Forecasting healthcare net revenue is like using a magic eight-ball: you're not getting clear or trustworthy results. Better and more dynamic healthcare revenue forecasting can boost any healthcare organization, enabling the clear decision-making that impacts any organization’s financial performance — all while delivering optimal patient care.
But why is forecasting in healthcare important? Forecasting in healthcare doesn’t just impact financial management. It also helps healthcare professionals with everything from deciding on a course of treatment to managing staffing issues. It allows providers to make more confident decisions in all aspects of their business.
In the following, take a closer look at healthcare revenue forecasting and learn how forecasting is used in healthcare industry scenarios.
So what is revenue forecasting in healthcare? Financial forecasting in healthcare functions as a foundation for managing supply and demand. It involves estimating how much money your organization will bring in from its services over a period of time. To do this, you have to look at the state of your healthcare business as well as previous performances.
You must also consider forces outside your business, including your competitive landscape and economic trends. To start the revenue forecasting journey, you have to dive into calculating gross and net revenue. Gross healthcare revenue is simple to define; it's the sum of your billed charges.
Calculating net healthcare revenue requires extra steps. Take your payments and divide by charges minus contractual and adjudicated adjustments and you'll find your net revenue from patients and insurance payers.
The equation for calculating net revenue is usually based on static aggregations of inconsistent historical data and does not reflect new contractual rates or terms. Often, it takes denials and underpayments at face value instead of how they are truly impacting your business.
Forecasting in healthcare industry scenarios will impact your practice or organization’s short and long-term goals, including how much staff you hire, what procedures you’re able to offer, and even what investments you can make in terms of equipment. All of this, of course, affects patient care.
So how is forecasting used in healthcare? The healthcare industry uses a few types of revenue forecasting models.
Scenario forecasting involves creating a number of financial scenarios to have a better idea of how certain events or conditions can affect your organization’s net revenue. An example of forecast in healthcare that utilizes this model could be preparing for a scenario in which a government regulatory change takes place and when it doesn’t.
Scenario forecasting helps to develop contingency plans for dealing with challenges and opportunities that the scenarios might create. Keep in mind that scenario planning does require an investment of time and money. It’s also assumption-based and focuses mainly on short-term situations.
Instead of creating static annual budgets, rolling forecasting involves updating projections by considering actual performance. This option allows healthcare providers to respond with more flexibility to the financial challenges they face.
This methodology in revenue forecasting in healthcare does have some drawbacks, however. For instance, if your forecasting process isn’t already automated, you might have to spend more time and money to get it ready for rolling forecasting. Your organization will also need to figure out how to measure performance.
Time series forecasting in healthcare refers to identifying patterns in existing data that may appear again in the future such as seasonality found in many specialties around when the most surgeries are scheduled or when more incidents typically occur. It’s most useful in scenarios where performance is mostly steady. This system can be difficult because the data used has to be as accurate as possible. Inconsistent data can lead to false forecasting.
This option creates revenue projections by considering the annual budget. It allows healthcare organizations to meet their financial and operational goals while maintaining quality patient care.
Budget-based forecasting offers the chance to correct issues as soon as a discrepancy between the expected revenue and the actual revenue appears. It’s not as flexible a system as some of the other forms of forecasting, though.
When considering a flexible budget vs. forecast budget in healthcare, it’s important to remember that a flexible budget operates with short-term goals in mind. Everything is based on the company’s past behavior. Forecast budgeting, in contrast, makes predictions on future revenue. Budget-based forecasting combines these two ideas.
One of the best tools for revenue forecasting is historical utilization data, which analyzes patterns, such as admission rates and length of stays. This data enables providers to identify trends in healthcare demand.
Population projection data tools are also important, offering information on patient demographics, including ages, income levels, and disease prevalences. This can help forecast healthcare needs. To function as necessary, these data tools have to integrate with EHR systems.
Predictive analytic features integrate historical data with external factors, like epidemiological data, to shape more accurate demand forecasts. An example is using data on flu admissions the previous year to predict your demands this year during the same time period. That allows you to consider both staffing and budgetary fluctuations.
Rivet Health offers Rivet Revenue Diagnostics, a tool that helps you understand revenue projections, claim adjudications, and cash collections. It offers real-time reporting with granular metrics, as well as real-time and historical data — all of which can help you make better financial decisions.
Long-range forecasting for healthcare organizations has come to the forefront in recent years. Unlike other types of forecasting, it’s focused on your long-term financial goals.
This type of forecasting seeks to align long-term goals with action plans. Generally, these plans span five to ten years and require an analysis of the organization’s strengths and weaknesses to be able to improve and avoid potential pitfalls.
Long-range forecasting holds the potential to transform your healthcare organization. It can inform tactical budgeting and even help with mid-range planning.
One of the drawbacks of long-range forecasting, however, is the unpredictability of the economy. The further into the future you forecast, the more chances of wide variability you encounter.
It’s very difficult to engage in long-range forecasting without the right technology as well. Having technology suitable for allows you to automate much of the process. This not only offers better results but also reduces the time and money spent on training staff.
Additionally, it’s always important to understand your operational and financial goals. These can help identify activities that help increase revenue.
Forecasting in healthcare and cost efficiency go hand-in-hand. By accurately predicting future costs, organizations can take proactive measures to mitigate risks while making informed decisions for the future.
Accurate data collection and analysis are some of the key components of effective cost-efficient forecasting. In order to forecast efficiently, you'll need precise, repeatable, and fine-tuned measurements.
There’s also a need to constantly monitor and adjust based on new data. And conducting a scenario analysis helps you understand the potential impact of different variables.
Healthcare revenue forecasting is an essential part of your organization’s financial puzzle. Finding ways of improving forecasting can improve solvency, liquidity, and on-time payroll.
Most healthcare organizations don't have a real-time revenue forecasting solution, and the ones that do don't have the time to devote to truly keeping the logic current. And that's assuming you have actual copies of your contracts that you thoroughly understand and monitor and keep an up-to-date historical analysis of adjudicated claims.
That’s where technology like that offered by Rivet Health can make a difference. Future trends in forecasting all point to a complete shift toward automation and predictive tools. (If you’d like to learn more about the intricate issues surrounding revenue forecasting, follow the link to download our white paper on the topic.)
Rivet’s financial and revenue cycle operations platform has helped healthcare providers across the country effectively manage the financial demands of today’s challenging healthcare landscape - from handling compliant estimates, accelerating upfront payments, delivering price transparency, managing payer performance, and everything in between.
Learn more about how Rivet can accelerate your revenue. Schedule a quick and easy demo of our revenue accelerating software.
