Revenue Cycle Management Fundamentals

The efficiency of a medical practice's billing processes has a significant impact on its financial success. One of the most important decisions you'll have to make is whether internal workers or a third-party company will serve as the billing function's ultimate gatekeepers. This article discusses the main factors that affect your revenue cycle and offers a tool to help you determine if your practice is successful at revenue cycle management (RCM) or whether it would be advantageous to outsource billing to a third party.

Your Sources Of Income

Your revenue cycle extends beyond just monitoring a claim and includes all of the procedures that take place from the time that a patient schedules their first visit until their account is completely settled. It encompasses front-end office chores like arranging appointments and confirming insurance eligibility, clinical care responsibilities like coding and charge capture, and back-end office tasks like submitting claims, posting payments, processing statements, and managing claim denials. How well your practice handles these phases directly affects your capacity to be paid the full amount to which you are due as soon as is practical.

For the most part, a medical practice has control over internal income elements including provider capacity, patient volume, and the pricing you charge for your services. The normal medical practice does less well when it comes to managing external income producers including payer reimbursements, patient payments, and collections. Sadly, the deck is set against you in these situations because of how most medical practices charge for services, which encourages lengthy payment cycles. Only a tiny portion of bills are dealt with at the point of service; in the absence of this, they are passed back and forth between payers, practices, and patients for months or even years before being paid or written off. By focusing on external revenue producers like payments and collections, you may increase your revenue cycle and have a healthy cash flow.

Payments And Collections

Payments: Getting Your Piece Of The Pie

If you were to imagine your payments as a pie, they would be made up of both out-of-pocket costs (including deductibles and copays) and payments from payers for covered services. Because the majority of a practice's income comes from claims reimbursement, how quickly and effectively you settle claims might determine how successful your company is. In addition to knowing how to negotiate payer contracts, effective claims management requires familiarity with each insurance company's intricate and proprietary rules, expertise with proper coding and timely filing procedures, knowledge of appealing rejected claims, and the use of best tracking and monitoring practices like charge capture audits and benchmarking.

Income may be negatively impacted by claims that are paid at less than agreed-upon rates, services that are never billed because of inefficiencies in the billing process, claims that are filed but rejected by payers because they do not meet certain payer requirements, and more. A 10% claim rejection rate on the first try is not uncommon in practices with efficient billing functions, and rejection rates for more complex patient encounters may be substantially higherii. The cost of adjudicating claims may be significant; each claim's refiling expenses might reach $25iii (other industry sources estimate this amount much higher). As a consequence, your first-pass payment rate will be greater and your billing cycle will be quicker the better your claims filing procedure is improved.

The remaining portion of your patient services revenue is made up of patient self-pay, which includes co-pays and deductibles. The Centers for Medicare and Medicaid (CMS) estimate that the total share that is the patient's responsibility has been rising in recent years (up to 23 percent in a recent MGMA poll), in response to trends toward more consumer-directed healthcare products (HSAs, HRAs), decreased insurance coverage, and higher overall deductiblesiv. 

The percentage of American employees having deductibles above $1,000 has increased to 27%vi, according to the 2010 Employer Benefits Survey. As the sources, frequency, and amount of patient self-pay alter, patients and office staff are getting more and more confused about what is due at the time of the visit vs what will be billed and owing later.

You could always have a sizable proportion of patients who owe money because of the complexities of insurance filing and the constraints of patient self-pay. Another crucial aspect of your practice's revenue is how well you collect patient balances.

A Penny Charged Equals A Penny Collected, Right?

Even though we've established that insurance accounts for the bulk of your practice's income, the majority of your collections efforts will probably be directed towards recovering the money that patients owe on their bills. Two types of money are often owed to your practice.

Post-insurance balances are the part of medical practice bad debt that are expanding the quickest, according to a new analysis of the US health care payment systemvii. If you wish to collect the maximum amount permitted by your payer contracts, it's essential to maintain track of the outstanding accounts receivable age for each insurance company in your payer mix. In order to more rapidly discover claims that are still pending beyond the usual or agreed-upon time limit, change fee schedules, and look into the underlying reasons for rejections, you must allocate resources with time, effort, and a complete grasp of the claims adjudication system. To be as profitable as possible, you must also deal with appeals, track down unpaid claims (which may represent up to 6% of total revenueviii), follow up with payers, and use benchmarking tools.

The bulk of accounts receivable for most practices are balances owed by patients for whom you never claimed insurance but elected to pay out of pocket. A 2007 evaluation of the healthcare payment system found that 36% of patients had an amount that is at least 60 days past due, while MGMA figures show that 60% of the money owed to patients is never collected. Figure 3 shows that patient self-pay represents 23% of your revenue; if you only collect 60% of these payments, your practice may be losing as much as 14% of its entire revenue. Given the aforementioned trend of rising patient self-pay, it is doubtful that this issue will be resolved very soon. A 2009 report by research firm Celent found that, according to CMS predictions, a health-care debt burden of $317,000 per physician practice by 2014 may be anticipated.

Practices should gather at both the front and rear ends of the revenue cycle to offset these adverse effects. However, assuming your clinic is typical, 30% of your clients don't make any payments at all (not even a co-pay) when they get carexi. It's simple to understand how you can have a bad first impression when the patient enters through the door when you consider that over half of providers (49 percent) lack the ability to calculate patients' financial obligations beyond co-payment until after claims are filed and processedxii. Your billing team is under increased pressure to properly bill and collect from patients in order to maintain your accounts receivable within a typical 42-day windowxiii. Verifying insurance coverage, collecting upfront co-pays, obtaining prior authorizations, managing referrals, having clear financial policies in place, and effectively communicating those policies to your patients are all crucial for quickly receiving payment that is owed.

Various Tools That May Impact Your Revenue Cycle

The unfortunate fact is that creating a healthy bottom line is more or less impossible under the current health-care payment structure. The complexities of medical insurance, as well as the way services are billed and paid for, may make it difficult for you to get payment quickly. The good news is that you may take a number of steps to increase the amount of money you get from clients and suppliers in full and, as a result, reduce the amount of money you owe. The following three areas must be strong for the medical billing function and associated robust revenue cycle.

Workflow

Your practice's revenue cycle process includes all of the procedures related to billing. Front-office tasks like verifying insurance or collecting a co-pay, recording the visit with the appropriate diagnostic and procedure codes, and then managing the claims process are all linked together like a chain. Your revenue cycle might be completely thrown off by even a little kink, which would be disastrous.

Having a unified front and back office billing function increases revenue because it improves efficiency, communication, and correct management of coding and other billing procedures.