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EHRs HAVE FINANCIAL FUNCTIONS TOO

June 1, 2006
by JAMES H. STEWART, CPA
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Electronic health records can help improve the bottom line

Companies that implement electronic health records (EHRs) often are quick to analyze and build in clinical functionalities and data elements. However, they fail to examine how EHRs could assist them with regulatory issues, financial decision support, and cost and revenue distribution and analysis.

Ideally, the critical step of changing culture,1 and thereby mind-set, already has occurred in all of a company's staff, both clinical and administrative, after setting up an EHR with clinical functionalities. A company needs to capitalize on this culture change—recognizing an EHR's benefits for clinical documentation/processes and for financial documentation/processes. In fact, a company is likely to improve its clinical functionalities when fiscal functionalities are enhanced.

Adding up the Financial Benefits

To maximize an EHR's financial functionalities, a company first must create a “decision sheet” that outlines how information flows throughout the organization and, more importantly, what “internal audits” must occur to generate an error-free bill. Once the decision sheet is completed, the EHR software can be programmed to follow these rules. An EHR, in fact, is the perfect tool to automatically ensure all necessary billing documentation is completed. The EHR software can verify that a service was provided, documentation was completed, a clinician's signature (electronic) was obtained, the treating clinician was licensed or paneled appropriately, and the service was authorized by the client's treatment plan.

Most of us will need to verify similar items for accurate billing. Quality improvement/quality assurance (QI/QA) staff often manually review charts, but an EHR can eliminate this tedious documentation verification process. In fact, an EHR can verify all services before a bill is ever submitted, eliminating the possibility of a bill being sent without proper documentation.

An EHR also can ensure documentation's quality, as well (to a degree). For example, a frequent problem is insufficient verbiage in a service note to justify longer sessions of care (and hence payment), and QI/QA staff traditionally rely on judgment calls to identify poor-quality documentation. Yet an EHR can be programmed to flag for QI/QA staff review service notes of a certain number of words or fewer. This also should occur before the service is billed, thereby preventing a specious charge.

EHRs currently cannot evaluate the quality of the service note's content—for now, only a person can do that. EHRs, however, can minimize major sources of documentation errors.

A well-developed electronic fiscal system really earns its keep during an audit. This is especially true in today's funding environment. It seems that Medicaid, state funding entities, and even the U.S. Department of Health and Human Services’ Office of Inspector General have mental health providers in mind for payment recoupment. Yet one small Illinois community mental health center saw its Medicaid payback drop from more than $50,000 in the year before implementing an EHR to less than $2,000 the year after.

Activity-Based Costing

Almost every healthcare entity has developed an infrastructure to meet its regulatory and compliance needs. Yet this often remains a paper-based system even when the organization has electronic systems. This is particularly odd since electronic reporting systems (e.g., general ledger and financial statement reporting packages) already are installed.

Historically, grant and other funding sources require some form of fund accounting software. “By the book” fund accounting requires the company to maintain separate balance sheets and reporting capabilities, but most grant and funding sources do not require that level of detail to maintain compliance with most grant requirements.

Implementing an EHR, therefore, is the perfect opportunity to move to an activity-based costing (ABC) model of financial reporting. ABC allows more thorough analysis of the cost of a unit of care. By analyzing care by the types of service provided, clients’ names, the duration or units of services, the names and licensures of the providing clinicians, the clients’ payer sources, and perhaps a few more elements, a company can perform cost analysis and even determine outcome data related to third-party payer contracts.

An EHR's transaction data can link directly to the general ledger package to provide service cost data. Adding salary and fringe costs to an EHR allows a company to determine its “direct cost” of providing care at specific locations or even by professional credential. These data can be invaluable when a grantor requires specific services or providers. An EHR's data can illustrate if the grant's requirements reflect good business, as well as good clinical practice.

For providers operating in a capitated funding environment, these data could be even more important. Consider a company assuming the risk for every Medicaid client presenting with a certain diagnosis at a specific monthly or daily dollar rate. If the company properly develops an EHR to work with the ABC general ledger system, it will be able to analyze historical levels of services, calculate the cost of specific services for a diagnosis, and determine what changes in the types or levels of service are necessary. The company can even determine the type of clinician who can provide the most cost-effective services to meet the capitated contract's requirements. And the company might even find results for a particular diagnosis that are better than expected by a published evidence-based protocol, putting the company in an excellent position for contract negotiation.

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