The healthcare industry of the United States is reeling under tremendous financial and operational pressures. Inability to consistently access trained staff, rising resource costs, increasingly strict regulations, growing patient responsibility and rising rates of denials are negatively impacting provider profitability. Inflation in healthcare costs (measured through dedicated consumer price indices) stands at 3.1% annually, outpacing general inflation. Utilization levels are steadily increasing due to the aging population and lifestyle changes. Due to the nature of the sector, volume growth is not necessarily a positive sign, but an indication of the inefficiencies and high costs that have crept into the value chain. And there is no evidence of significantly better healthcare outcomes that may justify this.
Let us start with some of the underlying reasons for this imbalance.
Structural complexity
The industry has three key stakeholders – providers, patients and payers. Policy – laws and regulations governing the sector – is an overarching factor that impacts all three and can result in heavy penalties in case of non-compliance. Providers use their expertise to deliver healthcare to patients who are the consumers of the service. Payers – usually institutions such as insurance companies or health plans like Medicare or Medicaid – have a certain level of influence in the treatment decisions because they hold the responsibility for funding based on their contract with the patient. If a doctor carries out any out-of-scope treatment without checking the patient’s insurance details and subsequently makes a reimbursement claim, or commits an error while claiming for a covered treatment, the insurance company is legally able to deny the same, thereby causing a loss for the doctor and his/her practice/hospital.
Ballooning cost of treatment
Annual spending on healthcare currently stands at over $13,000 per capita – up from 5% of the national GDP in 1962 to 17% of the GDP around six decades later. Patients are dependent on payers to fund the majority of their healthcare interventions. While a doctor decides the best course of treatment for his/her patient, the insurance company controls whether certain approaches and procedures are covered in their policy. The payer sets limits on spending to ensure financial viability as well as to pave the way for effective utilization of healthcare resources. Patients may refuse any procedure or medication that is not covered by insurance because they would have to pay out-of-pocket, and may not find it affordable in the current market. It is reasonable to assume, healthcare providers are unlikely to insist on delivering such services because it will affect their revenue and financial stability.
Changing administrative landscape
Periodic updates to coding guidelines as well as continuously changing legal regulations (national, state and regional) significantly impact the healthcare provider revenue cycle. Ensuring compliance may involve retraining of staff, updation of platforms and even significant modifications to the billing practices and documentation standards in place at the provider organization. Administrative burdens like these end up affecting the financial stability of healthcare organizations, despite the best intentions.
Reimbursement frictions
While insured patients consume services directly from the provider, they are directly responsible for only a very small portion of the bills to be paid. It is up to the provider to verify the scope of coverage available to the patient, report the details of treatment provided and prove the necessity of such treatment to facilitate reimbursements against claims made to the payer. This is a highly specialized process that demands comprehensive documentation, compliance with medical coding guidelines and several follow-ups, typically requiring professional support to implement effectively. A significant amount of administrative expenses are incurred by the provider in comparison to a culture of over-the-counter payments.
Payer denials
Despite significant investment in administrative staff and solutions to efficiently process their reimbursement claims, several providers are grappling with underpayments from payers. Medicare and Medicaid reimbursements fell short of claimed amounts by as much as $130 billion in 2022 according to the American Hospital Association. The same report alleges a shortfall of $100 billion in Medicare claims, pointing to an average of 18% underpayment on each.
Importance of a robust revenue cycle strategy
Given the complexities inherent in the revenue cycle value chain, unifying all the stakeholders and ensuring full compliance with applicable laws has evolved into a specialist function demanding significant investment, focus and expertise. The returns are obvious, because of its impact on the cash flow and financial performance of the provider’s business. But more importantly, a well-balanced and effective revenue cycle will allow providers to focus on their core business of delivering quality care to their patients. Better treatment outcomes will naturally drive better patient goodwill, strengthening the need for effective revenue cycle management.
The total market size of the revenue cycle management industry is estimated to be US$155.59 billion as of 2023, and projected to grow at a 10.18% CAGR until 2030, surpassing the US$300 billion mark.
Enhanced Medical Coding Practices
Medical Coding has a critical role in the provider revenue cycle, linking the clinical documentation at the provider end to the reimbursement protocols defined at the payer end. Establishing an effective coding practice must begin with a foundation of up-to-date codebooks, regular educational programs for coders and a culture of periodic certifications. The superstructure on this foundation must be effective operational oversight to ensure that execution is carried out in a flawless manner by prompting coders towards accurate selection of codes, frequent reviews, mechanisms to eliminate undercoding and overcoding, and a collaborative approach where Coders have access to clinical staff to clarify ambiguities before they make coding decisions. This structure is further strengthened by a strategic application of technology solutions such as electronic health records, AI coding assistance and intelligent error tracking to detect patterns and predict inaccuracies in output.
Effective Claims Management
Effective claims management goes beyond preparing claims merely based on the available clinical documentation and filing them in a timely manner, simply because there are far too many uncertain factors that need to be accounted for to avoid a denial or a rejection. Healthcare revenue cycle management (RCM) today demands a proactive approach which includes thorough analysis of historic data on payer policies, impact of new scenarios, common denial reasons and the possibility of preemptive solutions. Establishing a dedicated team to handle denied claims enables a significant level of knowledge management in the entire exercise, allowing team members to directly consider known problem areas and denial trends rather than move through the list of possible issues each time. The team may also proactively build good relationships with the payer-side POCs to quickly resolve issues and remain duly informed about upcoming changes, new regulations etc. Regular follow-up communications will also improve the likelihood of resubmitted claims getting cleared on the second run. The use of automation platforms, electronic health records and advanced data analytics can accelerate results. The organization must conduct frequent training programs covering payer-specific guidelines, based on official updates as well as any intelligence that has been picked up from other sources that may add value in the context of denial management. By focusing on these elements and bringing them into the list of strategic priorities, healthcare providers can reduce denials and improve overall financial performance.
Technology and Data Analytics
Traditional approaches to revenue cycle management have always faced a predictable set of challenges including limitations in human productivity, speed and accuracy. Technology has become an indispensable part of the healthcare Revenue Cycle Management (RCM) landscape today, elevating the expectations around these parameters while addressing long-standing concerns on cost-effectiveness. The key areas where technology has the power to make a big difference are:
- Robotic process automation (RPA) platforms can be deployed to automate tasks involving the processing of documents, extraction of data, validation of formats, information capturing and recording. These will not only enhance output compared to manual implementation, but also eliminate the risk of human error arising from negligence or fatigue.
- Electronic health records (EHR) capture and collect patient data in digital format, ensuring that it gets transmitted accurately through the value chain without the chance of human error or deliberate threats to data integrity.
- Predictive data analytics platforms process vast amounts of business data from the revenue cycle to forecast trends in patient volumes, seasonal demand, revenue variations, allowing the business to adopt intelligent planning and adjust their strategy to optimize output and profitability.
- Telehealth platforms, patient registration systems and treatment management platforms help improve the patient experience and indirectly boost provider revenue.
Strategically leveraging technology can streamline the revenue cycle, enhance process output, mitigate financial risks, and ultimately improve the overall quality and accessibility of patient care.
Conclusion: Choosing between in-house or Outsourced RCM
Now that the importance of a robust revenue cycle strategy is amply clear, it is also obvious that the choice between maintaining an in-house team of experts and outsourcing the function to a specialized Revenue Cycle solutions company is a critical element of such a strategy. Let us summarize the key considerations that will help a healthcare provider to arrive at the right decision.
Maintaining an in-house team of revenue cycle specialists allows the healthcare provider to exercise more control and have direct oversight over daily operations. Management of technology platforms and data storage infrastructure, and compliance with industry-specific data security regulations such as HIPAA are also more straightforward in such a model. However, the organization must also be willing to invest their time, money and resources into specialized technology, continuous education of their team members, office space, computers, legal support and other overheads related to deploying and maintaining large teams.
Outsourcing the revenue cycle to a specialist organization can help the provider to gain access to highly trained experts, industry-specific best practices and advanced technology platforms – at a fraction of the cost, without the effort or overheads of continuously maintaining these advantages. The outsourcing company will work on outcome-based service level agreements and can typically offer greater efficiency and scalability in response to fluctuating demand which would cripple an in-house team.
The assurance that every step of the revenue cycle is managed by dedicated experts, the ability to hold the outsourcer responsible for clearly defined SLAs and eliminating all the overhead costs associated with an in-house team, will not only help realize a better cash flow, but will also liberate the healthcare provider from the key distractions plaguing most operations. Focusing on better patient care will lead to better treatment outcomes, enhance market reputation and strengthen the financial health of the business.