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4 steps for navigating collections disruptions in healthcare practices

If you’re in healthcare, you’ve heard the news: Change Healthcare has suffered from the most significant cyber attack on a US healthcare system to date. This major disruption to “business as usual” has spotlighted potential cash collection shortfalls, which could significantly impact your liquidity, provider compensation, revenue cycle management (RCM), and revenue calculations.

But with the right game plan, you’ll be well-equipped to navigate these challenges and keep your healthcare business in shape. Here’s how:

1. Size up the shortfall ­

The first step is a comprehensive assessment of potential cash shortages, considering their magnitude, timing, and duration. Strategies will vary greatly depending on the size of the shortfall and the expected duration of decreased collections. It’s crucial for CFOs to accurately “call the bottom” of cash flow and to manage daily liquidity with precision.

Actionable steps include:

  • Implementing daily liquidity reporting to keep a real-time check on cash balances, ensuring immediate action can be taken if needed.
  • Developing a 13-week cash flow forecast to maintain a forward-looking perspective on financial health, enabling proactive adjustments to financial strategies.
  • Proactively discussing the terms and accessibility of your line of credit with financial institutions, ensuring it’s ready for quick utilization if need be.

2. Maintain provider compensation

Given the variable component of many healthcare providers’ compensation tied to cash collections, these disruptions could potentially reduce take-home pay. It’s essential to clearly communicate with providers about the scope of the collections disruption and its likely impact so that there are no surprises.

Actionable steps include:

  • Maintaining transparent communication with providers, setting clear expectations regarding the timing and resolution of collection issues.
  • Reassuring providers that total compensation will not be affected and that any delayed collections will be addressed as soon as possible.
  • Considering isolating providers from the impact of collection shortfalls to maintain morale, even if it temporarily affects your cash flow.

3. Focus Revenue Cycle Management (RCM)

Disruptions in collections will inevitably increase pressure on RCM teams as accounts receivable (AR) begin to accumulate. It’s crucial to continue submitting clean claims promptly and to address aged AR diligently.

Actionable steps include:

  • Focusing on aged patient AR balances, initiating outreach to patients with significant overdue amounts to facilitate payment.
  • Ensuring the continuous and efficient submission of claims to keep them in the queue for processing as soon as any existing issues are resolved

4. Protect revenue integrity

Collections disruptions could also affect Provider Services Revenue. Typically, revenue is calculated by establishing a collections-to-charges ratio. Disruptions can artificially lower this ratio, impacting revenue figures and potentially affecting EBITDA and financial covenants.

Actionable steps include:

  • Adopting a temporary lagged approach to calculating the collections ratio, choosing a period unaffected by the current shortfall.
  • Utilizing volume metrics to support revenue calculations, applying average collections per CPT code to monthly volumes and cross-referencing these figures with published CMS allowable amounts for the current year.

The bottom line: Navigating collections disruptions requires a strategic and informed approach. By thoroughly assessing the extent of the shortfall, maintaining clear communication and support for providers, focusing on the RCM team, and protecting revenue integrity, healthcare practices can effectively overcome the challenges presented by these financial disruptions and continue driving long-term value creation.

Meet the author

Mike Brown
Mike Brown
Senior Director

Mike is a Senior Director with more than a decade of finance, advisory, and transaction experience serving private equity-sponsored companies and Fortune 500 multinational clients. He specializes in developing and implementing strategy to enable the finance function to efficiently operate at scale.  Read more

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