The Role of Healthcare Revenue Cycle Management

Revenue cycle management is a key financial process that significantly impacts how well an organization functions. Mistakes made within the revenue cycle are both common and costly within the healthcare industry. To survive financially, organizations rely on successful revenue cycle management to ensure they’re paid the full amount they’re owed, as quickly and as efficiently as possible.

What Is Revenue Cycle Management?

The healthcare revenue cycle management definition includes both administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue.
The healthcare revenue cycle begins as early as a patient’s preregistration and continues to the point that all the patient’s payments have been collected. From the time a patient calls to make an appointment to the remaining zero balance on their account, the revenue cycle is in action. In other words, it encompasses the complete journey of a patient’s account.

The Revenue Cycle Process

The healthcare revenue cycle process is complex, balancing many moving parts and players. From correctly capturing patients’ personal information to choosing the most appropriate medical codes, there’s ample room for errors with so many details at play.

On a broader scale, a recent JAMA article estimates that approximately 30% of healthcare spending may be considered waste. Researchers have categorized the waste in healthcare spending by:

  • Failures of care delivery
  • Failures of care coordination
  • Overtreatment
  • Administrative complexity
  • Pricing failures
  • Fraud and abuse

The estimated total annual costs of waste were $760 billion to $935 billion, with administrative complexity (such as unnecessary forms and paperwork) representing $265.6 billion. Additionally, our nation’s healthcare spending continues to rise — projected to grow at an average annual rate of 5.4% for 2019-28 and to reach $6.2 trillion by 2028.

Waste in healthcare was a leading factor in the transition away from a fee-for-service model and toward improving quality measures and outcomes. Although revenue cycle management may not directly impact every category of healthcare waste, healthcare organizations can save (their facilities and the U.S.) significant costs by ensuring their revenue cycle is as successful as possible.

Healthcare organizations often approach the revenue cycle in some variation of the following steps:

  1. Preregistration
  2. Registration
  3. Charge capture
  4. Claim submission
  5. Remittance processing
  6. Insurance follow-up
  7. Patient collections

Importance of Revenue Cycle in Healthcare

A healthcare organization’s primary focus is delivering high-quality care to patients, which can’t be accomplished if they’re not first and foremost operating in the black. This is what makes the importance of revenue cycle in healthcare paramount.

As an example, one out of every five dollars of revenue cycle management expenses are attributed to denials-related issues. While 67% of denials are recoverable, 90% of denials are preventable. Additionally, data shows that effectively preventing denials can yield upward of $5 million in additional revenue for a typical hospital.

Healthcare organizations have long understood the necessity of revenue cycle management as part of everyday operations, but unexpected changes in policies or regulations can complicate an already complex process. When successful revenue cycle management is already in place, the organization is in a stronger position to navigate unanticipated events.

In 2020 and even currently, healthcare organizations were significantly impacted by COVID-19 in many ways, some less obvious than others. One of the perhaps less widely discussed impacts has been pushing the revenue cycle into new territory. For most hospitals and health systems, the costs associated with canceling elective procedures far outweigh the revenue, if any, generated from COVID-19 patient care.

COVID-19 has caused unprecedented financial strain on most of the U.S. healthcare system, with losses estimated to be as much as $122 billion. Health insurance companies, however, have posted record-breaking profits during the pandemic.

Healthcare leaders are looking to revenue cycle experts to help maximize reimbursement under COVID-19 with an overall focus on the entire revenue cycle. What might go unnoticed to patients and consumers is the vital role healthy revenue cycle management plays in keeping a healthcare organization’s doors open.

Revenue Cycle Education

Successful revenue cycle management doesn’t happen by accident. Healthcare leaders understand that clinicians can spend more time providing quality care to patients when every associate impacting the revenue cycle is informed and well educated on best practices.

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Barbara Nelson Cullen

Senior Product Manager, Relias

Barbara has worked in healthcare education for over 30 years and has overseen Revenue Cycle and Coding education for professionals since 2008. Her deep experience creating successful online education programs for coders and other revenue cycle professionals reflects her passion for engaging, accurate, and up-to-date learner experiences.

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