Driving Optimal Financial Returns

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By Christopher Hall, PhD

Radiology departments are increasingly under a great deal of pressure to become more cost-effective while maintaining a high level of clinical delivery with superior customer experience. Fee for service reimbursement is undergoing substantial changes with year-over-year reimbursement reduction and new requirements such as the implementation of clinical decision support systems. CMS has a stated goal of reaching 50% of their patient population enrolled in some form of alternative payment models, with more than 85% tied to quality measures, by 2018. These alternative payment models have largely consisted of bundling payments so that radiology services are reimbursed in an aggregated billing under a Diagnostic Resource Group (DRG) for inpatients or an Ambulatory Procedure Classification (APC) for outpatients.

One of the consequences to bundling payments is that radiology’s profit becomes less obvious, and the financial accounting becomes less transparent. In effect, radiology becomes a “cost center.” Unfortunately, the conversation with senior management as a cost center as opposed to a profit center shifts from one of growth to one of cost containment and budget justification through demonstrated value. To adapt to this shift, radiology leaders must understand how the transactional nature of the business relates to financial returns, and be able to evaluate what improvements could be implemented to drive success for their department.

Radiology has to have a comprehensive view of its business practices from operations to billing. Without the correct level of information, it’s extremely difficult (dare I say, impossible?) to implement practices that will knowingly drive positive impacts on ROI. Current financial reporting systems generally present hospital data at an aggregated department level and do not often provide break downs, such as information by type of exam.

This presents a real issue for radiology leadership and department decision makers: how do you target areas for optimization if you do not have full transparency about how the performance is today? Without more specific insight into what’s happening at a department level, and an understanding of what activities are serving them well and which are doing poorly, business decisions become more educated guesswork. Change recommendations may be made for other reasons, like ease of implementation or because of internal popularity instead of being data-driven.

So, how can radiology leaders be better equipped to make thoughtful and impact-wielding changes?

1. Evaluate Operational Practices & Variability – If you perform a number of different procedures, each takes a variable amount of time – it’s only natural. However, when you look to find efficiencies among operational practices, the question arises: reduce the variability or reduce the average procedure time to have the highest ROI? Scenario modeling can help you answer that question.

2. Calculate Costs & ROI at Procedure Level – While we already established that most systems aren’t tracking granularly, there are useful ways to attribute cost and income at procedure level from an aggregated view. One such way is via Time Driven Activity Based Costing, known as TDABC – an approach that takes into account who’s involved in each procedure, how much time they spend, what equipment and disposable items they use, and enables us to build a view of the procedure and the associated costs. When you couple that with what you bill and collect, you can get an ROI that can be used to calculate returns on a procedure level.

3. Improving Operations to Drive Financial Return – Based on the evaluation of operational practices and variability, along with the cost and ROI calculations for procedure level, radiology leaders should be able to get a clearer picture of how their department is really performing. Access to such insights will better enable them to take meaningful action and implement changes that can truly drive cost effectiveness.

To learn more, please join my session, “Driving Optimal Financial Returns Through Operational Improvements: A Data Analytics Journey,” from 8:15 AM – 9:15 AM on Tuesday, July 11 during the 2017 AHRA Annual Meeting. During the session, you will learn how to:

  • Provide a portfolio view of your procedures from a return on investment perspective;
  • Identify which procedures will yield the highest return with appropriate improvement actions; and,
  • Develop sophisticated techniques to tie operational improvements to potential financial gain.

Christopher Hall, PhD is the senior director of advanced concept development, radiology solutions at Philips in Andover, MA. He can be reached at christopher.hall@philips.com.

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