Revenue Cycle Management
Jennifer Hasenyager Smith, MD, MBA
What is Revenue Cycle Management? As a physician and an MBA school graduate, I was embarrassed to admit that I had never heard of the phrase. In the event that there is anyone else out there who might be quietly wondering, here is my explanation to any non-experts of what my understanding of Revenue Cycle Management (RCM) is and why managing it better matters to all of us healthcare providers.
In short, we can’t afford not to.
The term “Revenue Cycle” is used in the U.S. healthcare system to describe the process by which healthcare providers are paid by patients as well as by third-party payers—typically the U.S. government (e.g., Medicare and Medicaid) or a private healthcare insurer (e.g., Blue Cross Blue Shield).
Generally, a provider will send a bill or claim for a patient service, such as a medical exam, test or procedure, to a third-party payer. The payer then sends a reimbursement back to the provider. If that were where things ended, this would probably be called “Revenue Transaction” instead of “Revenue Cycle.” It becomes a cycle because, many times, the payer doesn’t respond to the provider’s claim by paying the amount to which they have agreed (each payer has a service contract with each provider). This is a claim denial or partial payment. In these claim denial cases, the provider has to address the problem with the claim and eventually resubmit the claim called Claim Refiling. At that point, some refiled claims are paid and some are not… again. In some cases, the patient may have a secondary insurance policy. Beginning to see the cycle in Revenue Cycle? Once the primary insurance company has paid or not, the cycle goes on with the secondary company. This dance between provider and payers can administratively cost the practice as much as $25 per refiling.
In addition to third-party payers, patient payments are a complex portion of a practice’s Revenue Cycle (up to 25% and growing as individuals are asked to bear more healthcare costs each year). Patients may pay up-front or after their insurance has paid its part, and there is an ever-shifting array of insurance plans. Knowing which patient has what plan and owes what amount at what time is increasingly difficult to track.
Most medical practices employ one or more people to manage the revenue cycle for the practice. Practices with pro-active, knowledgeable Revenue Cycle managers get paid around 90% of what they are owed at best. Many practices are not on top of the Revenue Cycle game, leaving even more money on the table, or more accurately, in the payers’ hands.
Most revenue cycle management is still done semi-manually. This means that the patient chart, which justifies a given claim, is not integrated with the billing system, which generates the claim. And neither system is integrated with the database of payer contracts, which set out the amount and terms of claim payment. And none of those systems are likely to be integrated with the patient registration system, which links a given patient to the correct payer. All of this disconnected information must be manually transferred from one system to the next, which is time consuming and prone to data entry errors.
What if everything were linked automatically?
- When the patient makes an appointment, the insurance information is verified with the insurer before the appointment is confirmed.
- The diagnosis and billing codes from the medical chart are automatically sent to the billing system, which is linked to the database containing the updated payer contract information.
- Claims are generated and sent to the payer the moment the provider signs off on the service in the medical chart.
- All claims are monitored automatically, and incorrectly paid or denied claims are rapidly identified for review.
- Patterns of under- or non-payment by certain payers are identified and flagged by the system.
- The patient portion of bills are sent automatically, as soon as the third-party payer process is completed in the system, and patient payments are tracked and flagged for non-payment and review for collections versus write-offs, etc.
- Payments received electronically are automatically posted to the accounting system with the correct associated information.
The result of all this Revenue Cycle automation is no opportunity for manual errors when retyping patient information. There is also much more rapid processing and data collection that can provide leading, as well as lagging, revenue cycle metrics. Don’t know what leading and lagging metrics are? You’re not alone. I’ll explain them another time.