By Divan (Divyang) Da’ve
10 November, 2009, – Revenue cycle management (RCM) is an integral part of any organization. When we discuss RCM in the healthcare industry, billing comes to mind. However, it is a much wider and more intricate concept than billing. Effective RCM has major impact on operating profit, cash flows and patients’ receivable balances. Unfortunately, while most organizations perceive RCM as a cost center, it is actually a profit center.
What is RCM?
RCM not only focuses on patient billing and collections, but also incorporates checking eligibility, collecting complete patient demographics, benefits verification, capturing charges, coding, claim submission, collecting and posting payments from patients, denial management, reporting and data analysis (see Table 1). The main objective is maximizing revenue.
Table 1: RCM Processes in Healthcare
Why RCM is Complex in the Healthcare Industry
Providers are facing countless regulatory requirements, which incorporate classification of codes, reimbursement policies and common terminologies. From the provider point of view, up-to-date information is required to ensure payers are billed appropriately, of which coding plays a significant role and serves as a basis for disease and illness classification. At the same time, coding is the common language between providers and payers during the reimbursement process. Each payer has a different set of ambiguous rules for processing and paying medical claims; studies have shown as much as $210 billion in redundant costs annually.1
It is believed that on average, 32 percent of all claims are rejected, while 5 – 15 percent are lost in the process, never to be collected. The average time it takes to collect is 60 to 90 days. In addition, aside from the time, this process involves tremendous cost in managing the entire claims filing process. The New England Journal of Medicine states that a typical provider’s overhead and billing expenses account for 43.7 percent of his/her gross income.2 The Medical Group Management Association (MGMA) states that it costs $25 – $30 to process the average denial.3
Common Problem Areas of RCM
- Incorrect demographics entries at the front end lead to a high volume of claim denials.
- Incorrect coding of ICD -9 and CPT- 4.
- Lack of domain knowledge results in incorrect coding of CPT and ICD poses major challenges in compliance and leads to regulatory audits.
- Standard units of medication not billed correctly result in direct revenue loss.
- Claims submitted are exact duplicates of previously submitted claims.
- The time limit for filing a claim has expired.
- Inappropriate information system to track documentation and billing.
- Lack of diligent follow-up.
- Lack of appeal experience.
RCM problems can be resolved by:
- Integrating processes between the front end and back end
- Implementing adequate tools and technologies such as EHRs
- Providing employee enrichment programs, continual training
- Analyzing and reviewing organization processes to improve efficiency and remove repeated errors
- Creating benchmarks and standards for achieving desired revenue
- Soliciting an external audit by consultants
Efficient RCM is very important and requires much involvement and coordination by physicians, billing staff and consultants. Spending money on new technology, training and consultants can provide a very high rate of return. However, on average, providers are losing 7 – 10 percent of their revenue due to RCM inefficiencies. Providers learn medicine in medical school but some lack the business knowledge to manage a practice. In order to sustain a successful practice in today’s competitive market and increase revenue, providers either need to learn the basics of RCM or outsource the RCM processes to trusted professionals.
1. California Nurses Association/National Nurses Organizing Committee. HMO claims-rejection rates trigger state investigation. Available at http://www.calnurses.org/media-center/in-the-news/2009/september/hmo-claims-rejection-rates-trigger-state-investigation.html. Accessed on Oct. 14, 2009.
2. “Costs of Health Administration in the U.S. and Canada,” Woolhandler, S. & Himmelstein, D., New England Journal of Medicine, 2003;349:768-75. Available at
http://content.nejm.org/cgi/reprint/349/8/768.pdf. Accessed on Oct. 14, 2009.
3. Lowes, R. “Practice Pointers: How to cut A/R.” Medical Informatics Sept. 3, 2004. Available at
articleDetail.jsp?id=120970. Accessed on Oct. 14, 2009.
Mr. Divan Da’ve is a CEO and founder of Integrated Systems Management Inc., and its product and services OmniMD,™a developer of a HIPAA compliant and SureScripts certified EMR/EHR, a practice management system and other healthcare IT products and services.