Managing the financial operations of a behavioral health treatment center has never been easy, but the past several years have been an especially challenging rollercoaster ride. There were massive cuts to public funding of mental health and substance abuse treatment during the height of the recession, followed by an expansion of insurance coverage via parity, the Affordable Care Act and Medicaid expansion.
Now, reimbursement models are poised to change in ways that will require providers to adjust their financial management strategies, shift their payer mix and make potentially large investments in quality and cost tracking capabilities.
And not every facility will successfully make those adjustments. Recent years have seen significant merger and acquisition activity in the behavioral health space, as well as a few high profile failures.
In a 2012 case, for example, Baltimore Behavioral Health sought bankruptcy protection when authorities alleged mismanagement and fraud. In another case in New York, the not-for-profit Federation Employment and Guidance Services declared bankruptcy after a series of financial missteps in a for-profit subsidiary resulted in a $19 million shortfall.
In the era of accountable care and with providers potentially taking on risk, it will be imperative for those in behavioral health to avoid financial mistakes that could potentially sink their businesses. With the help of financial experts in the field, we’ve compiled a list of common financial mistakes and ways to avoid them.
1. Failure to Adjust for New Reimbursement Models
The transition has only just begun, but the biggest and most immediate pitfall for behavioral health providers to avoid is failing to prepare for the seemingly inevitable change in reimbursement from fee-for-service to value- or quality-based reimbursement. The Centers for Medicare and Medicaid Services (CMS) plans to shift the majority of its reimbursement to this model in just a few years, and many private insurance companies are following suit. That means providers are going to have to do a better job of tracking costs and documenting quality and outcomes.
Tracking reimbursement is already a huge challenge, made more complex by the value-based incentives emerging in the system at large.
“A single encounter could have as few as two and as many as five different payers for that bill,” says James Clark, managing director at Harris Williams & Co.’s healthcare and life sciences group. “Tracking those payments is complex, and being able to take the payment and match that to an actual invoice is also complex. Billing and collecting are by far the most complex thing about healthcare services.”
In the behavioral healthcare space, many providers in both the for-profit and non-profit sectors are unprepared. Most providers have not realized how fast reimbursement is changing, according to Bill Bithoney, chief physician executive and managing director with BDO Consulting.
“There are now 62 million people in ACOs, combined with 27 million in Medicare Advantage, which gives you around 90 million people in programs where providers are penalized if they don’t perform well in terms of cost,” he says.
Providers have to adjust accounting systems and EHRs for quality/value-based reimbursement. If a provider group receives bundled payments, there must be a way to divvy up that payment and track which providers receive which portion.
“There’s a lot of confusion about how it’s going to work,” Clark says. “You have to be able to track care in the EHR system, and do that across the continuum of providers for bundled payments. We’ve got a long way to go for that process to be seamless. It will come down to some standardization of systems and standard interfaces.”
Just tracking costs and claims is half the problem; providers also have to adequately track clinical outcomes.
“That’s where the EMR has to be able to tie into payer data,” Clark says. “The patient might be seeing different doctors and therapists, and you may only capture a part of that care. You have to use a claims-based methodology.”
2. Lack of Payer Diversity
Being too dependent on one type of revenue stream can leave the organization vulnerable to economic swings or regulatory shifts. Not-for-profits have to be certain that attempts to attract new payers don’t conflict with their mission, or lead to a loss of engagement among traditional sources of charitable support. For example, a not-for-profit that seeks donations might be seen as less than charitable if it is also tapping into the commercial market through subsidiaries.
“Groups that are trying to gain entrance into insurance markets to get a different payer mix, if they run on that non-profit brand name, that may trigger a reaction from other income sources,” says Charles Ray, principal at Criterion Health.
Further more, public and private payers alike are looking to get the most out of their contracts. They won’t hesitate to sever a relationship with a low-value provider that relies on volume alone.
“It’s no longer useful to just have patients coming back for repeat visits,” Bithoney says. “You have to show that the cost of care has decreased, and that outcomes are better. If you wind up excluded from these narrower payer networks, you could be in trouble.”
3. Failure to Track Costs and Measure Performance
In order to better manage costs in the value-based environment, providers have to be able to accurately track adjudicated claims and reimbursements in detail. That means the EHR, patient charts, claims submission and automated auditing should be linked. In some organizations, that may require a new investment in technology.
“Providers need to understand and manage care in a cost-efficient way,” Bithoney says. “They’ll need to understand the cost of care and net revenue, as well as quality metrics.”
In Medicare—which drove the ACO movement—ACOs don’t earn bonuses unless they save money above a determined baseline and meet quality milestones. Bithoney is seeing commercial accountable care arrangements move toward separate metrics appropriate to their distinct membership populations. He says the approach will become more and more prevalent.
Behavioral healthcare providers will need to demonstrate better outcomes in a measurable way in order to attract integration partners in other areas of healthcare as well.
4. Poor Coding
Coding errors are another potential financial leak that providers will need to plug. The shift to ICD-10 and DSM5 codes has made the process harder for some, but accurate coding will ensure the provider is getting fully reimbursed for services. The grace period for accepting ICD-9 codes varies by payer.
“With value-based care, everyone needs to maximize coding and charge capture,” Bithoney says. “Behavioral health providers have often been lax at this, and it’s especially a challenge for providers who haven’t taken insurance in the past.”
Even large for-profits can suffer from coding errors that result in denied payment, Ray says.
“It’s even more difficult for non-profits, who have been used to playing according to state regulations and coding in a very strict manner. If they are attempting to diversify into an ACO or commercial contracts, the infrastructure is not prepared for that.”
Managers should establish audits that extend from the point of care to the billing department to the accounting department, to ensure accurate reimbursement. There are software tools and dashboards that can make this easier in most cases.
5. Overreliance on Ancillary Services
Both for-profits and not-for-profits have increasingly established ancillary services or divisions to provide lab testing or toxicology screenings in an effort to boost revenues. However, these sources must be carefully managed. Some experts recommend seeking legal advice to ensure the operations don’t violate Stark Law or industry ethical standards.
Health plans are taking a hard look at such services and are dropping out of markets where overtesting has run rampant. Again, evolving reimbursement models impact the viability of these services.
“[They] are valuable services, but there is a risk of overutilization,” Ray says. “Buyers are too smart to get tricked by that. You have to track utilization of those services and benchmark against standards of care. You have to be able to demonstrate reasonable utilization.”
6. Not Seeking Out Partnerships
Behavioral health providers are frequently undercapitalized, making it difficult for them to make the necessary investments to keep up with regulations and competitive pressures. Ray expects that organizations of less than $50 million in size will have a tough time over the next four years. That will mean more consolidation. In some cases, non-profits are selling out to for-profits for exactly that reason.
“They don’t have any leverage with payers, and they don’t have the systems they need,” Clark says. “They wind up consolidating with a bigger player has those systems in place.”
To gain entry to ACOs or insurance networks, and to create more opportunities to attract capital, smaller organizations may need to merge, become acquired, or establish joint ventures with other providers.
For example, Illinois-based WellSpring resources opted to merge with Centerstone because of the shift to managed care Medicaid in that state. WellSpring had to grow in order to have enough leverage to get better contracts with the managed care companies.
Healthcare financial management is changing in ways that aren’t yet clear to anyone. Providers should seek advice from professional resources, look into value-based reimbursement pilot programs in their state, and evaluate their technological capabilities relative to data sharing and cost/quality measurement.
“We are just starting to see behavioral healthcare providers being asked for quality and risk-based contracts,” Bithoney says. “But CMS is serious about that, and when they say they want 90 percent of care based on quality and evidence by 2018, they mean care they will pay for. Providers will have to be prepared.”
Brian Albright is a freelance writer based in Ohio.