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RCM: The ultimate guide to improve practice fiscal health

Improving practice financial health is as simple as improving revenue cycle management.

revenue cycle management healthcare

At a Glance

  • Revenue cycle management (RCM), and the timely and accurate reimbursements that result from it, is important for medical practice financial health
  • Each phase of RCM, from patient registration to patient billing, is critical for reducing billing errors, minimizing claim denials, and enhancing overall financial performance
  • Efficient RCM not only stabilizes cash flow but also improves patient satisfaction and supports data-driven decision-making
  • Automating RCM can reduce manual errors and improve cash flow, ultimately leading to a healthier practice

Healthcare Financial health is synonymous with practice health. So, how do practices ensure accounts receivables are in tip top shape? Optimizing the revenue cycle (RCM) is critical for maintaining a steady cash flow. This involves accuracy and efficiency from patient registration to final collection, and continuous monitoring of key metrics to make sure everything’s on track.

Revenue cycle management can be tedious and time consuming, but without proper oversight, small problems can quickly mean big losses — as much as hundreds of thousands of dollars a year.

We break down why RCM is important, the phases of the revenue cycle, strategies to gauge performance with metrics and reporting, and valuable tips to ensure a practice achieves its financial goals. 

Optimize Operations

What is fiscal health for private practice? 

In the healthcare industry, fiscal health begins with monitoring and analyzing the revenue associated with the services a practice provides. It starts with patient registration and ends when the final balance is paid. Effective revenue cycle management is critical for practice financial well-being and performance, and ensures that reimbursements are prompt and accurate.

The key phases of RCM

The revenue cycle consists of several important stages. Maintaining accuracy at and optimizing each can improve cash flow, reduce errors, minimize denials, and enhance overall financial performance.

The main phases of revenue cycle management include:

  1. Patient registration: The practice registers a patient, typically coinciding with appointment scheduling. This phase involves collecting patient information, such as their name, address, and insurance information. It’s essential that this information is accurate and up to date. 
  2. Insurance verification and eligibility: To prevent claim denials and delays in reimbursement, the practice verifies patients' insurance coverage and determines the extent of their benefits eligibility.
  3. Charge capture: Services rendered are documented and translated into billing codes. Associated diagnoses codes are documented in order to support the charge. Accurate, appropriate coding ensures proper reimbursement, as well as compliance with regulatory requirements.
  4. Claim submission: After coding, the practice submits claims to insurance companies or other third-party payers for reimbursement. Timely and accurate claims submission means faster payments.
  5. Payment posting: Once claims go out, the practice will receive a remittance — a document from an insurer that explains the payment and if any adjustments were made. This information is then logged into the billing software. Remittances are often accompanied by partial payments that may leave financial responsibility for the patient. Payment posting is, therefore, often the middle of the cycle, not the end. 
  6. Accounts receivable follow-up: The practice addresses claim denials, rejections, and resolving any issues that may impede reimbursement from insurance companies.
  7. Patient billing and collections: Finally, the practice bills patients for any outstanding balances after insurance payments. Patients without insurance move directly to this step. 

Although these stages are listed distinctly, the challenge of the revenue cycle is that receivables often move through several phases — and each phase may feature multiple steps.

What are the benefits of effective revenue cycle management for fiscal health?

Juggling ever-changing codes, dealing with complicated insurance requirements, and billing patients on time can feel overwhelming. But efficient, accurate medical billing has huge benefits, including financial stability and increased patient satisfaction.

Efficient, accurate medical billing has huge benefits, including financial stability and increased patient satisfaction. ”

Here are some key benefits of effective RCM in healthcare:

Improved medical billing accuracy 

According to recent estimates, payers deny 15 to 20% of all claims submitted — a costly mistake when providers spend an average of $25 to rework a single claim, as Elizabeth Woodcock and Walker Keegan discuss in The Physician Billing Process: Navigating Potholes on the Road to Getting Paid. A proactive approach to revenue cycle management in healthcare reduces errors that lead to claim denials, rejections, and, ultimately, payment delays.

Steady cash flow

Denied or delayed payments add to the challenge of managing a practice. By improving the efficiency of billing and collections, payments will come in faster, more steadily, and with lower out-of-pocket costs. Effective revenue cycle management can also help a practice identify its highest-value services and find opportunities such as negotiating better contract terms with insurers.

Improved patient experience

Clear and transparent billing practices, along with timely and accurate communication, can increase patient satisfaction. Accenture found that 65% of patients report that their satisfaction hinges on transparency about the cost of care. Additionally, the reduced administrative load that comes with efficient revenue cycle management means that staff has more time to focus on the patient experience and providing better care.

Data-driven decision making

A well-managed medical billing system can generate valuable data and analytics. These data-driven insights help the practice understand its financial health, identify areas for improvement, and implement targeted strategies. Indeed, industry stakeholders report that insufficient data analytics is the biggest driver of increasing denials rates. Optimizing revenue cycle management also makes a practice more adaptable in a dynamic industry where regulations, policies, and standards are constantly evolving. 

Data-driven insights help the practice to understand its financial health, identify areas for improvement, and implement targeted strategies. ”

Overall, an effective revenue cycle management means practices and billing teams can stay agile. This allows more time to improve both patient and payer collections for increased revenue, and to focus on other avenues for growth.

What metrics and reporting reveals about practice health

Accurate fiscal reporting provides valuable insights into medical practice financial health. These reports offer a comprehensive view of the revenue cycle, making it easier to assess performance, identify areas for improvement, and make informed decisions that can grow the business. 

Revenue cycle metrics and reporting typically include the following: 

  1. Collections rate: A measure of the amount of money collected against the total amount billed. This metric indicates the practice’s success in converting billed services into actual revenue.
  2. Denial rate: The denial rate represents claims denied by insurance payers for a specific time period. A high denial rate may indicate an issue with documentation, coding errors, or problems with insurance verification.
  3. Clean claims rate: This metric represents the percentage of claims that don’t receive rejections or denials. A high clean claims rate means the practice has an accurate, effective billing process.
  4. Charge lag days: This calculation evaluates the time it takes for charges to be entered into the system after services are provided. Ideally, charges should be the same or next day. This metric shows whether charge capture workflow is healthy or if it needs improvement.
  5. Days in receivables outstanding: This measurement shows how long outstanding monies spend in accounts receivable before final collection. A lower number indicates a more well-managed billing and collections process; a higher number means a practice should be looking for efficiencies. 

Below are the key revenue cycle management metrics that will help practices secure every dollar they’re owed. 

Measuring performance

If a practice has recently taken steps to optimize the revenue cycle, what’s the best way to measure its performance? Developing a dashboard of vital performance metrics can quickly reveal what’s working and what's not, and offer insight on how to fix common revenue cycle problems.

To establish a revenue cycle dashboard, consider these key performance indicators (KPIs). These metrics are the best indication of practice financial health. 

1. Days in receivables outstanding

The best indicator of practice billing performance is days in receivables outstanding (DRO). Ideally, the DRO is in the range of 30 to 40 days — the lower, the better. This indicates that revenue cycle operations are in reasonable working order. A DRO that’s consistently past 60 days is concerning. Sixty is the new 90 when it comes to collecting outstanding balances, and the longer bills are outstanding, the less likely they are to get paid. 

Improve results by striving for accuracy in every step of the revenue cycle and being thorough with time-of-service collections. It’s important to note that factors outside of a practice’s control, such as dealing with challenging payers or having many patients on payment plans, can drive up the DRO. But this doesn’t necessarily mean there are issues with the revenue cycle management. 

2. Receivables outstanding over 120 days

The aged trial balance report is another excellent way to evaluate successful revenue cycle management in healthcare. While it’s possible to measure success using any of the aging categories, focus on receivables over 120 days. Aim to have less than 10% of receivables over 120 days. If this hits the 20% mark, take a serious look at the collections process.

Aim to have less than 10% of receivables over 120 days. If this hits the 20% mark, take a serious look at the collections process. ”

Like other DRO measurements, factors outside of a practice’s control can have an impact on the numbers. The best way to reduce receivables outstanding over 120 days is to collect payment at time of service, and be diligent about following up on unpaid balances.

3. Net collections rate 

Also known as the “adjusted” collection rate, this percentage shows net collections compared to the amount allowed by insurance companies. It also reveals how much revenue the practice is losing to bad debt or poor billing practices.

Aim for a net collections rate of 96% or higher. Practices that can maintain this rate over a sustained period of time are generally financially healthy. The remaining 4% is typically bad debt, such as charge-offs or other uncollectible funds. 

Corrections and improvements

If KPIs are in the worrying range, take it as an opportunity for improvement. These 6 tips can help to identify common problems in each phase and set a practice on the path to financial success.

1. Dive deep to find improvements 

Review each step of the revenue cycle management process to identify where metrics are lagging or where best practices are not being used. Consider writing a detailed billing and collections procedure manual after evaluating the revenue cycle management process. Issues with the process will quickly show themselves.

2. Track key revenue cycle management healthcare metrics regularly

Look for billing software that highlights critical metrics like DRO, receivables outstanding over 120 days, and net collection rate. Practices should review the data weekly so they’re always up to date on what’s happening. Regular review is a way to identify revenue roadblocks and address them quickly. 

3. Make the front desk error free

Did you know 22% of claim denials are due to errors with patient registration or 41% with front-end errors? Develop strong front office policies and train staff well, because practice financial performance starts with the front desk. Practices can also support front desk and billing teams with practice management software that easily tracks appointments and charges, and includes features like automatic insurance eligibility verification

4. Verify insurance early

Best practices recommend verifying patients’ insurance coverage 1-3 days before an appointment. This provides an opportunity to determine a patient’s coverage, whether they’ve met their deductible, if their insurance carrier requires prior authorization, and more. Leaving time for this important step can help practices send cleaner claims and communicate clearly with patients about the cost of their care. 

5. Manage claim denials aggressively

Ignoring denials prolongs the time it takes to get reimbursement for services, which negatively impacts cash flow and practice liquidity. Practices that write off even just one denied claim a week can lose thousands of dollars in revenue. To capture all possible revenue, establish a strict claim tracking process that addresses rejections as soon as they come in.

6. Dig into the medical billing data

While it’s great to track KPIs, it’s also important to understand what’s driving the numbers. 

For example, what’s causing accounts to go unpaid past 120 days? Is it a notoriously difficult payer, like workers’ compensation, or could the practice team follow up on collections more promptly? When practices go beyond the numbers and investigate their cause, it’s easier to improve the process. 

Patient collections procedures

Like denied claims, it’s important to deal with overdue accounts quickly. But how do practices help patients pay on time? Faster collections can be achieved in a few ways:

  1. Collect co-pays and outstanding balances at time of service: According to recent research, practices only collect 50 to 70% of payments after patients leave the office. Improve collection rates by capturing copays before appointments and outstanding balances before a patient leaves the facility. 
  2. Offer multiple payment methods: Studies show that flexible payment plans or offering multiple ways to pay can boost collection rates by more than 20%. Having digital payment methods can also help. Tebra’s 2023 survey revealed that more than 51% of patients preferred a digital option for paying their bill, and the US Bank found that 49% of patients would pay by text if the option was available.
  3. Automate patient billing: Robotic automation can process data in minutes, accelerating invoicing and payment reconciliation, and boosting cash flow. The less time it takes to process a health insurance claim, the easier it is for patients to budget, and the more likely they are to pay.

Using RCM automation to streamline workflow

Automation is a smart way to streamline revenue cycle management, reduce receivables, and get paid faster. Technology like robotic process automation (RPA) can be used to automate almost any repetitive task, like the steps in the revenue cycle.

RPA is a type of automation technology that uses software-script bots to replicate tedious manual processes. RPA excels at error-prone tasks that don’t require human decision-making, like prior authorizations, patient registration, eligibility verification, claims submission, denied claims, and collections.

Automation is a smart way to streamline revenue cycle management, reduce receivables, and get paid faster. ”

According to one study, RPA can analyze a health insurance claim in 12 seconds, as opposed to human workers who take 85 seconds. And RPA is more accurate. If possible, automate every part of the medical claims and billing process with an all-in-one billing solution.

The positive impact of automation on revenue cycle management in healthcare and practice performance can’t be understated. By eliminating manual errors, claims go through faster, cash flow improves, and the practice becomes healthy and productive. Plus, when the practice team spends less time on paperwork, they can focus on the patient experience, which further supports revenue growth

The basics of revenue cycle management and good fiscal health in healthcare will always be the same: verify patient eligibility and information, create a clean claim, and send it to the applicable payer. But there are plenty of opportunities to reduce errors and optimize each phase of the revenue cycle.

Offering additional staff training, introducing revenue cycle management automation, and investing in systems that streamline every aspect of medical billing and payments can lead to improved cash flow and overall financial health.

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Kate Webb

Kate Webb has been writing in a professional capacity since 2010. She has extensive experience in healthcare, social issues, and community engagement projects with the goal of helping readers understand complex topics and make intimidating concepts more approachable. Kate holds a BA in political science from the University of British Columbia. She’s a proud member of the Lumeo RHIS team and the Southeastern Ontario Medical Association (SEAMO), helping transform the way patients and providers access health information.

Reviewed by

Elizabeth Woodcock

Dr. Elizabeth Woodcock is the founder and principal of Atlanta-based Woodcock & Associates. She has focused on medical practice operations and revenue cycle management for more than 25 years. She has led educational sessions for a multitude of national professional associations and specialty societies, and consulted for a diverse range of clients.

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