Why managers should monitor revenue cycles

October 10, 2005

Health-system pharmacists have enough on their plate with clinical issues. But, like it or not, many pharmacists are starting to pay closer attention to revenue cycle and billing concerns. And if they're not, they'd better start. At least that's the advice from some industry experts.

The reason is a lot of hospitals are running in the red these days. A recent white paper on the topic of revenue cycles issued by Washington, D.C.-based H*Works (The Advisory Board Co.) concluded that even the most efficient hospitals can lose 1% to 3% of net revenue due to rejected payments, lost charges, denials, and bad debt. And that can add up to a significant amount of money. It's not unusual, for example, for a large health system to bill over $1 billion per year-1% of that is $10 million. What is the revenue cycle, and why is it so important to pharmacy? (See figure below.)

The revenue cycle covers a lot of ground-from claims submission to medical records coding and charge capture. But from a pharmacy perspective, it starts with the billing and understanding of the payers, where drugs are used, and the collection of revenues associated with the drugs.

Pane, a former director of pharmacy, explained that clinical pharmacists need to be involved in revenue cycle management, especially in areas such as oncology, where many often-expensive treatments are being used and are reimbursed in different ways.

Health-system pharmacy insiders point out that because of the financial instability of many hospitals, pharmacists need to be in the forefront of revenue cycle management and understand, for instance, where they have rejected payments and why. Reimbursement is a huge concern for hospital pharmacies and it can often be tied to formulary management. In recent years, with the proliferation of more expensive drugs, some hospitals have added finance personnel to their P&T committees.

Pane pointed out that, when looking to add drugs to the formulary, R.Ph.s should understand where the drug is going to be used in the inpatient or outpatient area. "We need to realize that we get reimbursed differently in each setting."

While it's not necessarily a problem to add an expensive product to the formulary, it helps if hospitals are going to get reimbursed for more than the cost of the drug. Pane contends that if pharmacy is not part of the revenue cycle process, it will be harder to justify an expensive product. He urges pharmacists to be proactive in the formulary review and revenue cycle process in order to avert the "Why are you over budget?" questions.

Increasingly, hospitals use technology as a way to better manage revenue cycle issues. Norwalk, Calif.-based Coast Plaza Doctors Hospital recently implemented a Web-based suite of products from XactiMed. The Dallas-based company provides claims, remittance, and denial management solutions to hospitals.

Another example of a proactive step pharmacists can take in order to play a greater role in the revenue cycle procedure is to approach the finance department and ask if there are any issues related to drugs-from a billing perspective-that pharmacy should be aware of. For instance, is pharmacy billing on time? Or are there any rejected payments, especially in the outpatient setting that could be related to pharmacy billing practices?

"We want to stop the bleeding," Pane said, adding that hospitals are looking for new ways to capture revenue that is being lost. He stressed that pharmacists need to balance the clinical component of their jobs with revenue and billing issues.