It is extremely important for RCM in healthcare to run smoothly

Healthcare Revenue Cycle Management (RCM) is the financial process that organizations use to manage the administrative and clinical functions associated with different steps of patient care from start to finish. The process starts when a patient schedules a visit for medical services and finishes when all claims and patient payments have been collected. In summary, revenue cycle management in healthcare serves as the strategy for streamlining processes, ensuring steady collections, and making healthcare providers financially viable.

With RCM in healthcare, the goal is to discover any possible problems in the revenue cycle and solve them before they become a bigger issue. It is extremely important for RCM in healthcare to run smoothly to keep your entire system working properly.

How Does the Revenue Management Process Cycle (RCM) Work in Healthcare?

There are seven main steps in the revenue management cycle for healthcare. These include:

• Patient eligibility check and insurance authorization
• Medical coding and billing
• Claims creation, validation, and submission
• Error/denial check and correction
• Statement to patient (EOB and/or bill)
• Payment collection from patient
• Continuing data analysis

Why is Revenue Cycle Management (RCM) Important for Healthcare Providers?

While healthcare providers are largely focused on the quality of patient care, there remains a level of concern regarding reimbursement and collections. The process from initial delivery to full payment is complex and implementing effective RCM is essential for to minimize the number of errors, increase the likelihood of payment, avoid aging accounts receivable, and improve overall profitability in health systems. Often there is a significant delay between services and payment collection, making it difficult to see the exact view of cost, spend, and revenue.

Managing revenue is essential for any business and focusing on improving the revenue cycle plays an important role in increasing claims efficiency while reconciling costs against revenues to optimize cash flow. In addition, the healthcare revenue cycle process houses important patient information and data leaks could have substantial legal ramifications. Ultimately, the goal of revenue cycle management in the healthcare industry is to develop a process that helps organizations get paid the full amount for services as quickly as possible by identifying points of friction and resolving them.

Benefits of Focusing on the Revenue Cycle in Your Health System

There are many benefits to efficiently managing your revenue cycle such as improved patient satisfaction, maximized monetary benefit, reduced administrative burden, and simplified processes.

• Improved Patient Satisfaction: Revenue Cycle Management (RCM) enhances the patients’ experience with the entire hospital billing process through increased transparency in cost of service, added support throughout entire care process, and minimized number of forms for tracking patient data.
• Reduced Administrative Burden: Revenue cycle management in healthcare serves as the entity for streamlining the processes. Outsourcing and automating the revenue cycle alleviates the administrative burden of the providers, allowing for a greater focus on delivering quality care to patients.
• Maximized Monetary Benefit: “According to a report from Sage Growth Partners, more than a third of health systems have faced more than $10 million in bad debt annually. The situation is worsening due to unpaid bills and every year up to $125 billion is lost in unpaid and underpaid claims”. Effectively implementing RCM results in lower denial rates, which leads to increased cash flow and faster speed to payment. The process brings accuracy to the system and leaves little room for errors during insurance verification, coding, and claims processing, in turn maximizing collections.
• Simplified Processes: Successfully managing your revenue cycle drives efficiencies through workflow automation, which improves scheduling processes, coding and billing, and payment processing. Removing the complexities in the workflow leads to improved operational efficiency of the providers, ensuring they meet their revenue targets.

What is Pricing in Healthcare?

Pricing opportunity can be defined as optimizing the price paid for a good or service, which can be achieved through incumbent supplier negotiations or competitive sourcing activities. Accurately identifying pricing opportunities can be challenging due to several variables such as unique product/service specifications, quality, volume, technology advancements, and local market factors. As a result, most benchmarking exercises can leave hospital leaders with misleading perceptions of price competitiveness. Although pricing may be viewed as a straightforward value lever that is routinely reviewed by hospital supply chain, Pathstone finds many hospitals have yet to maximize pricing opportunities in more complex categories such as various clinical and non-clinical purchased services.

Successful implementation of pricing opportunities delivers the following benefits to health systems:

• Financial benefits ranging 5-25% depending on the category
• One of the quickest and least disruptive paths to financial improvement
• More visibility into cost drivers of goods or services

Key Opportunity Indicators

Supplier Relationship Not Reviewed

If your supplier contract has not been evaluated for price competitiveness in the last 3-5 years, this can indicate there may be opportunity. Supplier relationships with hospitals can change over time. Expansions of supplier scope in an organization can be an advantageous leverage point to bring into the pricing negotiations. Furthermore, supplier markets evolve and change the dynamics of how they do business with their hospital clients. Many clinical areas, for example, are impacted by demographic changes (e.g. aging baby boomers), population health challenges (e.g. new diseases) or development of new technology (e.g. telehealth), all of which may affect the demand for certain supplies or services. As a result, continuous vigilance is important.

• Client Example: In our experience, perfusion services is an example of a complex area that is challenging to identify pricing opportunity for many of our clients. The demand for perfusion services has been growing driven by the increase of open-heart surgeries for an aging population. As a result, many hospitals have seen their perfusion service volumes jump by 30-50% over the last several years. In such situations, Pathstone can help clients evaluate pricing opportunities with current market intelligence across our widespread client base.

Not in-line with Price Benchmarks

One common indicator of opportunity is identifying higher pricing when benchmarked against peers. Utilizing available resources such as group purchasing organizations (GPOs) or databases to perform the benchmarking can provide a good directional perspective on potential pricing value. However, hospitals should proceed with price benchmarking cautiously. Our experience has shown that when hospitals have the ability (often through third-party partnerships) to contextualize and customize benchmarks – this creates the best data and ultimately drives the most value.

• Client Example: Benchmarking services are anything but straightforward. Pathstone often helps our clients benchmark their services both internally and externally. Pathstone provides external price benchmarks that are contextualized based on the health system’s volume, geography, specific service requirements, and unique operational considerations to determine an accurate and tailored cost savings opportunity.

Hospital Growth and Expansion

Within the healthcare industry, hospital consolidation and integration activity has been increasing. If integration has already occurred or may be imminent for your organization, then it presents a ripe opportunity to re-evaluate pricing for goods and services. Through integration, your volume may change (likely increase) which creates leverage to help drive more competitive pricing.

• Client Example: Pathstone has worked with hospital systems that have merged, acquired new sites, or expanded service lines. A benefit of any consolidation activity is the ability to combine purchasing activities of two different organizations to create leverage with suppliers. For example, a newly merged health system was using two different dialysis service providers, and in turn, had varying pricing for the same dialysis services. In some cases, hospital sites were even using the same service provider through separate contracts but with very different pricing. Consolidated purchased volumes in the newly merged health system created leverage to negotiate better pricing with the chosen provider.

Prices are Higher than Reimbursement Rates

For certain goods or services where the hospital is receiving reimbursement, it can be a beneficial exercise to compare pricing against reimbursement. If the pricing is significantly higher, this data point can potentially be leveraged in supplier pricing negotiations.

Key Success Factors

Maximize Resources

Hospitals have a variety of resources at their fingertips but determining how best to maximize those resources is challenging. The use of Group Purchasing Organizations (GPOs), market databases, and/or consultants seem to be some of the best options for a hospital to obtain benchmarking information. Appropriate use of this information can create valuable metrics for internal KPI tools to identify opportunities.

“Test” the Market

There are various approaches your organization can take to “test” the market. A competitive process like a Request for Proposal (RFP) or Request for Information (RFI) are common approaches. At times, just the initiation of a competitive process can motivate your suppliers to provide a significant reduction in current pricing in hopes you avoid looking at competitors. However, when going to the market an organization needs to have conducted its initial due diligence on the market and have an appetite for potential supplier conversion

Find the Right Fit

Hospitals often struggle with finding a quality product/service at the right price but also one that fits that organization’s needs. When pursuing price opportunities, it is important to maintain focus on quality. Establishing cross-functional work teams that can evaluate both pricing and quality is key. Additionally, developing service level metrics can help reinforce quality expectations with suppliers. Lower prices don’t always mean it will yield lower quality. Quality can remain the same or improve while pricing decreases as long as the work team maintains focus on this balance.

Benefit your Supplier

Obtaining the most competitive price is usually the result of a mutually beneficial partnership with your supplier. It is important to understand your supplier’s goals and look for ways to benefit your supplier through your relationship while still achieving your financial objectives. Challenge yourself as the customer to provide feedback to your supplier not only on the areas that require improvement but also on the areas in which they have met or exceeded expectations.

What is Revenue?

This value lever can be defined as any revenue, rebate or reimbursement generated from a purchased product or service. Revenue is often overlooked by healthcare supply chain due to the department’s traditional focus on reducing costs. However, many products and services provided by suppliers can play a significant role in generating revenue, rebates or reimbursements for the health system.

Key benefits of this value lever include:

• Financial benefits ranging 5-25% depending on the category
• Increased revenue and reimbursement when cost reduction opportunities are limited
• Enhanced supplier or contract rebates
• Creation of funding to upgrade or expand products and services

Key Opportunity Indicators

Limited Discussion on Any Supply Chain Driven Revenue Opportunities

If your organization is not recognizing revenue as a value lever within supply chain, this may be one of the first signs of opportunity. Once spend categories with potential revenue opportunities are identified, negotiations with suppliers in those categories should include conversations around incorporating revenue or rebates into new arrangements.

• Client Example: Pathstone worked with a client that received a cost reduction proposal from its release of information (ROI) provider. Though the client was eager to accept the offer, Pathstone understood that the supplier was funding the client’s program with revenue associated with billable patient requests that were not visible to the client. By analyzing program revenues, Pathstone was able to help the client negotiate a revenue share agreement that generated 30% in additional financial benefit to the organization.

Lower Supplier Prices Charged Compared to Market Rates

If supplier prices charged for an outsourced service are lower than what the market typically commands, this is another indication of the potential for hidden revenue opportunities. If the organization’s prices are well below market averages, it may be a sign that the vendor is capturing significant revenue to offset costs of the program being delivered to the client. Further investigation may uncover opportunity for the client to at least share in that revenue. Auxiliary services such as parking and cafeteria are common candidates for these types of evaluations and opportunities.

Shrinking Revenue from Existing Programs

If volume for a revenue generating product or service is decreasing, this may signal the current program needs to be modified to align with the current environment. Decreasing volumes may be caused by unexpected factors such as changes in supplier pricing, evolving market forces impacting demand or new supplier/end-user resistance.

• Client Example:  Pathstone evaluated a health system’s accounts payable commercial bank card program, which offers a quicker payment platform for the health system’s suppliers in exchange for a rebate paid by the supplier to the health system. Our analysis showed low levels of card adoption by suppliers, translating to lower rebates for the health system. A deeper dive into the data revealed most suppliers were already being paid quickly without the use of the card program. By reconfiguring standard payment terms to exceed the card program, the health system created an incentive for suppliers to adopt the card program and thereby increased card program participation and rebates by 10%.

Key Success Factors

Develop Business Cases

Organizations that utilize a comprehensive business case to evaluate the pros and cons of an in-sourced or outsourced model will increase their chance of success. The business case is a fact-based tool that allows teams to have an open and objective dialogue when selecting the best strategy. For complex categories, engaging third parties to develop business cases can provide market information and objective analysis necessary to make the best decision.

Evaluate Program on an Ongoing Basis

Since costs, quality and performance of programs can change over time, organizations that continuously evaluate make vs. buy opportunities position themselves to generate more value over the long-term. Continuous self-assessment can uncover opportunities resulting from minor improvements in supplier relationships to complete transformations for an organization’s service delivery model. For example, one important question for an organization to ask about an insourced operation is: “What else can we do with these resources?” The opportunity cost of those resources can help identify alternatives that drive more value for the organization. Furthermore, alignment of the service with the organization’s overall mission should be evaluated.

Access to Market Intelligence and Best Practices

Hospitals that have conducted extensive market research are well positioned to evaluate existing outsourced or internal programs. Market intelligence on leading practice cost metrics and performance indicators can be an effective barometer to measure financial, quality and operational performance. Partnering with third party providers that can provide insight on market benchmarks can help an organization set the right targets to measure the competitiveness of existing programs.

Understanding Medical Billing in Healthcare Practices

One of the more complex components of running a medical practice is managing your organization’s medical billing process. With thousands of potential medical codes for different diagnoses and procedures, on top of the numerous payers in the market, having the ability to effectively manage billing is a key driver of success in today’s healthcare industry.

In-House vs Outsourced Billing: No One-Size-Fits-All Solution

There is no “one-size-fits-all” as it relates to medical billing solutions; however, the two primary options for a healthcare organization are in-house medical billing and outsourced billing. There are three overarching considerations when evaluating whether to implement in-house or outsourced billing:

• The cost
• An organization’s capacity to execute billing
• Maintaining confidential health services while billing

Evaluating the Cost of Medical Billing

Evaluating the cost implications of your selected billing option is critical for revenue management. For small clinics, there may not be enough revenue generated to cover the fixed costs of billing and turn a return on investment (ROI). It is important to do a cost-benefit analysis to ensure that the clinic can expect a net income.

Essential Internal Billing Activities

Whether or not your organization elects to keep billing in-house or outsource billing, a handful of important billing activities must be maintained internally. As an organization, you are held accountable for submitting accurate and timely billing information to the outsourced billing agency or to individual third-party payers. The organization is also responsible for:

• Insurance verification
• Medical patient registration
• Coding

Maintaining Confidentiality: Written Billing Policies

Finally, it is of utmost importance to have clear written healthcare billing policies on how to manage bills and balances to ensure private patient information is managed appropriately.

Exploring In-House Billing

In-house billing includes the staff of a clinic or healthcare organization being responsible for all aspects of revenue cycle management. They submit claims to a clearinghouse, directly to Medicaid, or to the insurance company for reimbursement. They also set charges, collect patient fees (copays and deductibles), and manage the accounts receivable.

In-housing billing comes with several advantages all of which include:

• More visibility over the billing process
• High flexibility
• Increased control over patient accounts

Nevertheless, it’s essential to be mindful of the potential difficulties linked with in-house billing, which encompass:

• High upfront expenses for labor and technology
• Ongoing training needs
• High dependency on your staff members

Outsourcing: A Common Solution to Medical Billing

Many healthcare organizations opt to outsource their medical billing to a third party. These third-party companies typically take a percentage of a healthcare organization’s collections as payment for managing many aspects of a revenue cycle, on top of recurring monthly fees.

Outsourced billing has countless benefits which may include:

• Having more experienced parties managing your billing
• Advanced software options
• Saving on internal time and resources

However, outsourced billing requires your organization to:

• Maintain and oversee contractual obligations to the selected third party
• Outsourcing gives your organization less control over patient accounts

Weighing the Choices: Outsourced vs In-House Medical Billing

The decision in outsource medical billing versus billing in-house is very dependent on your organization’s needs and resources, and each option has its own benefits and disadvantages.

To learn how Pathstone Partners can help your organization with medical billing, contact our team of healthcare experts.