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Every year governing boards (GB), CEOs, and other hospital leaders gear up for the annual strategic planning process. There is typically planning for volume growth, service expansion, and cost management, all of which are crucial to a healthy hospital – but does your hospital also distinguish utilization management (UM) as a key strategic component? If not, you may be leaving a critical success factor off the table. UM is all about getting it right in the first place and avoiding denials and recoupments. It is far cheaper to keep a penny than to have it recouped and have to fight to recollect it.

Centers for Medicare & Medicaid Services (CMS) Conditions of Participation have always required that providers pay careful attention to UM through the requirement of the management of a medical staff utilization management committee1 (UMC) responsible for oversight and efficient resource utilization. Typically, the management of this function and committee fall to the director of care management and the medical staff. However, in today’s world of compliance audits and takeback audits, how a hospital approaches and defines UM has a direct impact on hospital margins and bottom lines, thus warranting a high level of C-suite and GB involvement. What matters at the top matters throughout the organization, including medical staff.

So, why is UM so compelling? First of all, utilization covers almost every aspect of operations, serving as the link between finance and clinical functions within a hospital. In order to elevate utilization to the strategic plan while keeping it focused and understandable for the GB, UM key performance indicators (KPIs) should be developed in the same manner as they are for other measures (core measures, for example) and should be reported monthly in the GB report. Aspects of UM will always be a part of the finance and medical executive committee reports, but we recommend an executive summary with UM KPIs developed for the strategic plan and reported in a separate scorecard or dashboard to focus improvement efforts. To find a starting point, consider the three areas UM could impact most: cost, quality, and compliance.

We start with cost related to billing denials, overutilization of ancillary services, length of stay, readmission within 30 days, and other indicators of efficiency. The UMC should have a scorecard with KPIs already in place, including analysis of current performance and areas in need of improvement. A dollar impact should be part of each scorecard indicator, which can cover criteria such as the cost of each avoidable excess patient day (if you eliminate an avoidable excess day, you save many pennies).

Another unit of measurement is the number and dollar impact of denials. Analyze where the facility is experiencing the most denials and the most expensive denials, then set a goal for reduction of denials, which can save many more pennies. From the UMC scorecard, the top three issues should be chosen as strategic improvement goals and presented to the GB as part of the annual strategic plan.

The next area of UM is quality: components such as clinical documentation, discharge planning, and communication among caregivers are measured. Each care manager and nursing unit should have daily interdisciplinary team (IDT) continued-stay reviews that cover all aspects of care and include the physician or physician advisor. Resource utilization, patient discharge planning, and the patient’s clinical picture all come together in the IDT. Include the documentation improvement specialist in IDTs to ensure that documentation is appropriate and communicates each patient’s condition accurately to the care management and clinical teams. For example, complications such as pressure ulcers are not only a quality issue, but also factors causing longer lengths of stay and more resource utilization.

Scorecard and strategic indicators may include measurement of the number of IDTs taking place by unit or service, patient and physician satisfaction with discharge planning, and readmissions. Satisfied physicians result in physician retention, and satisfied patients result in better HCAHPS scores – and saved pennies in the form of fewer penalties in the Value-based Purchasing Program. The same applies to readmissions – reduce readmissions and save more pennies by avoiding penalties.

Lastly but not certainly not least is compliance. The UMC and compliance scorecard should include compliance KPIs such as number of Code 44s, part A-to-Part B billing, bill holds due to lack of appropriate documentation, results of internal and external chart audits, and reasons for denials. Appropriate documentation can be reported in contrast with the number of coding queries and results of chart audits. If documentation is accurate and appropriate, the facility will bill appropriately, which should reduce denials.

The facility also will code accurately, so the intensity of service will be captured and billed correctly, resulting in pennies saved on denials and potentially a few more pennies billed, based on capture of intensity of service or case mix index. As above, the top two or three areas for improvement should be chosen for inclusion in the strategic plan for UM.

Consider UM when developing the strategic plan to focus on savings and retaining the pennies you have already been reimbursed. By making UM part of your strategic plan, the importance required for improvement should result in a healthier bottom line while improving quality and maintaining compliance. Remember, leadership sets priorities and measures for results, leading the entire organization to focus and improve.

About the Author

Elizabeth Lamkin, MHA, is a partner in PACE Healthcare Consulting. Elizabeth has more than 20 years of C-suite level hospital executive management experience. Most recently, she was the CEO/Market President for Tenet Healthcare’s Hilton Head Regional Healthcare. Elizabeth holds an undergraduate degree in Business Administration, Cum Laude and a Master’s in Healthcare Administration from the University of South Carolina.

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