Revenue’s Side of the Story

Revenue’s Side of the Story
Long focused on cost, some contracting executives take up revenue cycle management.

Picture the typical supply chain executive – you, for example. You have a tightly run ship, with a crack contracting staff negotiating the best prices in the market. They pore over the GPO contract portfolio to make sure they’re not missing opportunities. Perhaps they work with the clinical staff to explore opportunities to standardize high-cost items and maybe even control utilization. It’s a hard-working team. But focused as they are on cost-cutting, they may be missing a bigger picture. That’s because margin is about not just cost, but revenue too.

Traditionally, supply chain executives have focused almost exclusively on the former. Today, however, some are carving out a role for themselves on the revenue side. But it’s not easy. It’s new territory not only for the supply chain team, but also for the revenue manager and managed-care contracting team, who typically don’t store the supply chain executive’s number on its speed-dial list.

“The issue is, we work in silos right now,” says Nalin Kulasekara, corporate director, supply chain management, SSM Health Care, St. Louis, Mo. “Supply chain traditionally works on supply costs, but we have no idea what impact that has on margins.” Conversely, many managed-care contracting staffs fail to consult with the supply chain team prior to signing contracts with managed care organizations or other insurers.

Indeed, the problem may be even more fundamental than that. Healthcare is one of the few industries – if not the only one – that sets prices for its services without knowing the true costs of the resources that go into them, says Kulasekara. It’s important for providers to identify their equipment and supply costs even in this age of DRGs, where reimbursement is set in advance, he points out. Providers also must know their costs in order to negotiate profitable charge-sensitive contracts, per-diem contracts and carve-outs for new technology. “If you’re not maximizing your markup methodology, you won’t be able to get your reimbursement, your carve-outs,” etc., he says.

Revenue cycle projects
Given the fact that Kulasekara has a master’s degree in business administration, perhaps it’s no surprise that he’s given serious thought to revenue cycle management. In fact, from September 2006 through June 2007, he participated in a Premier “Collaborative Breakthrough Series” project on revenue cycle management at SSM. With finance manager Teri Reger, the SSM team uncovered hundreds of thousands of dollars of revenue opportunities.

“Instead of working in silos and working hard to reduce supply costs, we could be linking [supply chain] to the revenue cycle,” says Kulasekara. “And that linkage could provide more value and bring about more margin than simply reducing $100 on the price of a device.”

Kulasekara also was a member of a team that worked on a revenue-cycle-management project for the Scituate, Mass.-based Strategic Marketplace Initiative (SMI). The result of that project is a presentation on the organization’s Web site ( designed to help supply chain executives identify gaps in their own practices and better understand how they can optimize revenue – and enhance their department’s value to their organization

In its revenue-cycle-management project, SMI identified four areas where supply chain can link with the revenue side to enhance an IDN’s margins. They are:

  • Charge description master and item master file. Ideally, these two systems are linked, perhaps even sharing the same database. The benefits of a linked or single database include consistency in descriptions and terminology, up-to-the-minute accuracy, consistency and accuracy in cost, and real-time updates for cost, according to SMI.
  • New-product introduction. Revenue analysis should be part of the consideration before new equipment or devices are introduced, according to SMI. What’s more, the IDN should conduct post-implementation reviews to make sure the new equipment or device is indeed producing the revenues and savings that had been expected.
  • Patient charge systems. Long the bailiwick of supply chain management, today’s automated patient charge systems allow the IDN to capture usage data at the point of use, then transmit it to the appropriate billing and management systems. They also enable the IDN to monitor charging activities and even variance in clinical practice, according to SMI.
  • Education and awareness programs. The only way out of the silos that the supply chain, finance team and clinical staff now work is through education and communication, according to SMI. This way, all stakeholders can contribute to revenue optimization.

Bringing about change
Even if an IDN’s supply chain and revenue teams have identified opportunities for working together, bringing about change isn’t easy, says Kulasekara. “Implementation is difficult because you need to put in place completely new processes.” For example, how is the item master to be linked with the charge description master? Have automated point-of-use charging systems been implemented? If not, can the IDN afford to bring in that kind of technology?

Working through the Premier Breakthrough Series project helped SSM identify many opportunities for revenue enhancement. Now, the IDN is enlisting the support of consultants to help realize those opportunities.

Even without consultants, though, IDNs can immediately implement some changes in practice that can help the bottom line, says Kulasekara. One of the most important is managing the introduction of new technology. Prior to bringing in a new piece of equipment or high-dollar device, the IDN should closely examine its potential return on investment. In addition to knowing the cost to operate the technology (including the cost of supplies or consumables associated with it), the supply chain executive must know the expected number of cases the technology is expected to bring in, as well as the expected revenue per case. The latter is one more reason why the revenue and supply chain sides of the house must stay in close communication with each other.

IDNs must also tightly control the process by which new technology is brought in. If not monitored carefully, devices can enter the IDN without anyone’s knowledge of reimbursement associated with it. Sometimes, technology can be so new that insurers, such as Medicare, will refuse to reimburse providers for its usage.

“Supply chain can negotiate differently or use different negotiating strategies if we know [by whom] and how we’re being paid [for procedures using new technologies],” says Kulasekara. Knowing the expected reimbursement for orthopedic implants, for example, the supply chain team can negotiate with a specific margin in mind.

“We have to look at other ways to reduce costs,” he says. “Supply chain management professionals need to change their focus from cost to margin. Unless we do, we’ll continue to work in silos.”