RCM: The ultimate guide to Healthcare Revenue Cycle Management

Unlike many other industries, healthcare requires a multistep, retrospective payment process. Healthcare providers render a service and often don’t receive reimbursement for weeks — or even months. The process by which providers are paid, known as revenue cycle management (RCM), only goes smoothly when those providers prioritize people, policies, and technology in the following ways: 

It’s a tall order, and many healthcare organizations — including health systems and independent practices — struggle with one or more of the RCM strategies listed above. 

In this article, we’ll dive into this pressing question: What exactly is healthcare’s revenue cycle? We’ll provide revenue cycle management steps and outline the benefits of revenue cycle management. Finally, we’ll discuss how to improve revenue cycle management to help healthcare providers promote financial sustainability.

Healthcare revenue cycle management (RCM) is an umbrella term for the multistep process healthcare providers use to identify, manage, and collect revenue. Healthcare revenue cycle management begins the moment a patient schedules an appointment and ends when the provider collects all the reimbursement to which they’re entitled. This includes any amount insurance companies and patients owe. 

Over time and with the rise of high-deductible health plans (HDHPs), patients are increasingly responsible for a larger portion of their healthcare bills. For example, 29% of covered workers are now enrolled in a HDHP. Some sources estimate this number is well above 30%. 

This means that if healthcare providers want to improve revenue cycle management, they must engage patients and improve patient payments. Patient engagement directly benefits revenue cycle management. In fact, it’s safe to say that there is no healthcare revenue cycle management without patient engagement.

Pro tip: To improve healthcare revenue cycle management, focus on patient engagement. As patients’ financial responsibility continues to increase, providers must engage insurance companies and patients equally.

For today’s healthcare providers, revenue cycle management challenges happen every day. Here are some of the most significant ones to emerge over the last few years:

In its calendar year 2024 Physician Fee Schedule Final Rule, Medicare finalized a 3.4% payment cut. It’s not surprising that 38% of physicians say the financial state of their medical practice has worsened, with only 60% meeting their revenue goals. Across the board, healthcare providers haven’t been able to keep up with inflation. Medical practices need a plan to offset this decrease and improve revenue cycle management. Together, effective RCM processes and analytics promote financial sustainability.

Nontraditional, lower cost, and easier-to-access healthcare disruptors make it harder for independent providers to attract and retain patients and maintain a steady revenue stream. Practices need to engage patients proactively even before they schedule an appointment by focusing on search engine marketing, advertising, and social media. Standing out from competitors directly benefits revenue cycle management. 

More cost-sharing arrangements between patients and insurance companies make it harder for to collect patient payments. Practices must focus on transparent prices and leverage technology that makes it easy for patients to pay.

The complexity of the insurance system makes it challenging to get paid correctly and on time. Medical codes and billing requirements change frequently. Across HealthCare.gov insurers with complete data, nearly 17% of in-network claims were denied in 2021. Insurer denial rates varied widely around this average, ranging from 2% to 49%. 

The shift from fee-for-service to value-based payments creates economic uncertainties that make it difficult to predict risk and forecast revenue. Medical practices need RCM analytics to make informed business decisions.

Difficulty recruiting and retaining revenue cycle management staff not only drives up costs, but also has consequences for compliance and cash flow. For example, nearly all respondents to a recent survey said healthcare staffing shortages continue to negatively impact revenue cycle management and patient engagement. 

These same staffing shortages also affect insurance company reimbursement, patient payments, and the patient experience. In 2022, front office staff experienced a 40% turnover rate, with clinical support and business operations support staff turnover rates close behind at 33%.

Being short-staffed impacts healthcare revenue cycle management. In 2022, 56% of medical groups reported that their time in accounts receivable (A/R) increased, often due to staffing difficulties. In addition, short-staffed billing departments may need more resources to manage claim denials.

Revenue cycle management — particularly medical billing and medical coding — is important because it helps providers get paid under fee-for-service and value-based payment models. 

Revenue cycle management imposes structure on an otherwise complicated process vulnerable to errors and omissions. It ensures healthcare providers have the right staff, practice management policies and procedures, and charge capture technology in place for efficient claims processing and revenue integrity. 

Without revenue cycle management, healthcare providers may leave money on the table or risk denials, recoupments, and fines. 

Some benefits of revenue cycle management include the following:

Effective revenue cycle management ultimately helps medical practices focus on what’s most important: high-quality patient care. 

Smooth revenue cycle management puts everyone’s minds at ease knowing that services rendered will be reimbursed correctly and on time. This is especially important for independent practices. Cash flow is critical for investing in new technology, marketing the business, paying salaries, covering overhead, and more.

While the specifics vary by practice size and specialty, the basic 10 RCM steps are the same: 

Each of these revenue cycle management steps are critical. That’s because each builds on the step before to result in accurate and timely payment. Devote equal attention to each step for the biggest return on investment.

Everyone plays a role in healthcare revenue cycle management. However, the specific steps necessary to gather information, submit claims, and process all payments usually require direct input from:

These individuals are considered the revenue cycle management team.

Effective revenue cycle management ensures that patient information flows smoothly to the insurance company for processing and payment. Without revenue cycle management, information would remain siloed within the practice management system.

Technology integration is critical. For example, the first step in RCM (i.e., collecting the patient’s demographic and insurance data) occurs via the patient portal, digital intake form, over the phone, or in person. 

This data resides in the practice management system; however, with integration, this information is also easily accessible in the EHR where it’s linked with clinical data. For example, medical codes a physician in the EHR automatically populate a claim in the practice management system. This automation is impossible without integration.

After the patient encounter, medical coders and billers read clinical documentation and assign accurate, complete, and specific ICD-10-CM, CPT, and HCPCS codes to represent what occurred and why. 

Practices may or may not have internal edits in their billing software to identify potential errors and help to ensure clean claims. For example, many internal edits check Medicare local or national coverage determinations, national correct coding initiative edits, medically unlikely edits, and top denial reasons (e.g., upcoding, unbundling, incorrect modifiers, or mismatched codes).

Next, the practice usually submits the electronic medical claim to a clearinghouse. The clearinghouse scrubs the claim and double-checks it for errors. Once it passes inspection, the clearinghouse securely transmits the claim to the insurance company.

Remember: when insurance companies process payment, they only receive the claim — not the entire medical record. (The exception is when they request the record as part of a prepayment process or a post-payment audit.) That’s why medical codes must reflect patient severity, acuity, and services rendered. Omitting codes means the practice could lose money. Adding extra codes could lead to overpayments and recoupments — or to denials. 

Once an insurance company receives a claim, it begins claim adjudication. The payer may apply its own edits before paying the claim in full (or part) or denying it entirely. 

Insurance companies render payment via electronic funds transfer (EFT). This transaction may include electronic remittance advice (ERA) to convey additional information such as contract agreements, secondary health plans, patient benefit coverage, expected copays and coinsurance, capitation payments, or Internal Revenue Service withholding. 

Insurance companies may also use claim adjustment reason codes (CARC) and remittance advice remark codes (RARC) to explain payment adjustments.

Payment reconciliation happens next. Medical billers compare and verify reimbursements with billed charges. They also investigate any discrepancies. For example, they may need to resolve a medical coding error, contractual issue, or technical problem. This is also when practices usually bill patients for the balance of the invoice if they haven’t already collected it. 

When there’s a denial, healthcare revenue cycle management promotes root cause analysis and follow-up. This process of information generation, transmission, reconciliation, and ongoing analysis is what makes RCM so important. 

Without good RCM, information would not flow from the healthcare provider to the insurance company to enable payment.

The best ways to improve revenue cycle management will be different for every practice according to its unique challenges. For example, one practice might struggle with A/R and denial management. Another might struggle with cash flow, patient payments, charge capture, or staff retention. 

But there are universal strategies that can help improve healthcare revenue cycle management. These include the following:

Some of the most important revenue cycle management policies and procedures include the following:

Who will assign medical codes, and how? What is the process for charge capture? What workflows will everyone follow to ensure accurate and timely medical claim submission?

Pro tip: To keep the claims submission process running smoothly:

When questions about clinical documentation arise, who will resolve those questions and how?

Who will monitor and manage denials? Will staff prioritize certain ones?

In addition to official coding guidelines, will staff use any additional guidelines based on feedback from insurance companies or the desire for internal data tracking?

What KPIs will the medical practice track, and how often? How will it calculate those KPIs? What will it do with the information? 

What are the expectations for coders and billers, and what happens if they don’t meet those expectations? 

What will the practice require of patients? For example, will it require up-front collections? If so, how much? What is the process for balance billing the patient or providing refunds when necessary?

What workflows will staff follow to ensure data integrity? Can the practice leverage digital tools that enable patient self-service (e.g., digital intake forms or patient portals)? Will staff offer payment plans or other means of financial assistance when applicable? If so, what criteria will they use to determine whether patients qualify?

Revenue integrity refers to billing and collecting all revenue to which a healthcare organization is entitled. Note that revenue integrity is not synonymous with revenue maximization. That’s because the latter often implies billing and collecting as much as possible without regard for legal and contractual compliance.

The National Association of Healthcare Revenue Integrity (NAHRI) says the goal of revenue integrity is to prevent recurring issues that can cause revenue leakage and/or compliance risks. 

Revenue cycle management enables revenue integrity by introducing oversight and a system of checks and balances that mitigates risk and promotes compliance. The combination of skilled staff, policies and procedures, and robust technology pave the way for accurate reimbursement. 

Pro tip: For more information about compliance program infrastructure, program adaptations for small and large entities, and other resources, check out the recently updated Office of Inspector General’s General Program Compliance Guidance. 

Here are 3 strategies to achieve revenue integrity in revenue cycle management:

Revenue cycle management is necessary to ensure financial sustainability because it helps with the following:

Poor cash flow management is one reason why small businesses fail.

In healthcare, good cash flow requires submitting accurate medical claims in a timely manner. Timely, clean claims are the key to a timely revenue cycle that ensures healthcare providers have access to cash when they need it. 

Not surprisingly, 42% of business owners say they’re re-evaluating cash flow and spending due to inflation. 

Effective revenue cycle management empowers healthcare providers with the data they need to negotiate favorable contracts. 

Identifying and addressing revenue cycle gaps can position healthcare providers favorably in the event of a medical practice sale or merger. 

Pro tip: During healthcare organization mergers and acquisitions, keep these revenue cycle management tips in mind: 

Financial sustainability occurs when patients pay their bills in full and on time. Effective revenue cycle management is a prerequisite for this. Why? 43% of adults say they have received a medical or dental bill they thought contained an error. 

About two-thirds of these adults say the error involved being billed for something that should have been covered by health insurance. Other errors were being billed for services never received or for bills that had already been paid. 

Revenue cycle management prevents medical billing errors that can otherwise erode patient trust and delay patient payments, making it impossible to achieve financial sustainability. 

There are many types of healthcare revenue cycle management solutions that can help health systems and medical practices thrive. Here are 5 categories of solutions and examples of technology that fit into each one:

Billing software benefits revenue cycle management because it relieves the administrative burden associated with eligibility and prior authorization. It also keeps the revenue cycle team up to date with payer policies and new medical codes, reduces turnaround time for patient payments, and more.

KPIs are the best way to measure revenue cycle management effectiveness. Data will reveal areas where healthcare providers are performing well and areas where they need to improve. Here are few of the most important KPIs: 

Like many aspects of healthcare, revenue cycle management is constantly evolving. However, there are several trends worth noting. These include:

Revenue cycle management is an exciting and critical aspect of healthcare delivery. Medical practices prioritizing patient care's financial aspect will experience sustainability in the years ahead.