Where revenue-cycle management goes wrong

March 23, 2010

Increased profits, streamlined operations and a strengthened financial position are all benefits of the right type of RCM implementation.

A successful revenue-cycle management (RCM) program creates opportunities for healthcare providers to increase profits, streamline operations and strengthen the financial backbone of their practice or institution. RCM implementations also provide opportunities for things to “go wrong.” When not addressed, certain obstacles can impact the level of adoption, efficacy and financial impact. By taking into account the most-common problem areas, healthcare providers can increase their chances of a successful program.

A healthcare provider may decide to implement RCM for any number of reasons. For instance, the organization could be facing financial problems. Many times, a current billing vendor just disappears, leaving providers to scramble to keep operations running. Other times, RCM implementation may occur based on first-hand accounts from colleagues who share the value of their own revenue-management programs.

Regardless of why the decision is made to move ahead and make a change, the financial implications of improved revenue flow are nothing to take lightly. For example, in a recent revenue analysis, a mid-sized practice in Texas was losing nearly $300,000 annually based on payer mix, open claims and denial reports. Even small practices like this one are vulnerable to hundreds of thousands of dollars in lost revenue, and as the size of the institution increases, so does the scale of potential lost profits.

With so much at stake, planning ahead to address what factors may impact a successful implementation becomes critical. This examination can be most helpful when broken down into the three main points through which revenue moves: payers, providers and patients.

For any provider to drive a successful RCM implementation, they need three things in place. First, negotiating good contracts with payers is critical. Every year, providers in the same ZIP code are providing exactly the same service, with one getting paid more than twice the amount — solely based on the strength of the current contract. Because these contracts will drive overall profitability, having healthy contracts in place is essential before moving forward with an implementation.

Make reports available

Second are solid and consistent business processes. Changes to the revenue cycle are top-down initiatives, and executive sponsorship is a key. The entire team should work cohesively and be held accountable to the new standards and processes that have been put in place. Consistency in forms and templates is also critical. Before initiating a program, each form needs to be examined, and a standard template needs to be created.

Cheat sheets should be given to the front office with questions to ask the patient and the insurance company to check eligibility and benefit information. Denial guidelines for the physicians allow them to take measures when billing certain CPT and ICD codes. Finally, the reports should be available for the physicians and office manager, which gives them a quick snapshot of the billing and accounts-receivable status.

Third is the technology in place to collect and manage revenues. The system should provide excellent reporting capability, a robust rules engine configurable for each payer, ease of use and fast data-entry capability. At a minimum, the system should be able to answer:

  • if all patient encounters are being billed in a timely manner (or maybe not at all);
  • if all co-pays are actually being collected;
  • if treatments were appropriately preauthorized;
  • if excessive write-offs that make accounts receivable look good are at the expense of income;
  • if the organization is getting critical information about payer performance;
  • if denial rates are too high;
  • if there is a higher percentage of patient responsibility, costing time and money in collection; and
  • if a payer is paying more or less than other payers for the procedures performed.

The payer side of the revenue cycle has several red flags, areas that could prove problematic for implementation. Two questions to answer are:

  • • Is the payer offering payments in line with industry standards?
  • • Is the payer holding money for an extended period?

The RCM technology put in place will no doubt allow electronic claims submissions. To significantly reduce denials, however, which are one of the most common sources of revenue leaks, those claims need to be properly coded; authorization should be determined and eligibility verified. By creating these rules beforehand in the system, denials should go down.

Another common mistake happens after the payer returns the bill. Healthcare providers often take far too many write-offs. With a revenue system in place, the uncovered portion of the claim returns from the payer. Follow through on collecting the remaining balance is important, as is taking advantage of reminders from the system to remain diligent.

Impacts on revenue stream

Patient interactions can create missed opportunities for increased revenue. One straightforward obstacle to successful RCM is that healthcare providers can be too lax in collecting co-pays. If the underlying technology handles the co-pay and patient portion properly, it again circles back to the business processes. Co-pays for a routine office visit can vary, and those will add up quickly and impact the revenue stream. In addition, the front office should collect the patient's previous balance, which has been proven as the best way to increase patient collections.

Another missed opportunity is integrating the RCM system with the EHR technologies in place. The EHR can offer reminders specific to each patient on matters of individual care. If the insurance requires an eye exam every year for diabetes patients, for example, the provider can proactively conduct the exam and efficiently process the billing. The integration can increase revenue, and also allow the provider to offer a greater level of preventive care.

The system should provide excellent reporting capability, a robust rules engine configurable for each payer, and ease of use and fast data-entry capability.

Before starting an RCM program, establish a baseline of metrics in order to measure future success. Some factors that are strong performance indicators include: total income, days in accounts receivable, denial rate, revenue per employee and total value of write-offs.

By comparing these same numbers 60 days, six months or even a year after implementation, a financial picture will begin to appear of the effectiveness of the system. Using these same metrics, a recent case study showed that with the implementation of a full revenue-cycle management program, a subspecialty physician practice increased practice income by more than 28 percent. In six months, the program was able to: add an additional $38,000 to $42,000 collections; reduce old accounts receivables from $385,000 outstanding to $68,000; and decrease the denial rate from 21 percent to 3 percent.

This is the kind of measurable success that should be expected from implementing revenue-cycle management. The key is building a robust program that avoids the most common problem areas at the provider, payer and patient touch points.

Chittaranjan Mallipeddi is CEO of MedPlexus, Sunnyvale, Calif.

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