Revenue Cycle Outsourcing Issues Led to Astria Health Bankruptcy

May 10, 2019 - A three-hospital system in eastern Washington is filing for bankruptcy shortly after implementing a revenue cycle outsourcing strategy that put a company in charge of business office billing, claims processing, and collecting.

In a press release from May 6, Astria Health explained that it and 13 related companies filed for Chapter 11 protection under the United State Bankruptcy Code in order to “restructure its finances, give it time to replace its existing corporate billing office company with another company, and enter into a plan of reorganization with its creditors.”

The unnamed corporate billing office company cited in the press release failed to process large amounts of accountable receivable (A/R) in a timely manner, resulting in significant shortfalls in cashflow for the health system, Atria Health continued in the press release.

“Although hospital leadership has actively managed the supply chain to ensure necessary supplies for patient care, this delay in cash collections has now become severe enough to potentially disrupt the organization’s ability to pay for crucial items in a timely manner,” Astria Health writes.

Astria Health started outsourcing components of its revenue cycle in August 2018. The health system had just purchased two new hospitals and converted to a Cerner EHR system. The Cerner EHR conversion enabled the health system to integrate clinical and financial information into one patient record with revenue cycle management solutions in the Cerner Millennium EHR, the announcement from Cerner in January 2018 states.

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The corporate billing office company promised Astria Health that it would return A/R performance to similar levels before the EHR conversion. The organizations also agreed upon specific performance guarantees for A/R and cash collections.

However, Astria Health recently reported that A/R was taking significantly longer to process than the corporate billing office company said it would.

Astria Health determined that the large amount of unprocessed A/R value stuck at the corporate billing office company was putting too much of a financial strain on the health system.

John Gallagher, Astria Health president and CEO, states in the press release that filing for bankruptcy is “necessary in order to protect the Valley’s hospitals and its local economies.”

“We believe it will protect and sustain the three hospitals for the future,” he continues. “All three hospitals are key community assets badly needed by patients and local communities and are vital to the health and wellbeing of the towns and cities located throughout the Valley.”

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The Chapter 11 bankruptcy filing, which was approved by a judge on May 8, provides a pause with creditors and the first tranche of $28 million of debtor in possession financing. The health system states that the approval will enable the health system to continue delivering patient care and give it access to the capital needed to acquire supply chain items and free up A/R trapped with the revenue cycle vendor.

“We appreciate the court’s willingness to hear our case and the judge’s decision to allow Astria Health to borrow the money it needs to continue its efforts to restructure. Doing so ensures Astria Regional Medical Center, Astria Sunnyside Hospital and Astria Toppenish Hospital will remain open without disruption in service,” states Gallagher. “This step protects all three hospitals, our patients, employees and their families, and the communities we serve throughout the Valley.”

Revenue cycle outsourcing has the potential to significantly decrease costs and increase efficiency at a time when hospitals and health systems are under intense pressure to reduce spending while improving care quality.

“As hospitals look for ways to reduce costs, outsourcing is a valid strategy to achieve a financially healthier organization,” says Doug Brown, president of Black Book Research LLC, which recently found that 80 percent of hospital leaders said they were vetting or considering outsourcing their revenue cycles by 2019.

However, Astria Health and other health systems are finding revenue cycle outsourcing isn’t always the solution they hoped for.

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A 2018 analysis by the public accounting, consulting, and technology firm Crowe found that hospitals outsourcing their entire revenue cycle reported higher claim denial rates and longer patient collection times compared to their peers who handled revenue cycle management internally.

“Looking at the financial data, the benefits of outsourcing the complete revenue cycle seem to be marginal on some metrics, and nonexistent on others,” Brian Sanderson, managing principal of Crow Healthcare Services states in the analysis. “The decision to outsource any core function is complex, with considerations of access to talent, scalable technology and focused expertise – but performance should always be the key driver.”