Accounting implications of digital transformation in health care

AUDIO | September 07, 2023

Authored by RSM US LLP

Health care organizations are embracing digital transformation and contending with the accounting and control issues that come with it. From telehealth to medical robotics to finance process automation, these exciting projects and crucial advances present C-suites and boards with a broad range of considerations.

“There are always a lot of moving pieces to any technology or process implementation, but working through that accounting with your audit team and understanding how it will impact your revenue cycle, your expense activity for the year—doing that early on really helps create a smooth audit each year,” says Nick Ward, RSM senior manager and the firm’s health care audit policy leader.

Ward joined Karen Pinkstaff, RSM’s health care industry audit leader, and Mike Lundberg, RSM’s industry audit policy leader, for a 10-minute discussion about digital transformation in health care and the accounting implications. Below is a transcript of the discussion, which has been edited for clarity and length.

They covered the following topics, with the corresponding time stamp noted for your convenience:

• Economic conditions and trends in the health care industry (1:10)
• Increasing complexity of care and new technologies to provide it (3:52)
• Focus areas for C-suites and boards, including data security (6:40)
• Preparation for digital transformation initiatives (8:19)

Mike Lundberg: Karen, what’s new in health care?

Karen Pinkstaff: Health care organizations, from what we’re seeing, are still recovering and, to some extent, evolving in this post-pandemic world. The CARES Act provided a lot of support to our health systems throughout the pandemic, but inflation and the cost of providing services are still very high, so improving margins is a real day-to-day challenge. With the pay structure in health care, it takes a long time for pay rates, for example, to move up. So a lot of health care organizations are starting to turn to technology innovations to improve margin.

Even before ChatGPT became a hot trend this year, health care organizations were looking at their supply chain. They were looking at denials management, revenue cycle analytical tools, along with their enterprise technologies to identify ways to better align their people, their processes, and their technology.

We are seeing this come through in our clients, in fact, as they explore and implement things such as Microsoft and Epic tools, of course. But also virtual nursing, continual use of telehealth, revenue cycle management software, denials management tools are still really hot topics for these guys. Finance process automation, new EMR systems, and much, much more.

Nick Ward: And with all these changes that are happening in the organizations, we’re seeing a lot of conversations from an audit standpoint about how do they actually account for all these tools and processes that they’re implementing.

And organizations need to be in tune and checking how these new pieces of technology should be accounted for, especially when we are in cloud computing arrangements. It’s different than just your old-school software installations that you’d have by bringing in computers or creating your own servers. It’s something that needs to be evaluated at the beginning of the process instead of just being at their year-end close process.

The same holds true for processes and changes that they have in telehealth services as an organization. There may be new technology, fixed assets, billing, and coding changes—all that needs to be considered in how an organization and we as auditors ultimately test and analyze all that information during the audit process.

There’s always a lot of moving pieces to any technology or process implementation, but working through that accounting with your audit team and understanding how it will impact your revenue cycle, your expense activity for the year—doing that early on helps create a smooth audit each year.

ML: So, given the current economic conditions, what are the threats and opportunities that we’re seeing for health care organizations right now?

KP: Great question. Because in addition to these margin considerations that we’re talking about, there is this constant threat in the industry around the demand to deliver quality patient outcomes. The health care industry is constantly evolving in how they provide the best care to every patient.

This is part of natural changes, but the threat is created by the increasing rate at which patients require more complex care, which is exceeding the rate of providers joining the workforce to be able to provide that complex care to patients. When health care organizations are more and more being paid based on the outcome of the services provided, it’s critical that they ensure they can deliver quality in those repeatable outcomes.

NW: Yeah, just thinking of mechanical heart valves that are now being used today, or robotics in operating rooms that have really evolved over the last 10, 20 years. Something like that started as just assisting with brain biopsies, but now it’s rapidly changing for neurosurgery, cardiothoracic surgery, and more when you’re talking about those da Vinci systems.

While these robots were developed to solve a very specific problem, for some of the most complex and dangerous procedures that automation and technology is coming in at the patient level. But now we’re seeing that technology come in even as apps for patients. The automation technology for process flows within finance and even AI-assisted medical records are starting to become the norm.

KP: Great point. Even beyond the technology, we’re also seeing that providers in the market are offering and evaluating more ancillary, preventative types of services. There are companies in the market that are evaluating and screening patients’ DNA sequencing, for example, in order to identify health-related markers.

Health care organizations like these are focusing on providing patients with real-time information and providing offerings that help them make their own health care decisions, or to provide additional insights to discuss with their primary care providers to empower the patients to take ownership of their health.

NW: Consumerism in health care, just like this DNA sequencing, is certainly expanding. I’ve noticed mobile IV therapies and stretch labs among certain other health care matters up here in Minnesota where I am. I’m interested to see where we are in the next 10 to 20 years.

ML: That’s really interesting. There’s just so much going on right now. What should the C-suite and the board be focused on?

KP: In the current environment, the C-suite and the board of every health care organization would need to make sure that they are, number one, identifying the key levers that can drive the biggest impact to your financial operations.

How can you maximize your revenue and reimbursements while reducing your expenses? There may be some quick wins in your supply chain or denials management processes. There could also be some strategic acquisitions to maybe expand in markets and provide greater access to your patient population.

So understanding the five-, 10-, even the 20-year plan and making a strategic plan is critical to the success of the organization. And secondly, understanding your providers, understanding your doctors, your nurses, your specialists and understanding those staffing pipelines.

NW: And I’d add number three: Feel confident about your data security.

Given the sensitivity of patient information that we are entrusted with or that you are entrusted with as a health care provider, you can’t rush the adoption of any of these tools, whether it be technology or processes.

Health care is going to continue to increase its use of data to provide higher quality outcomes and services for its patients. And ensuring that you are doing that in the right process, in the right way, to maintain that data security is key.

ML: Those are great ideas, guys. It’s just amazing how quickly the world and the environment is changing. Moving on, from a technical standpoint, what are the considerations for enacting proper preparation?

NW: The big issue we are seeing as organizations implement new processes, install new technologies, acquire or merge with another organization, is that much of the financial or accounting considerations are determined after the project is already halfway done or maybe even fully complete.

Organizations that have a standard project workflow that involves accounting or finance teams from day one are really able to ensure that there are no surprises at the end of the year internally or also with your auditors. The most successful audits that I have been a part of are the ones where my clients have implemented their new technology midyear and we’ve been able to assist and review their processes from an accounting standpoint at an interim period.

ML: All right, great stuff, Nick and Karen. Thank you so much for sharing your insights.