What Is Revenue Cycle Management (RCM)?
Revenue cycle management (RCM) is the process healthcare organizations use to manage financial operations related to billing and collecting revenue for medical services. RCM begins when a patient schedules an appointment and ends when the account balance is resolved through reconciliation of insurance payments, contractual adjustments, write offs, or patient payments.
RCM helps strengthen revenue by minimizing claim denials, reducing days in accounts receivable, and increasing collections. As a result, healthcare providers receive correct and timely payments and optimize financial performance. Effective RCM also can help healthcare organizations comply with regulatory requirements and improve patient satisfaction.
Steps for an effective revenue cycle include:
Appointment scheduling: Determining the need for services, along with collecting patient name, contact information, and insurance coverage details
Registration: Completing patient intake, including insurance verification, front-desk collections, and collecting patient demographics
Charge capture for services: Assigning medical procedure and diagnosis codes for the encounter
Billing: Creating clean claims to receive reimbursement from insurers and provide bills for patients
Denial management: Regularly reviewing denial reason codes to determine why a claim was denied and making corrections to prevent denials in the future
Accounts receivable (A/R) follow-up: Identifying and following up on unpaid charges
There are a variety of tasks within each step and possible variations, as well. For instance, some patient services may require prior authorization, which usually applies to surgical procedures or other high-cost ancillary services where insurance payers require the provider to obtain authorization prior to performing the service.
What Is the Overall Goal of RCM?
The overall goal of RCM is to increase and ensure accurate revenue throughout the various processes of the cycle by identifying points of deficiency and then improving or eliminating those deficiencies. There are additional benefits to efficiently managing your revenue cycle, such as providing a structured, active approach to finding and addressing potential compliance issues like fraud, waste, and abuse. For example, a practice may discover that a provider is ordering unnecessary tests and procedures, and the practice can then address that issue to ensure the organization is complying with applicable rules.
Why Healthcare RCM Is Important
Whether performed in-house or by an RCM services provider, RCM is important because of its essential role in the day-to-day operations of healthcare organizations. Without effective RCM, practices and facilities are likely to lose reimbursement, which could put the entire organization at risk. That reality translates to RCM processes having a significant impact on the overall functioning of the healthcare industry.
Benefits of Healthcare RCM
RCM closes the gap between the patient accounts side and clinical side of healthcare. For instance, RCM links demographic data (patient’s name, insurance provider, and other personal information) with the treatment a patient receives.
A well-designed and proper RCM system streamlines the billing and collection cycles by accurately preregistering, making appointments for, and scheduling patients; collecting existing balances; processing payments; and questioning insurers when they deny claims.
The healthcare team (including providers, managers, and specialists in billing, coding, and preauthorization) communicates using accounting systems and electronic health records (EHRs). Using EHRs becomes easier with the help of RCM software or systems. This streamlining improves the turnaround time associated with offering a service and receiving payment for it, along with reducing administrative overhead costs.
RCM systems allow healthcare staff to enter all the information required for claims processing, which helps prevent the need to revise or resubmit claims. Reducing denied claims saves providers time and money.
RCM improves the patient care process, creating a better experience for patients. For example, through insurance eligibility verification, patients will know of any balance or financial expectations from the beginning.
Accurate billing and coding, as well as understanding the reason for denials, help improve the patient experience through appropriate charging, which leads to fewer denials. This accuracy leads to less stress for the patient and healthcare provider.
RCM systems enable patients to pay their bills online, and healthcare providers can use RCM systems for preserving and managing patients’ billing records.
RCM depends on documentation to support the medical necessity behind the charge. Patient safety is improved because the correct documentation leads to better overall quality of care for the patient. Many clinicians review the patient’s chart to ensure clear documentation, which provides a better overall picture of the patient problem.
RCM systems simplify reporting and analyzing data where necessary to verify that the revenue cycle is working and performing well within the organization.
Challenges Associated With Healthcare RCM
Some factors that contribute to the complexity of the revenue cycle in healthcare relate to coding, billing, compliance, credentialing, data analytics, and incorporating paper charts with EHRs.
RCM Challenge 1: Coding Precisely and Billing Accurately
For smooth cash flow, healthcare organizations must have precise medical coding and accurate billing. These are separate processes, but both are crucial to receiving payment for services performed. Medical coding involves extracting billable information from the medical record and clinical documentation, while medical billing uses those codes to create insurance claims and bills for patients.
The coding and billing processes must be effective and carried out with extreme caution, owing to the complexity involved. Errors and improper knowledge result in leaking revenue. Denials resulting from medical coding errors equate to lost time and lost revenue because additional office staff time is needed to correct and resubmit follow-up claims. Also consider the added costs for items such as postage for mailed claims, paper, and envelopes.
The coding and billing process in healthcare can differ from organization to organization. Some practices use one staff member as the biller and the coder. Other practices have billing separate from coding. Outsourcing medical coding and billing services to a trusted company is another option for ensuring that providers have well-qualified specialists working to obtain accurate payment. In any case, the coder researches and determines which medical codes are appropriate to assign after reviewing the documentation. The relationship between medical records documentation and billing is an essential one. To support reporting the most accurate ICD-10-CM, CPT®, and HCPCS Level II codes, documentation should be clear, precise, and thorough. When reviewing documentation, coders should ask themselves, “Does the documentation support the coding?” Once the codes are assigned, the biller will then perform charge entry and bill the charges to the payer. Charge entry includes ensuring that a patient’s correct insurance and demographic information is entered into the billing system. The coder also verifies that the assigned procedure and diagnosis codes correspond to the correct physician on the date of service.
Both medical coding and billing require specialized knowledge of coding guidelines, payer preferences, and more, and the rules change frequently. Organizations should administer assessment tests for medical coders and billers prior to their hire, and may conduct drug screenings to ensure that staff members do not perform duties under the influence. Organizations also should provide their coders and billers with training sessions to keep knowledge and processes up to date.
RCM Challenge 2: Meeting Compliance Standards
Healthcare compliance is the name for tasks performed to prevent fraud, waste, or abuse within a healthcare entity. For RCM, compliance comes into play in multiple areas. Patients’ personal information needs to be well protected. Safeguarding the privacy and confidentiality of their health information must be a top priority. Under the Health Insurance Portability and Accountability Act (HIPAA) of 1996, organizations are legally responsible for protecting the privacy and security of certain health information. Patient medical records should not be open for disclosure under most circumstances due to potential breaches. This provides patients the security that their medical records and personal information are safeguarded and protected from misuse.
Healthcare RCM also must meet additional compliance requirements, such as having a high standard for coding accuracy, conducting relevant facility audits for compliance, following rules for filing medical claims electronically, and maintaining workstations that comply with HIPAA requirements. Failing could cost the practice significant fines, potentially exceeding $1 million, if government auditors discover deficiencies in an organization’s compliance practices.
RCM Challenge 3: Credentialing Providers
Provider credentialing is the process where the provider connects with the payer for approval following a set of standard steps. Examples of steps include confirming the provider’s information (education, board certification, etc.) is correct and submitting required documentation. Credentialing is a vital step in any revenue cycle. If the provider is not credentialed, the payers will delay or reject reimbursement. Medical practices should have a credentialing specialist to handle these tasks.
RCM Challenge 4: Applying Data Analytics
Data analytics is the process of reviewing reports (for denials, appointments, charges billed, reimbursement collections, etc.) and other documentation and looking for trends within the revenue cycle. This includes noting trends such as errors, missed billing opportunities, and determining whether revenue is up or down. Data analytics can tell a story about processes, such as if a process is being followed or is broken. This analysis makes a huge impact within the healthcare industry. Identifying and correcting direct behaviors that are negatively impacting revenue can improve both accuracy and efficiency.
RCM Challenge 5: Incorporating Paper Charts
Paper charts are challenging for RCM because they are separate from EHR. This separation complicates the patient care process . Because paper chart documentation is not included in the EHRs, only providers within the practice that created the charts typically view them. If other providers do not have access to this additional information, there may be diminished quality of care, as well as incomplete information for coders, auditors, and others focused on ensuring claims accurately reflect patient conditions and encounters.
How to Improve Revenue Cycle Processes in a Clinic or Physician Practice
Clinics and physician practices can improve revenue cycle processes by checking each step of the revenue cycle to determine what is working well and where there is room for improvement. Using the data analytics mentioned above offers RCM managers organization-specific facts to help support decisions about any changes. Below are some top areas to watch to improve revenue cycle processes.
First, successful RCM hinges on remembering that each step of the cycle is linked. A problem in one area can ripple out to create problems in other steps. Including a qualified RCM manager or director on the staff improves efficiency. This valuable team member is capable of communicating effectively with clinicians and other providers, has expert medical billing knowledge, and maintains an organized office. This person also must be able to answer RCM-related questions and know how to research answers effectively. In addition, the revenue cycle manager or director unites the front- and back-end operations. Front-end processes involve patient contact, such as registration, eligibility, precertification, and direct patient care. Back-end patient accounts processes involve administrative-type responsibilities, such as working on claims, denials, medical billing, and collections.
Here are some examples of how handling front-end processes properly can lead to smoother back-end processes:
Medical billing begins with scheduling the appointment and registration because if patient demographics and details, such as name, address, gender, spouse information, and whether a visit is due to a work-related injury, are incorrect, the medical claim denial has already been triggered. Insurers will not accept claims with incomplete or inaccurate patient information.
Verifying patient eligibility prior to each visit will ward off denials. This step confirms that the patient is covered by the payer and plan the patient has specified.
Handling prior authorization (also called precertification or preauthorization) carefully will help revenue management. Practices cannot afford to lose revenue due to lack of prior authorization, which refers to a health plan requirement for patients to obtain approval for certain healthcare services or medications prior to receiving care.
Involving providers when necessary may increase the likelihood that a payer will reimburse for a service. For example, an ordering provider may need to join a peer-to-peer review with a provider who works for the payer. These reviews focus on why a patient needs a service or medication so the payer understands the provider’s request for prior authorization. The business team must communicate with the clinical team to coordinate this, keeping in mind that a provider’s time is valuable, but also conveying that if the peer-to-peer call is missed, the authorization is gone.
Communication and coordination between staff members who document clinical records and those who handle patient accounts can prevent problems caused by conflicting information.
Additional steps that clinics and practices can take to improve RCM include the following:
Stay abreast of relevant guidelines and changes, including medical code updates. Using invalid codes or reporting codes incorrectly leads to issues with claims and delays in payment.
Have edits in place for charges and coding. Edits will catch incorrect reporting and missing items such as modifiers, National Correct Coding Initiative (NCCI) edits, and more, to assist with smoother claims processing and payment.
Have a compliance liaison who audits charges to ensure accurate billing.
Work denials not only in a timely manner (within the timeframe required by the payer), but strategically. Assess for similar denials, and work on them as a group to bring the revenue back in as efficiently and quickly as possible.
Allow technology to help streamline processes when it’s beneficial to do so. The next section offers more examples of how technology can help.
Why Should Healthcare Facilities Use RCM Software Solutions?
Medical RCM software is essential for medical practices and facilities to streamline tasks. The software can help with many things, from scheduling appointments correctly to ensuring accurate medical billing and coding so that insurers can process claims and practices can collect payments on time. Electronic software can handle all aspects of the patient chart faster, more efficiently, and more accurately than manually performing the necessary tasks. Software decreases the need for manpower, allowing the team to focus on higher-priority tasks.
Technology helps drive healthcare RCM to the next level of effectiveness. The risk of error increases when claims are processed manually or while using outdated claims software and related technology. Implementing the most current RCM technology will help with the following:
Reducing phone calls and hold times
Standardizing eligibility and prior authorization via online payer systems; most eligibility issues can be eliminated while using technology aimed at verifying patient plans, increasing accuracy in billing “clean” claims, improving follow-up, and effectively resolving potential denials
Keeping the revenue team up-to-date on payer policies and their respective billing and reimbursement criteria
Providing training and updates regarding government regulations that may present challenges for practices and others facing a money crunch
Collecting patient payments using online patient portal systems to eliminate phone calls and the need to generate multiple statements, to assist with posting payments, and to reduce turnaround time for payments
What to Look for When Selecting an RCM System
When healthcare organizations are selecting an RCM system, one of the main elements to confirm is that the system has comprehensive and customizable applications, meaning it is well-rounded and gives each organization the ability to make the system work for it. System applications to look for include patient registration, collections, and easy charting for providers.
RCM system technology and security must be advanced and savvy, which reduces the possibility of exposed or compromised information. Newer systems can find the most recent patient address for billing past due invoices. These RCM systems also can verify a patient’s insurance eligibility. Previous systems with fewer capabilities led to office staff having to make more phone calls, resulting in less overall efficiency. Up-to-date RCM systems support another important consideration: Healthcare providers and the RCM staff need to have confidence that the RCM system in place is reliable, relatively simple to navigate, and provides transparency. Systems that stall, delay, or are cumbersome to use lose the trust of the RCM staff and providers.
A key consideration for RCM system selection is finding one that provides personalized customer service, such as on-site training and user certification. RCM system users may find in-person support superior to training videos, which run the risk of viewers losing interest and not fully digesting the instruction. Other RCM system criteria should include the ability to run reports smoothly to check data points, which may include “missing charge” reports (which identify visits that do not have a charge), copay collections, and daily appointment lists.
How to Know Whether Your RCM Is Performing Well
Data is the key to assessing your RCM, whether you keep tasks in-house or outsource them to an RCM service. Analyzing data that shows financial and performance benchmarks proves where the RCM is achieving its goals and where to make improvements.
Important healthcare RCM financial and performance benchmarks include:
Point-of-service (POS) cash collections: This data reports copayment collection. Healthcare practices and facilities are in contract with payers, and copayment revenue is part of that contract.
Days in accounts receivable: This component tracks revenue collection processes, including the length of time it takes to collect payment for each invoice.
Days in total discharged not billed: This item reports when a patient has been discharged from a hospital and the dates of service not yet billed.
Clean claim rate: This benchmark measures “clean billing.” It tracks claim denials and related errors, and it assists with forming an action plan to fix problems when necessary.
Bad debt: This data reflects how much “bad” debt (debt that is unlikely to be paid back) is owed to the practice or facility. It also indicates whether the collections department is performing effectively to obtain outstanding patient balances.
About the author
Thought Leadership Team
Editorial Staff / AAPC
The AAPC Thought Leadership Team is a distinguished consortium of experts, visionaries, and thought leaders committed to shaping the landscape in the industry. With a deep understanding of the profound impact our industry has on society, this council serves as a guiding force, driving the development and implementation of ethical standards in coding practices.