simulations and testing)
  Driver underlying factors

• Landscape/Environment Architecture
• Patient/Health Facility Ecosystem
• Technology Ecoystem
• Agent Identification and Definition
• Agent Environment
• Agent Properties
• Agent Behaviors
• Agent/Environment Interrelations and Execution

b. Market Ongoing Research
Driver underlying factors

• Macro-Economy Analytics
• Patient Demand - Why?/ Causes?/ Correlate with macro-economic analytics and healthcare industry results
• Health Facility Resources
• State Plan Architecture and Regulations / Financial Model/Changes?/How?
• Health Facility Services and Cost Structure vs Market
• Insured Patient Mix
• Non Insured Patients
• Patient Poverty Level

c. Business Intelligence
Driver underlying factors

• Define,  code, and allocate costs to health services provided. This, in the same interrelated platform.
• Define and update cost structure
• Contract with insurers accordingly, aligning services defined and provided. Include cost structure and historical experience (at least three (3) years) related to services provided to a defined patient. Distribute services provided by  number of patients, claims generated by patient, and encounters produced by patient and by claim. Distribute these variables by healthcare facility (e.g.; Emergency Department, Hospitals, Outpatient Clinics, etc.)
• Pre-define insurance company negotiated rates (based on experience), frequency of payments (example, lump sum payments on a monthly basis payment s based on experience; this, to alleviate liquidity and cash constraints) and payment allocation (outstanding debts and new business) in yearly health facility/insurer revised contracts. Ensure compliance with negotiated terms and conditions.
• Define, deploy and monitor core business measurements on a daily basis using competitive technology and ensuring health facility's system platforms are aligned.

d. Healthcare Technology Lifecycle Topology
Driver underlying factors

• Define Data Collection Analysis, Planning, Budget and Management
• Align  data analysis using the following pre-defined variables and/or systems capacity into one platform and revise every 3 months:
• Patient Arrival Type (Referral  and why, Ambulance, Helicopter, Walk-in)
• Patient Registration structure
• CDM
• Cost Structure
• Contracted Insurer Rates
• Cost Structure vs Contracted Rates and Automatic Contractual Adjustment calculation
• Contracted Services and exclusions
• Coding Structure
• Clearing House
• Service Billing and Reporting as a function of number of patients, claims and encounters generated. This, by type  of insured, age, gender and region (i.e.; government health reform, Medicare Advantage, etc)
• Establish services billed based on contracted rates with associated costs. This, by defined "lines of business" as per facility patient-mix
• Define billing/collections ratios and standards as per rates contracted, number of insured patients, and structure costs. Perform operational/patient flow/technology adjustments accordingly on a defined ongoing basis based on these results. Integrate an employee participation structure as part of this  process.
• Deductible and Co-insurance Billing
• Deductible and Co-insurance payment collections
• Focus results on levels of patient care, quality of care by level, process efficiency, structure investment, health service costs, and resulting economic output.

Revenue Cycle System Model Ilustration

In this Model, the management component within the Revenue Cycle System Model is integrated as part of the System's landscape; i.e., it is part of other interacting agents within the environment from which Revenue Cycle System phenomena/output/results emerge. These results need not only be economic, but output focused on treated patient and other agent properties, behavior, operational flow, health service costs, along with other factors/data related to the patient/caregiver/facility ecosystem. Said data is critical in the understanding of the existing model and development  alternate simulation models driven towards the improvement of provision of services, efficiency, cost control and above all, patient satisfaction.

The following illustrates a model tested in the PR Medical Center following the above mentioned conceptualization:

Next week, we'll focus on other related topics of Agent Based Modeling applied to the health industry.

Agent Based Modeling and its Application to the Puerto Rico Medical Center Emergency Room

July 24, 2017

Posted by Nilza I. Cruz Ruiz
939-644-7683

As the world and organizations become more interconnected and complex, our capacity and ability to understand it shall also. The perspective of trying to understand systems focusing at the "tip" of the iceberg simply doesn't work.

"Some look at things that are, and ask why? I dream of things that never were, and ask why not?"

John F. Kennedy (paraphrasing George Bernard Shaw)

Agent Based Modeling is a methodology which is a form of computational modeling whereby a phenomenon is modeled in terms of agents and their interactions.  - "Agent-Based-Modeling" - Uri Wilensky and William Rand

It is a powerful tool used to model and simulate complex systems.

I used this methodology to try to have a better understanding of the following question : Why does the phenomenon of patient overcrowding emerge from the Puerto Rico Medical Services (ASEM)  Emergency Room? 

I. Context  

The Puerto Rico Medical Services Administration or "Administración de Servicios  Médicos de Puerto Rico" (ASEM)

Governance and overall Operational Financial Results

The Puerto Rico Medical Complex, which is composed of tertiary and above tertiary hospitals, outpatient clinics, Comprehensive Cancer Research Center, the University of Puerto Rico Medical Science Campus, and other medical facilities, is spearheaded by the Administration of Medical Services of Puerto Rico (hereinafter: ASEM). It is the appointed landlord of the donated real estate under which the Complex is instituted.  Classified as a “Business Type Activity” within the Commonwealth’s executive and financial structure. This fund accounts for the operations associated with providing support through centralized health infrastructure services to the hospitals within the complex including the Department of Health (hereinafter: Participating Institutions: Department of Health, University Adult and Pediatric Hospitals, Cardiovascular Hospital, San Juan Municipal Hospital, etc.). Examples are: diet, laundry, instrument sterilization, security, emergency room, operating rooms, blood bank, ancillary services, and outpatient services. Infrastructure is defined by the economic and additional resources associated with physical facilities, human capital, materials, equipment, information technology, utilities, and standard operating procedures, among others. Governance and internal politics are in-built within the structure.

ASEM operates under the legal base of Law No. 66, June 1978, repealing previous Law 54 of 1957.  The legislative history shows that Law 54 was amended due to the escalating  debts of the participating institutions and the inability (governance) of the Corporation’s Board of Directors (which was mainly composed by the  directors of the participating institutions) to resolve the situation of billing and paying between themselves. ASEM’s fiscal situation was intended to be solved by the implementation of this measure. This, by transferring ample decision making "powers" to the Secretary of Health (except for regulation) and establishing payment safeguards amongst other controls of financial nature. Nevertheless, this objective’s achievement was unsuccessful.

Sources of Revenue and Financials

Revenue Influx 1 -  Net Service Revenue (NSR) - $96 mm (audited FY 2014-15) - 71% of total NSR

 Reimbursements collected from providing or "selling" health infrastructure services to the hospitals within the Medical Center Complex ("Participating Institutions") as described above.

Revenue Influx 2 - Net service Revenue (NSR)  - $40 mm (audited FY 2014-2015) - 29% of total NSR

Reimbursements collected from contracted insurance companies and/or self-insured patients for health related services provided through the ASEM medical facilities (Emergency Room, Trauma Hospital and Outpatient Clinics).

Total Net Revenue $136mm (audited FY 14-15)

Summary 

From the business standpoint, 6 (six) out of 8 (eight) or 75% of ASEM participating institution consumers represented 99% or $97 mm of this segments cash revenue influx for FY 15-16. historically, this has been the trend. 4 (four) of these institutions, which represent $88 mm are under the governance of the Department of Health (the Department of Health, itself, a substantial consumer). Since services provided under the Department are classified as government activities within the commonwealth's financial statements, they are mainly subsidized by the commonwealth's general fund which are under significant financial constraint. Therefore, disbursements of dollar amounts are restrained. As a result, their inability to pay ASEM for acquired support centralized services is increasing. Another fact is that the costs of these centralized services are significantly higher if we compare them with the market because of fixed pricing factors commensurate with the ASEM structure.

With regards to patient service revenue, 53% of ASEM's patients are insured be the government (Health Reform and ACAA). 46% represent health reform patients, while 7% are ACAA. Existing ARRA (American Recovery and Reinvestment Act of 2009) funding and financial arrays, amongst other factors are a threat, and may impact this portion of the aggregate. In addition, the ACCA billing structure is manual. Claims have to be submitted to ACAA in PAPER! Lets think about the astronomical operational cost assumed by ACAA (2nd largest government insurer) related to the claims processing, billing and payment operation. Also, the operational cost for ASEM in physically submitting ACAA claims in paper! It is a government - government relationship, as I mentioned and submitted in writing so many times in meetings and to members of the house of representatives and the senate. But nothing happens...

Said factors contribute to the weakness of ASEM's liquidity, net position, and debt-accumulation. Core infrastructure deterioration is also manifested. This directly jeopardizes revenue generation for both lines of business (Revenue influxes 1. and 2.). Examples are deteriorated operating rooms, instrument sterilization system, laundry and diet. Indirect costs associated with increased risk exposures are linked to infection control and compliance of joint commission regulations and requirements.

ASEM's cash position may continue to fail exponentially for the following reasons, should the Existing Operational Landscape Model remain unaltered (Refer to my July 17th Blog). Critical causes are related with:

1) Lack of Customer diversification - 99% of participating institutions or ASEM consumers are financed by the government.

2) Revenue influx mix - 71% or $96 mm of ASEM's net service revenue relies on participating institutions.

3) Inability of Payment - due to 1) and 2) ; commensurate with the government economic crisis.

4) Universal third party payer system model for insured patients. This system generates the overall contracted insurance company payment of  40% of the portion of the total cost of health services incurred by the ASEM medical facilities. The 60% difference in cost is assumed by ASEM (contractual adjustment). In other words, for each dollar invested for the provision of health services according to patient demand, insurers pay ASEM $.40.

5) Lack of tertiary and above tertiary health structure amongst private hospitals in PR. 41% of patients that arrive at the ASEM emergency room are transfers from private hospitals.

6) Uncompensated health care costs triggered by services provided to uninsured patients (average of $10mm/year), contractual adjustment (average $60mm)/year and bad debts (average $6 mm/year).

7) Insured Patient Mix - 53% of patients are insured by the government.

8) Overcrowding of patients in the Emergency Department. This causes patients to remain in the Emergency Room for times extended from the ones contracted. Extended times increases patient, and operational costs. So patient flow in the Emergency Room is an issue to address.

II. Emergency Room Research and Results - Using Agent-Based-Modeling Methodology

       1. Research Subject

          Emergent Department Accident and Emergency Patient Flow

2. Agents in study 

a .Patients – any human arriving at the emergent department demanding healthcare services

b .Caregivers – health professionals that can treat any patient (Any defined Level)Minor givers – health professionals that can only treat patients with non-urgent conditions

c. Support Personnel - personnel working in administrative or support functions

3. Levels of Care with the Emergency Room Environment

Treatment Area Color	Patient  Level	Definition
Green or Non-Urgent	1	Patients with located damages without systemic implications. With minimal care they will not deteriorate.
Yellow or Urgent	2	Patients with systemic damage, but not critical. They can wait 45-60 minutes for treatment.
Red or Critical	3	Critical patients that require immediate attention. Survival Prognostic.
Black or Expired	0	Patients without respiratory or cardiovascular response

    4. Emergency Room average patient Distribution by Level *

* Average patients per month = 2,674

 
5. ASEM Emergency Room Topological Map and Patient Flow Model - Fiscal Year 2008 - May, 2016

 9 Years

   6. Core Structural Components
a. The ASEM Governance is under the Department of Health, a Government Agency.
b. ASEM, under Rule 66, is a Public Corporation.
c. The Trauma Hospital is under the Governance of ASEM.
d. The Universal Adult District Hospital (UDH) does not have an Emergency Room as part of its Hospital Structure. Therefore, the ASEM Emergency Room is the UDH  Emergency Room.
e. The University Adult and Pediatric Hospitals are under the governance of the Department of Health.
f. Tertiary and above-tertiary specialty healthcare professionals from the University of Puerto Rico Medical Science Campus are engaged by ASEM to provide specialized services in the Emergency Room, Trauma Hospital and Outpatient Clinics.
g. The same tertiary and above-tertiary specialty healthcare professionals from the University of Puerto Rico Medical Science Campus are engaged by the Department of Health to provide specialized services in the University Adult and Pediatric Hospitals.
h. ASEM, in addition, contracts Emergency and General Medicine doctors to provide services during three shifts in the Emergency Room.
i. UPR Medical Science Campus Residents rotate in the ASEM Emergency Room, Trauma, University Adult and University Pediatric Hospitals.
j. Medical Science Campus tertiary and above-tertiary specialized health professionals, along with medical students, are under the governance of the Medical Science Campus of the University of PR.

   7. Key Findings  

a. 41% of patients arriving at the ASEM Emergency Room are transfers from others hospitals.

b. 53% of insured patient mix is distributed by the government health reform (46%) and ACAA (7%).

c. 64% of patients are discharged from the Emergency Room.

d. 36% of patients are admitted to the hospitals within the medical center. 64% of this subgroup was admitted to the University District Hospital, while 19% was admitted to the Trauma Hospital.

e. An average of 2,674 patients arrive at the ASEM Emergency Room on a monthly basis. This averages 624 patients per week and 89 on a daily basis.

f. The majority of patients arriving at the Emergency room are accompanied by at least three other relatives, friends or family.

g. Throughout the years, patients discharged from the emergency room and admitted at the University Adult District Hospital, have to wait for periods of days ranging from an average 1-10 for the availability of a room in the Hospital. In the range of time, they physically remain at the Emergency Room. This may have implications regarding billing of emergency room services and aggregate time limits in the ER; as per contracted services with insurers. If  aggregate time limits are exceeded, insurer payments will only respond to aggregates; therefore costs related with excess times would be assumed by ASEM.

h. Patients that need the services of a tertiary or above-tertiary specialist from the Medical Science Campus, may have to wait for average periods of 1-4 days for these consultants. This , because consultants are rotating in other hospitals and there are few of them on the island, among other reasons.

   8. Conclusions

a. Given the interaction of the agents defined as patients, caregivers (includes doctors, nurses) and support staff with the environment defined in the emergency room (green, yellow or red level designated areas) that occur at different time steps; and the fact that the ASEM, UPR Medical Science Campus, and Medical Center Hospitals are under different governances, their corresponding personnel follow different sets of rules and regulations. This situation pertaining to structure elevates the levels of complexity in patient flow logistics and services provided.  The patient, on the other hand is in need of one demand: healthcare.

b. Having admitted patients to the University district Hospital, which represent 556 or 21% of the ASEM Emergency Room monthly patients, within the premises of the for time periods of 1-10 days, creates an overcrowding effect in the emergency departments. While new patients continue to arrive on a daily basis, a backlog of patients which should otherwise be in the hospital, are still in the ER premises. There is an immediate counterintuitive effect that affects patient care, personnel productivity and expenditure disruptions.

c. In terms of expanding the ER waiting room, a more in depth baseline assessment including patient flow logistics, elapsed times for patient discharges, consultant evaluations,  hospital bed availability (especially University District Hospital), insurance company contracted services (they should be commensurate with services provided by the ASEM Level 4 Emergency Department), and these agent interrelations, among other factors is recommended. As identified in 8a. and 8b., there are existing situations that cause extended lengths of stay at the ER, that otherwise should not be occurring. Costs associated with extended  lengths of stay above aggregate service time lengths contracted with insurance companies, will not be reimbursed.  In addition, for example, assuming we have two (2) patients (with similar non-urgent health conditions) that arrive at the ER.  One with Medicare Advantage Insurance and the other with Government Health Insurance (who arrived first). Will they be treated with the same "priority"  as the order in which they arrived? 

I am currently constructing a simulation of  the Emergent Department Accident and Emergency Patient Flow Model using ABM technology. As soon as it is completed, I will share it with you.

Next week we'll talk about the Revenue Cycle Management System, within the context of a Critical Complex Sub-system in Healthcare Economics.

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