Healthcare Has a Revenue Problem, But It’s Really a Decision Problem [PODCAST]

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Healthcare Has a Revenue Problem, But It’s Really a Decision Problem

In this episode, Angelica Landers, Healthcare Executive & Growth Strategist, discusses how healthcare has a revenue problem, but it’s really a decision problem.

Highlights of this episode include:

• Before a hospital or healthcare organization launches a new service line, what financial questions should leadership answer first
• How to determine whether the service is actually worth offering
• Will the service actually make money?
• How to determine whether your payer mix can support a service line or business model before you invest significant capital into it
• How healthcare organizations can build stronger relationships with their payers to improve reimbursement and resolve issues
• What a true service line profitability analysis looks like
• What the financial and operational questions you want answered before you ever get to the purchase price
• When a healthcare organization is trying to grow, how do to decide whether to build internally, acquire another organization, or partner with someone else

Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome Angelica Landers. Angie is a healthcare executive and growth strategist with more than 18 years of experience working at the intersection of healthcare operations, sales, M&A, revenue cycle, technology, and startup growth. Her experience spans provider organizations, MSOs, DSOs, digital health, telehealth, healthcare technology, and high-growth startups. She has directed 58 concurrent M&A integrations, managed revenue cycle operations generating up to $45 million in monthly collections, sold more than $500 million in managed services agreements, and built scalable operating models for healthcare organizations navigating growth and transformation.

Angie brings a unique perspective that connects the financial decision to the operational reality behind it. Her work includes acquisition strategy and integration, revenue cycle transformation, payer and reimbursement strategy, healthcare commercialization, P&L and financial analysis, operational scalability, strategic partnerships, and startup growth. Through Alleviate Strategy & Solutions, Angie advises healthcare executives, investors, founders, and growth-stage organizations on the systems behind performance, helping them make better decisions about growth, acquisitions, technology, operations, and revenue.

In this episode, we’re discussing: Healthcare has a revenue problem, but it’s really a decision problem. Welcome, and thank you for joining us, Angie.

Angelica Landers: Thank you for having me, Kelly. I’m so excited to be here today.

Kelly: Yeah, we’re excited to have you. Well, let’s go ahead and jump in. So, healthcare finance isn’t just about collecting the money. It’s about making better decisions before the service ever happens. Before a hospital or healthcare organization launches a new service line, what financial questions should leadership answer first, and how do you determine whether the service is actually worth offering?

Angelica: When everyone first proposes this question, everyone automatically assumes demand or growth equals revenue. And when everyone assumes this, before everyone can get their answers out, the CFO walks in and asks the most difficult question, but I would say the most correct question. Will this service actually make money, given our payer mix, our cost structure, and our referral patterns? Or, in just the shorthand question, is this a profitable demand? Will we make money, or our ROI off of implementing this new service? So, a service line can have strong community need, excellent clinical outcomes. Your neighbor practices might be doing this, and you might have heard of their uplift in revenue. You might have heard of their growing patient population. But are those transferable to your practice is the question. Before launching any new service, leadership must determine whether the opportunity creates that sustainable economic value within their practice. So, the goal is not simply to generate revenue. The goal is to generate revenue that exceeds the cost of care. By the time a claim reaches your billing department, leadership has to make these decisions beforehand that determine whether that claim is profitable or payable. So many healthcare organizations, to start with demand is great, but we should also look at margin.

Kelly: Right. No, I mean, I love what you said. I wrote it down. Will the service actually make money? It’s a great question.

Angelica: Yeah.

Kelly: So how do you determine whether your payer mix can support a service line or business model before you invest significant capital into it?

Angelica: Yeah, so I would start with the obvious question, is there really a revenue opportunity? There’s a series of analyses and just questions that leadership should go through, grouped together with their committee, their investors, and really go through each variable of economic value. So, starting with, obviously, what service to offer? Everyone is being innovative in the healthcare industry. Within tech, the startup rise of telehealth, value-based care, I mean, all of this brings different payment models, different strategies, different positions you can bring to your practice. But the key question here is, does this service create strategic and financial value, again, to your unique situation? Not every clinical service creates that economic value.

Some services just generate direct profit. They create downstream referrals, straighten payer relationships, even support other strategic growths. So, looking at just the variable of, ‘How much does this service make by revenue position?’ isn’t the entire story. Leadership should evaluate community need, of course, competitors’ offerings, strategic alignment. But a service with moderate demand and strong reimbursement may outperform a high-demand service with weak reimbursement. I would say look at both the economical value and also the community need and demand that comes with it.

Kelly: That makes a lot of sense. And I think the bottom line that I kept– and the word I kept hearing over and over again was value. So that’s definitely key. So beyond negotiating the contract, how can healthcare organizations build stronger relationships with their payers to improve reimbursement and resolve issues?

Angelica: So, payer collaboration does not end after a payer contract is executed. It’s just the beginning. Your payer contract director should not be the only one talking to your payers. This is a collaboration between RCM, your payer contracting department, and really with a dotted line to finance through RCM. Within each contract, you are assigned a provider relations advocate, which is the bridge between your practice and the insurance company. Many organizations only contact payers when there’s claims denying or, obviously, when contract negotiations are up for renewal. But high-performing organizations treat payers as strategic partners.

You can contact your provider relations advocate when there’s prior authorization problems, when there’s an increase to your denial trends, when you’re having coverage or network access issues. But they can also help you leverage strategies that you’ve never heard of, like good-faith appeals, payout negotiations. They can also help you while you’re transitioning through billing companies, or also help you with provider education when you’re dealing with referrals and orders coming from or referring providers. When problems occur, there’s always a relationship in place. And that’s why it’s smarter to do this early on in the contracting phase. The best reimbursement strategy is often operational excellence, not aggressive contract negotiation.

Kelly: Yeah, and I mean, those relationships are key there. It makes a lot of sense. So, healthcare leaders often know their revenue. But do they really know what it costs to deliver that revenue? What does a true service line profitability analysis look like?

Angelica: So, this is referred to as a cost analysis. The main question we ask when performing this analysis is, how much does each service actually cost to deliver? Only after understanding this margin should expansion decisions be made within leadership. One of the most dangerous questions in healthcare is: what’s our revenue, or where is it coming from, or what is that profit margin? Without asking what is our cost per unit of care, we’re not really understanding that profit margin just yet. Many organizations obviously know their charges, their collections, their net revenue, but they’re not doing the deeper analysis of cost. So, cost per patient, cost per visit, cost per procedure. A true service level profitability analysis includes revenue, direct cost, indirect cost, and even deeper dives into those fees of those indirect costs that ultimately get calculated into the cost of care. Cost analysis also includes what volume is required to break even. So how many patients, study visits, or procedures are required before we start losing money? Also, we would like to include in that analysis what is required to generate that profit margin. So, it’s not so much if we schedule it, but do we have the staff, the tools to render that service? And all of that is included in that indirect cost that we perform during that cost analysis.

Kelly: Yeah, that sounds like a pretty important process. I know that the profit margin is really important. So, Angie, when you’re evaluating a healthcare acquisition, what are the financial and operational questions you want answered before you ever get to the purchase price?

Angelica: Oh, Lord, this is probably one of my favorite topics: merger and acquisition. So, a common mistake, organizations buy revenue. So usually during the due diligence process, normally we take out, obviously, the Aged Trial Balance report or your AR report, and everyone starts looking at those numbers. What does the revenue look like? But I would argue it’s not just about the revenue; it’s also about the capabilities. So, when you’re thinking about buying or even partnering for an added revenue growth to your practice, or obviously service lining, revenue can appear different after acquisitions. So again, after mergers, relationships, staff can leave, referral patterns can shift, key physicians can retire. There’s so many variables that we take into consideration during that due diligence period. The real value of an acquisition pretty much lies in its capabilities, people, market, position, and operational strengths. So, during that sale, you must ask yourself, why are they selling? Understand the motive behind the sale. Help determine whether buying them in the future or buying them in their current state is optimal. We should also ask ourselves, how dependent are their key physicians and key stakeholders to this acquisition?

Again, if all services are being rendered by one physician or two, how strong is that operation’s post-integration if that physician decides to leave or has a different sentiment about the acquisition itself? So, we like to review people, culture, which is a big part of merger and acquisition. But then, obviously, we get into the financial part, which is the revenue. Financial questions we might ask is, obviously, the EBITDA qualities. So, is this repeatable, right, next year? Or was it an added revenue added specially for this year, right? A one-time gain, a temporary cost reduction, or just variables that are temporary. We want to get as close as to the repeatable EBITDA for year after year, which is one of the financial hurdles that that we watch for. Service line margins. So again, those cost analyses are so important here, determining the strength of the AR. So again, what are those challenges that they’re experiencing? Is the corrections to these denials an easy task? Are you fighting an uphill battle within regulation with these denials? Or is it simple corrections that could be made with just a human touch, right? Refiling of a claim. So, reviewing these in a much broader light, and I would say in a deeper, not just the balance sheet, right? Interview the people that are in charge of your daily cash flow to better understand how much of the receivable balance is actually collectible. And you would find that most of those conversations will be a lot more insightful than sitting in a room with the CFO that’s negotiating the deal.

Kelly: Yeah, it sounds like there’s a lot of really valid, important questions in there that you need to ask. And when a healthcare organization is trying to grow, how do you decide whether to build internally, acquire another organization, or partner with someone else?

Angelica: I would say it has a lot to do with the answers to the analysis that we talked about today. I think if you really determine that there is demand, that there is a lower cost to service than the reimbursement that you’re bringing in all of those variables in there, to me, make the decision of building, buying, or partnering such a louder than ever. Partnering, I think, would be best for a practice that is trying to test the waters. Some of the analyses are not definite and don’t bring you the best warm and fuzzy feelings about moving forward of investing the capital.

Partnering, I think now more than ever, the market is open to joint ventures to, again, jointly pursue deals that their vendor partners may have the capabilities that they’re lacking so that they can close the deal jointly as a joint venture. Again, I think the bottom line here, it’s determined on rather the capital is there, the investment is apparent after your cost analysis, your market analysis, and your geographical analysis. And then that will then better position you to rather invest the capital or maybe test the water with a vendor partner.

Kelly: Thank you, Angie, so much for sharing your insights with us on healthcare has a revenue problem, but it’s really a decision problem. And if a listener wants to learn more or contact you to discuss this topic further, how best can they do that?

Angelica: Yes, you can email me at Angelica, A-N-G-E-L-I-C-A, at alleviate, A-L-L-E-V-I-A-T-E-S-A-S dot com.

Kelly: Awesome. Thank you for providing that. And thank you all for joining us for this episode of The Hospital Finance Podcast. Until next time…

[music] This concludes today’s episode of The Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit besler.holdings/podcasts. The Hospital Finance Podcast is a production of Besler Holdings.

If you have a topic that you’d like us to discuss on The Hospital Finance Podcast or if you’d like to be a guest, drop us a line at contact@besler.holdings.

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