Health Information Management
Health information management (“HIM”) plays a critical role in both the clinical and financial aspects of healthcare providers’ performance. Integral processes involved in, or influenced by, HIM, include doctors’ documentation of service, appropriate coding and transcription of documented information, and the final submission of bills and appropriate reimbursement for services rendered. As doctors provide care, they must document their services and diagnoses into the patient’s chart and record. Whether in paper or electronic format, this record must be processed and coded to match the services that were performed. These codes are submitted to a claims department that is responsible for seeking reimbursement from the patient’s insurance provider. The effectiveness of this process is becoming increasingly important in a number of ways that will be discussed herein.
This report will focus particularly on the impact that documentation, coding, transcription, medical records conversion, and denial management functions have on a hospital’s financial performance, the effect of certain transformations in the healthcare industry on these HIM functions and the technology and services companies that are attempting to help providers enhance these functions.
HIM and Financial Performance Overview
As hospitals and physician groups struggle to operate profitably in today’s complex environment, there remains a focus on revenue cycle improvements through the efficient management of health information. Because providers compete primarily on quality of care and the breadth of services offered, most are seeking assistance from third-party technology and services firms for many of their HIM tasks. Healthcare providers typically carry large, and often troubled, accounts receivable balances and struggle to receive timely and accurate reimbursement from government programs such as Medicare and Medicaid as well as commercial insurance payors. Most providers’ businesses are fraught with issues that improved HIM functions can address including significant backlogs of unbilled services, unrecognized losses in revenue from under-billing, potential liabilities from accidentally over-billing and large numbers of recurring reimbursement denials from payors. Therefore, HIM efficiencies are both important in accelerating reimbursement and in receiving fair payment for the actual services rendered. This report will discuss the connection between each function and a hospital’s financial performance.
Industry Trends Overview
Several factors such as the adoption of Electronic Medical Records (EMRs), privacy concerns, providers’ poor financial performance, increasing state and federal regulation, and an aging baby boomer population are affecting the demand for HIM technologies and services. Companies that are or are likely to benefit greatly from these trends and changes include both large and small software companies, service providers and outsourcers.
Electronic Medical Records. The healthcare industry as a whole is evolving considerably with the increasing adoption of EMRs. The well publicized Health Information Technology and Clinical Health Act (HITECH), part of the American Recovery and Reinvestment Act of 2009, included an incentive program that provides up to $44,000 for every doctor within a hospital that implements a qualifying EMR program before 2012. Several providers are currently rushing to implement this functionality so as to take advantage of these incentives, as over $75 million dollars has already been dispensed to certain Medicare providers who were early adopters. According to a March 2011 study by Health Leaders, 39% of hospitals surveyed listed EMRs as their primary capital spending priority.
In order to receive these incentive payments, providers must prove that their EMR systems demonstrate “meaningful use”, and achieving this classification often requires specialized advisory services and platforms to ensure the systems are implemented correctly. In addition to missing out on these incentive payments, healthcare reform states that providers that fail to convert to EMRs by 2015 risk a loss of up to 5% of their Medicare reimbursements. In response to these incentives, EMR adoption rates have jumped from 20% to nearly 30% in the 12 months prior to March 2011. With these HI-TECH incentives and the costs and complexity associated with adoption, complimentary software, outsourced services and consultancy services are expected to experience significant growth as healthcare providers look for profitable ways to make the transi- tion and utilize electronic information.
Privacy Concerns. Many providers fear that the creation and adoption of EMRs will lead to privacy risks for their patients’ records. Technology and services firms have responded with several applications and products that look to ensure patient data security and closely monitor access and distribution of patients’ records. Ensuring that patient records remain secure is critical to the industry’s progress towards the interoperability of EMRs. And, interoperability is the only way that EMRs will achieve the large benefits to the healthcare system that they were intended to create. Therefore, establishing strong privacy capabilities and confidence with providers is a primary focus across the board in HIM.
Low Profitability of Providers. Poor revenue cycle management and inefficient use of clinical resources has contributed to the continued decline of hospital profitability. Today, both lower levels of reimbursement and increasing costs are placing additional financial pressure on healthcare providers. U.S. healthcare providers spend an estimated $150 billion dollars on revenue cycle management and reimbursement improvement activities every year and this figure is only expected to increase as providers battle to control costs and increase their profits. Because HIM plays a crucial role in both the clinical and business side of a hospital’s performance, providers are investing heavily in technology and services that can help improve their performance in these areas. HIM efficiencies within hospitals can lower costs and increase revenue. U.S. hospital revenue is expected to grow at an annual rate of 4.1% between 2011 and 2016, almost twice that of its performance from 2006 to 2011, primarily driven by expected economic growth and the aging population. Yet, costs are also expected to continue to increase. Today, profit margins remain low in hospital environments, in the neighborhood of 2%. According to the American Hospital Association, so far in 2011, only 76% of U.S. hospitals have positive operating profits. Because providers operate under Medicare and Medicaid pricing restrictions, hospitals are having difficulty passing their increased costs on to their patients. Finding efficient and cost effective solutions have become a primary focus for hospital CEOs and CFOs.
Regulations. Federal and state regulations place added stress on healthcare providers and their non-patient care responsibilities. The broad influence of the Health Insurance Portability and Accountability Act (HIPAA) has added challenges, such as standardization of transactions and code sets, to which healthcare providers must adhere. Additionally, HIPAA compliance can be very complex and costly and many providers, both large and small, utilize specialized expertise in navigating the numerous requirements. Federal funding constraints on Medicare and Medicaid have also increased the percentage of healthcare bills that are being challenged by government programs. The increasing occurrence of RAC audits has placed an added burden on providers to ensure both documentation and billing compliance. And with the looming EMR and ICD- 10 transition requirements, many providers may face considerable issues if they are unable to navigate the transitions properly. Intense regulation is expected to continue and will place greater importance on the accurate documentation and compliant coding and billing practices of hospitals.
Aging Population. The aging baby boomer population will continue to place added stress on the healthcare system. Individuals over the age of 65 typically spend three to five times more on healthcare than people under 65. Whereas this can be a positive driver for the revenue generation of the healthcare system, the increase in numbers that will pass through the system will intensify the importance of effective revenue cycle and information management. In order to meet the increasing demands of the aging baby boomer population, the healthcare industry must move towards more efficient and available documentation and information. Moving people through the system more efficiently is key to remaining profitable and continuing to provide effective healthcare to the U.S. population.
Increasing Number of Technology and Service Providers Addressing HIM. Several different types of companies are developing software and providing services that help to improve the efficiency and effectiveness of HIM. Their specialized expertise allows providers to either outsource or manage more efficiently their non-core functions, and in turn, improve provider performance. Within each sub-segment of HIM discussed in this report, there are several major players that provide software, consulting, and/or outsourced services. Most of the larger players operate within several or all of these industry segments and offer one or more of the technology or service types.
U.S. Individuals Over the Age of 65
Documentation and Coding
Documentation is a critical component to the healthcare process and is currently a major focus of hospitals. Accurate documentation of diagnoses and services performed and the subsequent coding of that documentation is crucial to both improving patients’ care and health, and increasing the efficiency of a provider’s billing and reimbursement process. Hospitals work within standardized diagnoses codes that were designed to simplify the system, but have also placed increased importance on detail and accuracy of the documented information. Diagnosis Related Grouping (“DRG”) is the most common inpatient reimbursement scheme for government and commercial payors. DRG is a system by which hospitals and physicians diagnose cases into one of several hundred groupings. International Statistical Classification of Disease and Related Health Problems (“ICD”) diagnosis and procedure coding is the sole basis for DRG classification. The system allows for a classification that identifies the services that a hospital provides and determines how much Medicare (and often commercial insurers) will pay a provider for each service. Each service is therefore given an ICD code based on the documented care recorded in a patient’s medical chart which is in turn used for reimbursement. A “Coder” is not at liberty to interpret documented care by a physician but instead must code based solely on what has been recorded. Improving the detail and accuracy of documentation helps providers remain compliant in their billing practices while making sure that the provider is reimbursed at the appropriate rate.
Poor documentation can lead to either overcoding, which carries severe penalties, or undercoding which can mean the difference between providing care that is profitable or providing care that is unprofitable. A common example that is used to illustrate the issues involved in documentation and coding errors it that of Simple versus Complex Pneumonia. Complex Pneumonia carries a related DRG that can provide nearly twice the reimbursement rate and is often undercoded simply due to a lack of complete documentation by a physician. The cost of care of a patient suffering from Complex Pneumonia versus Simple Pneumonia has a similar relation to the allowable reimbursement. Therefore a large number of documentation errors can drastically change the financial performance of any given hospital. Additionally, documentation errors are a primary cause of commercial payor denials which either result in delayed reimbursement or write-offs. (Denials are discussed more specifically later in this report).
Coding is the transformation of medical narratives or documents, either electronic or paper, into numeric or alphanumerical classifications. Each code is designed to communicate specifically the services that were provided and any diagnoses that were issued. It is critical to input the correct code for the appropriate service provided in order to be correctly reimbursed for that service. As EMRs become more and more common, the importance of correct ICD coding will continually increase. The integration of EMRs with the documentation and coding process is required for effective patient care and reimbursement. From a clinical perspective, these codes follow a patient for his/her entire life and can determine the type of care he/she may receive in the future. From a financial perspective, these codes are directly related to reimbursement for services.
Documentation and Coding Trends
Accurate documentation of services has received greater focus as a result of the government’s efforts to enforce compliance and reduce both accidental and fraudulent over-billing. The Recovery Audit Contractor Program (RAC), also known as Medicare Recovery audits, are designed to reduce the occurrence of overpayment as a way to decrease Medicare and overall healthcare expenditures in the United States. Both Congress and the Center for Medicare & Medicaid Services (CMS) are using RAC audits as a way to establish a more evidence-based system that helps to avoid overpayment and Medicare Fraud. This is increasing the importance of specific and correct documentation as “evidence” that a procedure occurred. RAC audits have become more and more common over the last several years as healthcare fraud cases continued to occur at an alarming rate. CMS estimates that healthcare fraud and abuse costs the system over $200 billion annually.
One case that led to the creation of the RAC audits was the government’s suit against healthcare giant HCA. In December of 2000, HCA was fined $1.7 billion for Medicare billing fraud. Additionally, two of HCA’s subsidiaries were banned from participating in Medicare in response to their misconduct. This case put national attention on the practices of healthcare fraud and has served as a strong example of the penalties that can be levied against providers that fail to adhere to healthcare regulations. This case, and the increasing occurrence of RAC audits, has highlighted the importance of accurate documentation and compliance practices. As of the end of 2010, over $1 billion of overpayments, and $40 million of underpayments, had been identified as a result of RAC audits. Many providers now fear the steep penalties that can be levied as a result of a RAC audit and have turned to support service companies that can provide documentation software and procedural solutions to help ensure the accuracy and compliance of their healthcare documentation and coding. It is estimated that healthcare providers will spend up to $250 million on RAC audit preparation over the next 5 years alone.
Coding is currently undergoing a significant transformation. The newest list of codes being put in use is ICD-10. The transition from ICD-9, the standard in recent years, to ICD-10 can be very complicated and expensive and many U.S. providers have not yet upgraded to the new system. However, it has been mandated that all HIPAA transactions must use ICD-10 codes beginning October 1, 2013. This update will require systems and business changes throughout the healthcare industry. Practitioners fear that this update could cause delays in reimbursement if providers are unprepared for the transition. Additionally a change in standards for electronic healthcare transactions from Version 4010/4010A1 to Version 5010 will take place on January 1, 2012. These standards cover functions such as claims, eligibility inquiries, and invoice submission. This new standard accommodates ICD-10 codes and must be in place before the transition to ICD-10. As with the transition to ICD-10 codes, if providers are not prepared for the transition to Version 5010, there may be considerable delays in reimbursement of claims. According to the Department of Health and Human Services, U.S. healthcare providers will spend between $5 billion to $10 billion on the Version 5010 and ICD-10 transitions. Both of these changes will facilitate the use of new technologies and the assistance of outside service providers who can help both large and small providers make the transition.
Additionally, there has been an identified shortage of coders for many years now and the shortage has not been remedied. Providers are continually working to find new and creative ways to lure professionals into the field and to improve the efficiency of the coding process.
The demand for highly trained professionals will continue to grow as more people become insured and an aging baby boomer population place strains on the healthcare system as a whole. According to the United States Bureau of Labor, the demand for medical coders and health information technicians is expected to grow much faster than the national average. In order to confront this shortage, hospitals have turned to staffing agencies, remote and automated coding technologies and outsourced coding providers to help alleviate this issue.
Example Documentation and Coding Technology and Service Providers
Specialized consultants are increasingly working with coders, doctors, and nurses to improve the quality of the documentation and the efficiency with which the corresponding codes are submitted for billing.
- Advisory Board Co.
- American Healthcare Holdings, Inc.
- Anthelio Healthcare Solutions, Inc.
- CBIZ, Inc.
- Huron Consulting Group, Inc.
- J.A. Thomas Consulting Group, Inc.
- MedAssets, Inc.
- Navigant Consulting, Inc.
- PricewaterhouseCoopers, LLC
- Unitedhealth Group, Inc.
Other companies are working to create new software and software improvements that are designed to have the same affect. Many firms are developing new technologies, or improving existing technologies, such as voice recognition software and handheld dictation devices that are designed to make the documentation process easier and more accurate.
- 3M Co.
- Allscripts Healthcare Solutions, Inc.
- athenahealth, Inc.
- Cerner Corporation Emdeon, Inc.
- IDX Systems Corporation (GE)
- IMS Health Incorporated Med3000, Inc.
- MedAssets, Inc.
- McKesson Corporation Quadramed, Inc.
- Quality Systems, Inc.
Autocoding technology includes software with the capability to analyze extensive EMRs and classify the medical information contained in the text. The software can search large volumes of text and extract and organize critical medical information.
- Ingenix (Unitedhealth Group, Inc.)
- MedQuist Holdings, Inc.
- Med3000, Inc.
- Precyse Solutions, LLC
Remote coding is an outsourced service in which electronic or imaged medical records are provided to a medical coder at an off-site location using remote coding software platforms. These firms often provide additional services including document management, business process automation and records management. Most remote coders are flexible in the way they organize information, and can customize their output to the desired specifications of each client provider. Remote coding allows hospitals to access coders throughout the country during and after regular work hours.
- Anthelio Healthcare Solutions, Inc.
- Healthcare Coding and Consulting Services, Inc.
- Hyland Software, Inc.
- Precyse Solutions, LLC
- SourceHOV, Inc.
On-site coders are specialists who code medical records on the premises of a hospital and are either hospital employees or staffed contractors. Many staffing firms have focused on locating and placing these qualified individuals in understaffed hospitals.
- AMN Healthcare Services, Inc.
- CHG Healthcare Services, Inc.
- Cross Country Healthcare, Inc.
- Jackson Healthcare, LLC
- Maxim Staffing Solutions, Inc.
Some firms provide services that allow providers to completely outsource the coding function. Many hospitals do not want the responsibility of managing the coding process and completely outsource the function to a third party provider. These services claim to provide faster turnaround times in the coding process and can help to alleviate backlogs, both of which further enhance the provider’s revenue cycle. The outsourcing of the coding function also saves the provider considerable overhead and direct labor costs.
- GeBBS Healthcare Solutions, Inc.
- Computer Sciences Corporation
- Maxim Healthcare Services, Inc.
- MedAssets, Inc.
- MedQuist Holding, Inc.
- Precyse Solutions, LLC
Medical transcription is the process of converting voice recorded medical diagnoses and reports into text format that can then be documented and coded for appropriate billing. Transcription technologies and services help streamline the entire revenue cycle, and can help avoid the creation of paper records that will ultimately need to be converted to electronic format. However, similar to normal documentation processes, the benefits of the transcription technologies are only as good as the recordings that are put into them. Doctors must continue to focus on important details that help classify and code services appropriately. If done correctly, these technologies and software can quickly convert the recorded message into electronic format, and simultaneously have it distributed for coding and billing. The streamlining of this process can vastly improve a provider’s revenue cycle. Several software and technology companies have developed voice recorder and dictation equipment that allows for the seamless transcription of medical reports. Doctors can record their message and have it sent instantly to an outsourced transcription firm who will convert the message into text format and upload it to the provider’s system.
U.S. Outsourced Transcription Market
Trends in Transcription
Outsourcing has become more prominent in the $16.2 billion U.S. transcription services industry. Currently, only 35% of the medical transcription market is outsourced, but this percentage is expected to increase significantly over the next decade. Market conditions have contributed to increased consolidation within this segment of the HIM industry. Smaller firms are having trouble keeping pace with the rapid and costly technological advancements that are commonplace in the industry. Additionally, the increased efficiencies that these technologies produce are driving down prices that healthcare providers are willing to pay for transcription services. Therefore, transcription companies must invest heavily in order to survive. Many of the smaller companies, however, are looking for strategic partnerships or transfer of ownership to provide the capital necessary to make these large investments. This trend has made many of the smaller companies prime targets for takeover.
Along with consolidation and outsourcing, offshoring has played a significant role in this segment. Indian, Philippine, and other overseas players have gained considerable influence and share within the medical transcription segment. Many international BPO firms offer comprehensive documentation and transcription services to U.S. healthcare providers. Offshoring is an increasingly viable option for outsourced transcription services. Cheaper cost of labor and strong technological expertise make these countries a viable option for many providers. Some offshore firms claim to save a provider up to 75% on their transcription costs through labor, equipment, and associated overhead savings.
Examples of Transcription Technology and Service Providers
- MxSecure, Inc.
- MedQuist Holdings, Inc.
- Nuance Communications, Inc.
- Transcend Service, Inc.
- Precyse Solutions
- Ace BPO Services Pvt. Ltd.
- Heartland Information Services, Inc.
- Intelenet Global Services Pvt. Ltd.
Medical Records Conversion
Medical Records Conversion is the act of converting a patient’s medical records into electronic format. A vast majority of hospitals still deal in paper records and perform records management and processing in-house in their medical records departments. Typically, once a medical record is documented by a physician in writing, it is collected and delivered to an on-site medical records department where it is bar coded, scanned and indexed for identification, storage and retrieval. By employing a conversion function from paper records to EMRs, HIM departments can more easily track files, emergency departments and caregivers can more quickly access medical records to provide necessary care, and the billing and collecting departments can more accurately code services performed and more readily bill and collect on outstanding payments. It is important to distinguish the process of “real-time” records conversion versus what is commonly known as “backfile” conversion. Backfile conversion is simply the conversion of old paper medical records to electronic form for easier non-paper storage and therefore easier retrieval. Backfile conversion is typically done off-site in bulk with only minimal indexing as they are not current or active records and have already been coded and billed. The real focus of HIM departments today is on converting records in real-time so as to allow the file to be retrieved in the near-term for further care and to facilitate the coding and billing process. This process requires the implementation of significant workflow and tracking technologies in order to be done effectively and needs to work seamlessly with the EMR software system that is implemented.
Trends in Medical Records Conversion
Many firms are currently rushing to incorporate an EMR system so as to take advantage of the HITECH incentives available to them. However, as previously mentioned, many providers are lagging in their adoption of EMR functionality. Because complete or even dramatic shifts to a purely electronic input and tracking system is untenable due to cost, physician adoption, and interoperability between various caregivers, among other reasons, most hospitals are focused on the more manageable task of converting their current paper charts into electronic form through scanning and indexing conversion. Many healthcare providers generate a considerable backlog of records on a daily basis that have yet to be converted. This backlog often delays the coding and billing process as it is more efficient to code records, either remotely or on-site, once they are in electronic form. This ultimately affects the revenue cycle and profitability of the hospital by delaying the hospital’s ability to submit claims for reimbursement, manage coding errors or overturn denials. Outsourced and software service providers can help hospitals both reduce their current backlog and implement a real time EMR conversion system. Because many providers often view these tasks as non-core duties, and have neither the knowledge nor resources to tackle the task efficiently, many prefer to out source the responsibility to specialist firms. There are several document management firms that offer specialized services to help providers tackle these specific issues.
Example of Medical Records Conversion Technology and Service Providers
- EDCO Group, Inc.
- Healthport Inc. IOD, Inc.
- Iron Mountain, Inc.
- SourceHOV Inc.
- Xerox Corp.
Many health care systems and practitioners lose between 3% and 10% of net revenues due to denials by Medicare and Medicaid and other large insurance providers. Additionally, hospitals often experience denials and rejections on up to 25% of their total claims submitted. These losses are a large burden on the bottom line of the majority of healthcare providers. Companies are constantly developing new and unique ways of establishing some type of denial management system. Most software systems hope to quickly identify the denial, identify the reason for denial, and quickly forward the information to the party responsible for resolving the denial. By doing so, providers can expedite the resolution of the denial and improve the revenue cycle performance of the hospital. For a provider to remain profitable, it is critical that they are appropriately reimbursed for compliant services they have performed. A comprehensive denial management system will help improve the ultimate reimbursement for denied claims. Furthermore, it is critical that this system integrate seamlessly with the EMR systems and other revenue cycle management systems that the provider may have in place. This increasing complexity has fueled growth in both large scale HIM software developers and smaller localized specialists who can help streamline the denial management process.
Trends in Denial Management
This disruptive trend in the industry has led many HIM firms to develop software that collects and analyzes data more systematically to address claims denials. The majority of these issues are clerical and administrative in nature. However, the ease with which many important patient details are overlooked further necessitates the need for comprehensive and advanced software to identify and resolve claims discrepancies before they are submitted. As information is provided, it must be analyzed and scrutinized for discrepancies or inconsistencies so that issues may be resolved before the claim is submitted. The causes for denials can occur at several points of care including the admissions process.
More and more providers are focusing on documentation at admittance as there is an increasing view that “junk in” causes “junk out”. Poor information provided early on in the process strongly increases the likelihood of claims denials.
It is also very important that providers focus on handling denials concurrently with the care being provided as the processes set up by most insurers dramatically increase both the difficulty and the length of time it takes to overturn a denial. Concurrent denials occur when an individual is denied reimbursement prior to their discharge from the hospital. The process of appeals for concurrent denials is much less burdensome than that of non-concurrent denials. For non-concurrent denials, lawyer and physician letters are often required to begin the appeals process and move towards reimbursement. This further highlights the importance of identifying denials issues as early in the process as possible. Therefore, there is a very strong desire within the healthcare industry for software solutions that can constantly and continuously analyze the information provided. This information can then be reconciled with the patient’s EMR and insurance providers, so as to reduce the occurrence of clerical issues that lead to denial of claims.
Examples of Denial Management Technology and Service Providers
- 3M Co.
- Advisory Board
- Cerner Corporation
- Computer Programs & Systems, Inc.
- Emdeon, Inc.
- FTI Consulting, Inc.
- HMS Holdings, Corp.
- MedAssets, Inc.
- QuadraMed, Inc.
- SXC Health Solutions
- Verisk Analytics, Inc.
Because an efficient and accurate HIM process is critical to the financial health of a provider due to reimbursement complexity and change, what was once thought to be a simple health record “librarian” function of a hospital is now being recognized as a critical component to profitability. And, because the various HIM functions of documentation, coding, transcription and records conversion are so interconnected and dependent, it is easy to see how inefficiencies or ineffectiveness in one area can lead to issues in other areas and ultimately a financial problem in the office of the CFO.
While there are numerous small and midsized companies addressing this market, VRA believes that despite the historic preference for healthcare providers to want to work with local companies that have worked with local providers, the fact that the HIM function is ultimately non-core to the provision of healthcare will continue to drive providers to want to work with HIM solutions providers that can deliver several if not all the required technologies and services versus working with numerous specialized companies. The increased burden of integration with EMRs, coding and other systems is likely to drive hospitals to a smaller number of technology and service providers. This will likely set the backdrop for further significant acquisition activity as the larger and mid-sized players maneuver to provide a full spectrum of HIM solutions, if not a fully outsourced option.
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