How to optimize revenue cycle management in the healthcare industry

Effective revenue cycle management is integral to running a profitable medical practice. However, the process is notoriously complex, rife with inefficiencies and difficult to achieve. Most hospitals and health systems across the United States are experiencing significant increases in costs associated with the revenue cycle. According to research by McKinsey, 15% of every U.S. healthcare dollar spent goes toward revenue cycle inefficiencies and around US$400 billion of the country’s annual healthcare spend goes to claims processing, payments, billing, revenue cycle management and bad debt.

How to optimize revenue cycle management in the healthcare industry

What is revenue cycle management?

Revenue cycle management (RCM) is the process of managing a healthcare organization's finances, from the initial patient encounter to the final payment received. It encompasses all aspects of financial management, including patient registration, insurance verification, medical billing and coding, claims submission and payment posting.

RCM is designed to optimize the revenue cycle by reducing inefficiencies, increasing revenue and improving the financial performance of the healthcare organization. The goal of revenue cycle management is to streamline financial processes, reduce administrative burden and ensure timely and accurate reimbursement for services rendered.

Challenges in revenue cycle management

Hospitals and health systems are constantly challenged to maintain a strong revenue cycle amid fluctuating industry dynamics. Along with staying current on updates to the Affordable Care Act, Medicaid and other healthcare programs, healthcare providers need to have effective billing and tracking procedures in place if their practice is to be successful. Practice leaders are under pressure to be vigilant, looking for ways to speed up cash flow, reduce the cost-to-collect, maintain regulatory compliance and respond to new and emerging payment models.

While efficient revenue cycle management (RCM) is recognized as key to keeping a medical practice financially healthy, and therefore able to focus on its core mission of delivering high-quality, patient-focused care, there are many reasons why hospitals and medical practices may struggle to accomplish it.

Ineffective billing and collections processes

An ineffective billing and collections process can cost a healthcare provider thousands - if not millions of dollars per year. Failing to collect accurate information up front during patient scheduling and patient registration, errors in ICD-10 coding, and declining to verify insurance eligibility can all negatively impact the revenue cycle.

The requirements providers must meet to collect revenues owed from payers are undeniably burdensome. There are now some 140,000 code options for claims, meaning coding teams must have access to comprehensive documentation to accurately code claims. Insurers have also increased their scrutiny of claims, putting more emphasis on medical necessity as a prerequisite for payment. Significant resources are required to create detailed clinical documentation, train coding teams on nuanced code selection, and process and respond to claim follow-up activity.

Patient financial responsibility also has a large impact on the hospital revenue cycle. Patients may leave bills unpaid due to being uninsured or underinsured, or where there is little price transparency and the bills they receive are confusing.

With the uninsured rate falling, total outstanding liabilities from uninsured patients have decreased for many healthcare providers in recent years, according to a report by McKinsey. However, with high-deductible insurance plans becoming more common - meaning patients are paying more money out of pocket - there has been a corresponding increase in unpaid liabilities from insured patients. The rise in these types of plans, together with a lack of growth in U.S. average incomes, has left patients with less disposable income to pay their growing healthcare bills.

As a result, effectively estimating, communicating and collecting from patients who are underinsured or likely to have large out-of-pocket liabilities should be a top priority for providers. Hospitals need to be able to collect the right information the first time at the point of service, while patients are still onsite - as once they leave, it can be nearly impossible to track them down.

Health information technology challenges

The use of technology enables transparency into areas such as physician productivity, staff productivity, denial trends and other revenue cycle metrics which assist in data-driven decision making for improved financial outcomes. Technologies that keep track of claims through their entire lifecycle to ensure payments are collected and denied claims are addressed, and tools like card scanners that cut down data entry errors, are extremely useful in optimizing RCM.

However, many hospitals and clinics lack the capital or infrastructure to invest in such technologies, and remain heavily dependent on manual processing of claims and follow-up work. McKinsey’s report shows that, as the overall administrative burden for medical practices increases, financial clearance activity - such as authorization requirements - is also rising. Between 2013 and 2015, authorization request volumes grew from 24 million to 32 million - a 15% annual rise. In 2016, physicians and staff spent an average of 16.4 hours per week on authorization activities and processed 37 authorizations each week. Furthermore, a large proportion of physicians and staff had to wait at least one business day to get a response to their authorization requests.

The continued use of manual processes for these types of transactions is not only extremely time consuming, it is also a leading contributor to the growth in rejections, according to the report.

Lack of staff education

Inefficiencies in RCM may also result when staff are not trained on how their role fits into the overall revenue cycle. Front end reception should be well trained in how to collect, process and track patient data. Incorrect processing of this information can result in improper medical coding, billing and insurance claim filing. Such errors can cost the practice tens of thousands of dollars a year.

Poor communication between the physician and financial staff

If the lead physician in a medical practice is not engaged in the revenue cycle process, they can become disconnected from the financial state of the practice. Small problems can escalate into large ones and substantial revenue can be lost due to flawed business processes related to rejected claims, unaccounted payments and slow turnaround.

Optimizing revenue cycle management

Effective RCM clears the way for healthcare practices to deliver on their core mission - to provide high-quality, patient-centered care that improves the health of those served by the provider. Measures such as implementing technology solutions, overhauling workflows, and hiring additional staff can be successful in optimizing RCM. However, these efforts require significant up-front investment and resources, making them unrealistic for organizations that do not have the capital or staff.

An increasingly popular solution to overcoming the challenges of RCM is to outsource it to a third party. Research from The Market Reports suggests that the value of the global healthcare revenue cycle management outsourcing market will significantly increase in the coming years, rising from just $11.7 billion in 2017 to $23 billion by the end of 2023.

How outsourcing can help

The Market Reports research found that practices and hospitals that have outsourced their revenue cycle management function to third-party experts have experienced significant improvement in their collection rates, denial resolution efficiency, patient satisfaction rates and revenue.

Let’s take a closer look at some of the benefits of outsourcing RCM.

Improved healthcare offering

Having to constantly monitor the revenue cycle can distract physicians and other healthcare staff from their core functions of medical diagnosis and patient care. Outsourcing tasks such as billing, reimbursements, registrations and patient check-in/check-out enables your existing staff to focus on the delivery of high-quality patient care. It can also free up HR resources to hire additional medical assistants, nurses, physicians and other staff to help with running clinics and generating revenue, rather than recruiting coders and medical billers. This results in a higher quality healthcare service and greater patient satisfaction.

Timely, optimized reimbursements

Professional staff who are focused only on the revenue cycle will be able to more accurately and efficiently collect and verify patient enrolment and insurance details and provide the correct medical codes, resulting in more timely reimbursements and a better reimbursement rate.

Uninterrupted cash flows

With the latest software at hand, once the relevant documents have been received an outsourcing provider will be able to immediately take care of medical billing, insurance verification and accounts receivable collection, resulting in improved cash flow. Furthermore, a dedicated outsourced team will always be available to process claims - unlike medical practice staff, who may be away on vacations or sick leave - ensuring a steady revenue cycle and enhancing cash flow.

Fewer billing errors

A professional medical billing outsourcing provider will have highly trained staff and access to the latest technologies to reduce the incidence of coding and other common billing errors.

Maintaining regulatory compliance

An outsourcing provider will be well versed in all compliance issues and regulatory changes and their administrative workflows will guarantee compliance, relieving your healthcare practice of having to be concerned with these issues.

Increased revenue

Offering a high standard of patient care along with streamlined, compliant billing processes that optimize reimbursement rates will help your medical practice grow and in turn, increase revenue.

Cost efficiency

Having an in-house RCM team requires investment in technology, training and resources. Outsourcing to a professional provider that can provide expert staff with access to the necessary software and technology can result in significant savings. And if you outsource RCM functions to an offshore location, you can access highly trained experts for a fraction of what it would cost to hire staff locally.

Most hospitals and healthcare practices recognize that they need to prioritize revenue cycle management in order to keep delivering on their mission of providing high-quality patient care. While it is a complex process, outsourcing is one way to overcome the challenges of RCM and free up healthcare staff to focus on what they do best.

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