What is Revenue Cycle Management?

What is Revenue Cycle Management?

The performance of a medical practice’s billing operations has a significant impact on financial performance. Determine the ultimate gatekeepers of the billing function – whether an in-house team or a third-party company – is one of your most important decisions. This blog discusses the key drivers of your revenue cycle. It provides a tool to help you determine if your practice is proficient at Revenue Cycle Management (RCM) or if you would benefit by outsourcing billing to a third party.

Your Revenue Cycle Management Drivers

Beyond just tracking a claim, your revenue cycle encompasses all the many steps from when a patient first makes an appointment to the time when there is no longer a balance on that person’s account. It includes front-end office tasks like appointment scheduling and insurance eligibility verification; tasks related to clinical care like coding and charge capture; and back-office tasks like claims submission, payment posting, statement processing, and the management of denied claims. The extent to which your practice has a handle on these steps directly impacts your ability to get paid the total amount you owe as quickly as possible.

Some of the factors that directly affect revenue in your practice include:

  • Provider productivity 
  • Patient volume
  • Fees for services
  • Insurance claims (from private and govt. payers)
  • Patient payments (deductibles, self-pay)
  • Collections

Internal revenue drivers like provider capacity, patient volume, and what you charge for your services are, for the most part, well within a medical practice’s control. The typical medical practice is less effective in managing external revenue drivers, including payer reimbursements, patient payments, and collections. Unfortunately, the odds of being optimal in these areas are stacked against you because the very nature of the way that most medical practices bill for services lends itself to lengthy payment cycles. Significantly few accounts are processing at the point of service. Instead, they are bouncing around from the payers to the practice to the patient over several months, if not longer – before finally either being collected or written off. By focusing on external drivers of revenue – that is, your payments and collections, you can optimize your revenue cycle and have a healthier cash flow.

Payments: Getting Your Share of the Pie

If you consider your payments as a pie, it would include anything that patients pay out of pocket (including deductibles and copays), as well as reimbursements from payers for covered services. Because claims reimbursement comprises the lion’s share of the pie in most practices, the speed and efficiency in which you turn claims into cash can determine whether or not your practice thrives. Effective claims management not only requires an understanding of how to negotiate payer contracts, but depends on familiarity with the complex and proprietary rules of each insurance company, knowledge of correct coding and timely filing methodologies, experience appealing rejected claims, and application of best practices for tracking and monitoring like charge capture audits and benchmarking. 

Claims paid below contracted rates or services that are never even billed due to inefficiencies in the billing process can negatively impact revenue, as can claims submitted but not accepted by payers because they did not meet specific payer requirements. Even practices with a well-oiled billing function can experience a claims rejection rate of 10 percent on the first pass, with even higher rejection rates for more complex patient visits.

With a refiling cost of up to $25 per claim (some industry sources put this figure even higher), claims adjudication can become an expensive proposition. Thus, the better optimized your claims submission machine, the better your first-pass payment rate, and the shorter your billing cycle. 

After revenue from claims reimbursements, the other portion of your patient services revenue comes from patient self-pay, including copays and deductibles. The total share that is the patient’s responsibility has been increasing in recent years (up to 23% in a recent MGMA poll)iv. The Centers for Medicare and Medicaid (CMS) estimates it will continue along that path in response to trends toward more consumer-directed healthcare products (HSAs, HRAs), decreased insurance coverage, and higher overall deductibles.v 

The 2010 Employer Benefits Survey found that the percentage of U.S. workers with deductibles higher than $1,000 is now 27 percent. Sources, frequency, and amount of patient self-pay are not only changing but are leading to increased confusion among both patients and office staff about how much is owed at the time of the visit and what will be billed and owed later.

The complexities of insurance filing, coupled with the challenges related to patient self-pay, means that you may have many patients at any given time who carry balances. Your efficiency at collecting your patient balances is the other critical driver of your practice’s revenue.

Collections: Is a Penny Charged a Penny Earned?

While we have established that most practices’ payments come from insurance, most of your collections efforts are likely to go toward corralling the balance that patients owe on their bills. There are typically two sources of money owed to your practice.

  • The balance is due after insurance companies have paid their portion, and
  • Balances owed by patients for whom you never filed insurance but who opted to pay out of pocket.

Post-insurance balances account for the fastest-growing component of medical practice bad debt, vii according to a recent analysis of the U.S. health care payment system. Collection of the maximum amount allowable under your payer contracts is essential to monitor the outstanding accounts receivable. Aging for each insurance company in your payer mix requires dedicated resources with time, diligence, and a great deal of knowledge about the claims adjudication system. And your practice’s contractual terms so that you can readily pick up on outstanding claims beyond a contracted time frame, adjust fee schedules, and analyze the root cause of denials. It also involves handling appeals, identifying underpaid claims (which may be up to 6% of your total revenue), following up with payers, and applying benchmarking techniques to ensure that you are as profitable as possible.

Best practices like insurance eligibility verification, collecting copays upfront, prior authorizations, managing referrals, and having defined financial policies in place, and communicating those to your patients are instrumental in your ability to get paid on money owed quickly.

A Qualified Team

Having a well-trained and experienced billing team is perhaps the most important indirect driver of revenue at your practice. Billers and coders who are credentialed and certified by reputable professional associations. Like the Healthcare Billing Management Association, American Health Information Management Association, or the American Academy of Professional Coders. Not only do they know how to code for the highest revenue and understand best practices. All about the billing can help you avoid an audit and are better informed about significant industry changes (e.g., HIPAA updates, changes from the ICD-9 to ICD-10 disease classification series, etc.) that can impact your revenue and operations.

Moreover, credentialed professionals can apply advanced principles that are likely to make a genuine difference in your cash flow. Benchmarking practices, analyzing remittance data to find variances from your payer contracts, and proactively uncovering or reverse-engineering payer rules.