Improving Revenue Cycle Management Could Significantly Increase Cash Flow

As a possible repeal of the Affordable Care Act (ACA) looms closer, revenue cycle management is more important than ever in 2017.

With uncertainty over what will replace the ACA, patients face the possibility of losing health care coverage and paying steep medical bills out-of-pocket. For health care providers, this could result in millions of dollars of lost profit due to unpaid accounts receivable (A/R).

Additionally, physician practices, medical groups, hospitals, and health systems stand to lose cash flow due to the new physician payment model released in October 2016. This standard was outlined in the final rule for the Medicare Access and Children’s Health Insurance Program Reauthorization Act of 2015, known as MACRA. Many hospitals and health systems across the nation are already suffering from tight funds because of rising operational costs, increasing oversight, and mounting competition.

The revenue cycle is a critical process that must be managed properly and tracked carefully to be successful and cash heavy, regardless of whether your organization is a stand-alone hospital or a health care system with over 100 facilities. Revenue cycle includes “all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue,” according to the Healthcare Financial Management Association.

Any errors that arise in the cycle can dramatically impact the cash flow of health care entities. In addition to collecting funds, data captured through the revenue cycle is also used for reporting to financial institutions and federal and state oversight organizations.

Five Steps to Improve Revenue Cycle Management

Every organization’s revenue cycle is unique, and its strength must be assessed on a case-by-case basis. To do so, organizations will want to consider the balance between employee function, payer relationships, technology, reimbursement cycle, and compliance programs.

There are five steps that health care organizations can take to assess these factors and help improve revenue cycle management and increase cash flow:

  • Benchmark billing system performance
  • Shorten billing cycle to improve collection rates
  • Define staff duties and accountability
  • Shift focus to the net collection rate
  • Work with existing technology

Benchmark Billing System Performance

Many hospitals are still working to catch up to the industry standard in terms of billing reimbursement. It’s critical to define standard timelines based on individual payers and standard A/R days to understand when accounts are past due and need to be revisited. 

Guidelines for average collection time depend on:

  • The state where the facility is located
  • Size of the organization
  • The mix of Medicaid and Medicare reimbursement
  • Payer

Benchmarking data can provide the industry standard and demonstrate how an organization’s average timeline compares with other hospitals and health systems within its niche and geography. It’s important to identify inefficiencies in the billing process to determine what internal systems need to be implemented to increase performance. With escalating scrutiny from federal and state oversight boards, streamlining these processes to prevent fraud is imperative.

Shorten Billing Cycle to Improve Collection Rates

Hospitals should discuss insurance coverage and potential liability with patients prior to providing services. Increased communication gets claims in patients’ hands quickly and necessitates regular follows up.

By informing patients of their liability—either in advance or as soon as possible following receipt of services—a health care entity minimizes the potential for sticker shock when patients receive a compounded bill they’re unable to pay. This is more common now with insurance companies placing more of the burden on patients to pay out-of-pocket for a portion of medical expenses. Collectability is a slippery slope; the more time passes, the less likely payment will be received. An inefficient billing process can result in millions of dollars in lost profit.

A system of checks and balances in the billing process could ultimately reduce the cost of collection by:

  • Reducing denials
  • Ensuring claims are paid in full in one payment rather than in multiple installments
  • Decreasing the number of A/R accounts that are written off

Define Staff Duties and Accountability

Clearly defining staff responsibilities and holding them accountable can be an instrumental step in resolving billing incongruity and poor follow-up. However, this delineation of duties can be one of the most challenging revenue cycle factors to improve because there are a number of overlapping factors. 

Management Approach

A crisis management approach, which often stems from an unclear division of staff duties, can serve as a major impediment to proper revenue cycle management. The lack of a streamlined management process results in systems that are set up improperly and poorly managed, which can lead to inadequate follow-up and lost profit. A proactive system management approach is a solution that takes a holistic view of the entire cycle rather than running from crisis to crisis.

Checks and Balances

Poor accountability and lack of oversight can lead to missed opportunities for identifying and addressing trends in denials and write-offs. A system of checks and balances in the billing department can help ensure errors are rectified and employees are held accountable. Within this system, staff roles promote a clear structure and flow between revenue cycle activities. Meanwhile, management oversight helps guarantee employees aren’t operating autonomously.

Staff Training

Inadequate staff training can lead to coding errors and fines. Requirements—like those necessitated by the CMS 60-day refund rule and 501(r) charity reporting—continue to expand and impact the revenue cycle, requiring greater focus to remain compliant. Staff members need to capture patient information and code billings accurately to ensure bills are correct and collectable. An inaccurate bill increases denials and collection time, while improper coding can lead to unintentional billing fraud and steep fines.

Vendor Relationships

The relationship between revenue cycle vendors and a health care organization’s billing department can be frustrating—especially when neither party holds the other accountable. A successful revenue cycle depends on a defined relationship between a vendor and its point of contact. This helps ensure the exchange of information is managed properly. The creation and use of monitoring tools for both parties can be helpful in maintaining clear communication.

Additional Benefits

Beyond the streamlining of processes and increased cash flow, other positive effects stem from creating clear job functions, division of duties, and training systems. With role clarity, employee morale tends to increase as there’s less stress and conflict in the workplace caused by confusion over responsibility.

Shift Focus to the Net Collection Rate

A/R is a key performance indicator, but it doesn’t show the full picture. Shifting attention to the net collection rate gives organizations a more accurate portrayal of whether they’re collecting the full amount due.

While A/R shows the time it takes to move an account from posting to payment, the net collection rate demonstrates how successful an organization is at collecting what it’s owed. Focusing on A/R can be dangerous, as accounts may be unjustly written off to satisfy target dates. Organizations that instead focus on the net collection rate help ensure all debt collection avenues are exhausted before A/R accounts are written off, which often enables them to collect more.

Net Collection Rate

The net collection rate represents the reimbursement percentage achieved based on contractual obligations and allowances. It shows revenue lost due to:

  • Uncollectable debt
  • Noncontractual adjustments
  • Untimely filings

Organizations can improve their net collection rate by monitoring payer contracts and increasing communication frequency. Payers may be under-reimbursing or denying too many claims. A more thorough follow-up process can help monitor these relationships.

Work with Existing Technology

Many health care organizations don’t see the boost in cash flow they anticipated after making significant investments in their revenue management data systems. This is usually because of two reasons:

  • The systems weren’t set up properly.
  • The people running the systems don’t know how to accurately use them.

To overcome these obstacles, operational processes need to be revised or updated to incorporate new system functionality. Likewise, data systems can usually be modified to facilitate improved operations.

For example, work queue timelines can be adjusted based on payers so accounts aren’t placed in past due queues prior to the standard timeline in which they’re paid. Systems can also include security processes according to professional level that limit write-off clearance.

It’s critical for organizations to identify improvement opportunities with the functionality of their systems and to evaluate what best suits their environment.

Start Preparing Now

Navigating today’s health care environment is challenging. With health care reform on the horizon, now is a prime time for organizations to assess their revenue cycles to improve performance.

Hospitals and health systems that undertake a transformational approach to revenue cycle management will be able to utilize what’s already in place and improve the function and flow of each moving part. This will enable organizations to potentially prevent loss of profit and be more financially prepared, no matter what changes lie ahead.

We're Here to Help

For more information on revenue cycle management and how it might benefit your organization with increased cash flow, contact your Moss Adams professional.