What is Revenue Cycle Management in Healthcare?

R1 RCMAugust 10, 2017

Physician holding piggy bank

The healthcare industry in the U.S. is undergoing a significant transformation due to a transitioning coding system amidst changing regulations regarding value-based care and increasing pressures on healthcare providers to improve patient care while simultaneously lowering costs. In light of these transformations, regardless of whether you are a multi-location hospital network or a one-doctor private practice, revenue cycle management has become a fundamental component to master for all healthcare providers.


Revenue cycle management in healthcare (RCM) is the business process that enables organizations to be paid for providing services. For most healthcare providers, RCM is present from pre-registering a patient all the way through payment collection. Time management and efficiency play a significant role in RCM, and a health organization’s choice of EHR can be largely centered on how their RCM is implemented.


The revenue cycle in healthcare organizations is a multi-step process, beginning with providers submitting their patient documentation to their RCM vendors or in-house staff who then code the charts according to the ICD-10 CM. From there, the claims are submitted, posted and adjudicated by the payer. If a claim is denied, efforts should be taken to adjust and resubmit the claim before the appeal deadline.  Afterward, if there is a patient responsibility portion following payer adjudication, the patient billing cycle begins. Many RCM vendors also provide managed-care contracting, coding education, coding benchmarking and analytics services to further capture all earned revenue for a practice.Revenue_Cycle


At its core, the revenue cycle represents a complex business interaction with patients that entails many touchpoints, including insurance verification and both point-of-service and after-service collections. Mismanagement of these functions can lower patient and clinical satisfaction scores and damage the reputation of the organization through avoidable denials and bad debts. According to Black Book Research, 92 percent of hospital CFOs shifted their strategic focus to revenue cycle management technology and vendor selection over the last year in response to declining healthcare reimbursements.


No matter the size of a practice, hospital or health system, failure to optimally prioritize RCM and revenue collection efforts can halt growth, increase operational risk and create an uncertain financial future.


So why is healthcare revenue cycle management so complex?

While the focus of many healthcare organizations is on providing excellent care to their patient population, attention must be paid to the financial solvency of the business to ensure a hospital or medical practice will be able to provide that care for years to come. Physicians are continually faced with the challenge to provide affordable care to patients while facing annual increases in care-delivery and administrative costs. Preventing and reducing unpaid claims, improving point-of-service collections, maintaining healthy accounts receivable and reducing inefficient coding and billing processes can all significantly impact profit margins.


However, how does one prevent and reduce unpaid claims to see the greatest profit margins? This task seems especially difficult considering the nature of healthcare. Specifically, the business of healthcare is complex because the cost to provide services is shouldered by the organization before those services are paid for by either insurance payers or the patient themselves. Because of the length of the claims process, it could be months before a bill is paid in full–if it is paid at all. More than 95 percent of medical practice leaders reported inefficient billing processes, with the majority needing to implement backend efforts to reconcile bills by the end of the year.


Struggling financial conditions for hospitals and small practices alike and changes in legislation and regulatory compliance have made it more difficult for healthcare providers to manage certain functions internally. The shift in the last decade from commercial payer reimbursement to direct patient responsibility with high deductible health plans, in addition to the larger influence of government payers, reinforces the idea that healthcare organizations and practices must take a closer look at their revenue cycle management and evaluate what methods can be implemented to realize the most benefits for all parties involved.

Author Bio: Content written on behalf of R1 RCM.