The strategic role of revenue cycle management in battling rising healthcare costs

Healthcare organizations are facing unprecedented operating costs, largely driven by labor and inflation. According to the American Hospital Association (AHA), “Persistent workforce shortages, severe fractures in the supply chain for drugs and supplies and high levels of inflation have collectively fueled hospitals’ costs.” The AHA also emphasized the challenges of “higher acuity care and deepening financial instability,” as well as “inadequate increases in reimbursement” and increasing payer-related administrative burdens.

In 2023, hospitals spent $839 billion on labor, accounting for 60% of their expenses. At the same time, Medicare reimbursement was just 82 cents for every dollar hospitals spent caring for patients, resulting in “$99.2 billion in Medicare underpayments” in 2022. This was approximately two and a half times higher than in 2019. According to the Medicare Payment Advisory Commission (MedPAC), 67% of hospitals had “negative Medicare margins in 2022.”

Rural hospitals, in particular, have been significantly impacted. A recent report by the Center for Healthcare Quality and Payment Reform (pdf) found that more than 700 hospitals serving rural communities have financial challenges so great that they are at risk of closure. These hospitals are especially vulnerable because they’re usually “smaller, for-profit and offer fewer services such as advanced cardiac or emergency care.”

While federal agencies are working on initiatives to reduce costs and administrative burdens, such as streamlining prior authorizations, the impact is unlikely to be felt immediately and will not address greater systemic issues. Organizations also face uncertainties associated with a change in presidential leadership and a new administration.

One of the most impactful steps providers can take is to connect with a trusted partner for a comprehensive revenue cycle management (RCM) assessment, enabling them to identify inefficiencies, implement automation solutions, and streamline workflows to protect and optimize revenue.

Best practices for optimizing revenue cycle management

There are five proven steps providers can take to improve revenue cycle efficiencies to help reduce operating costs and maximize reimbursement.

1. Identify areas with the highest cost impacts. In a survey by Eliciting Insights and HFMA, 84% of health system leaders said “lower reimbursement from payers” was the top reason for poor operating margins. Another survey indicated denied claims as a top concern. In the survey, 22% of respondents said their organization loses at least $500,000 annually to denials, while 10% reported losing over $2 million annually. Clearly, if organizations could reduce denials, they could also improve payer reimbursement, which is why addressing denials presents an excellent opportunity to enhance revenue cycle performance to offset rising costs.
2. Establish realistic goals and benchmarks. Achieving success in any endeavor requires setting specific benchmark-related goals. Revenue cycle industry best practices to aim for include the following:
   • Complete/timeliness of charge capture: 3–5 days after the date of service
   • Average coding turnaround time: 0–5 days
   • Initial denial rate: <5%
   • Net collection rate: 96%–99%
   • Reimbursement accuracy: 95%+
   • Coding accuracy: 95%+
3. Leverage automation technology. Artificial intelligence (AI), robotic process automation (RPA), machine learning (ML) and other technologies can help reduce time-consuming, error-prone manual tasks that cause significant work on the back end of the revenue cycle. These technologies can also flag potential claim issues and missing documentation so they can be addressed before submitting to payers. This can go a long way toward reducing denials, lost revenue, and the cost of rework.
   
   Recent reports indicate that payers are using AI to “retroactively review medical necessity determinations.” This has led to “more claim denials, payment delays and a greater need for appeals.” While federal agencies have begun calling out this activity, providers need to do all they can to ensure claims are accurate, accompanied by appropriate medical necessity documentation and submitted on time. Using AI and related technologies to automate revenue cycle processes is the best way to achieve this goal.
4. Use real-time data analytics for better decision-making. Leveraging data analytics in real time is crucial for timely, effective decision-making, which enables providers to proactively address issues before they have a chance to negatively impact revenue. For example, data analytics can highlight problematic trends, such as denied claims, along with the cause for the denials, such as coding errors, payer noncompliance, or issues with documentation quality. Data analytics can also identify more systemic problems that need to be addressed through continuous improvement activities, such as more training for coding staff, feedback loops and clinical documentation specialists. The in-depth insight gleaned via real-time data analytics helps providers improve operational efficiencies, lower costs, and improve revenue
5. Partner with industry experts when necessary. Now, more than ever, providers are turning to outsourcers for help managing their revenue cycle. These revenue cycle experts bring significant benefits that can alleviate labor costs and reduce operational inefficiencies. They can also customize solutions to fit the provider’s needs and scale quickly as those needs fluctuate. Additional benefits include the following:
   • Increased productivity and quality
   • Enables reallocation of scarce staff to more strategic initiative
   • Provides access to more extensive, multi-shore talent pools at lower costs
   • Training at scale improves work quality, thereby improving clean-claim rates and reducing errors, denials, lingering days in A/R, and delayed reimbursement
   • Broader access to automation technology helps streamline and automate revenue cycle processes
   • Reduces the need for providers to invest in new technologies and hire staff to implement and manage them
   • Offers access to a higher level of payer expertise

For many organizations, partnering with revenue cycle experts to reduce costs and improve efficiencies can bring a faster return on investment with less effort and fewer resources.

Achieve long-term financial viability

Rising healthcare costs have been an ongoing struggle and a significant burden for provider organizations for many years — even more so since the pandemic. Unfortunately, it’s a burden that is unlikely to change anytime soon. The good news is that providers have numerous opportunities to alleviate rising costs by optimizing their revenue cycle. By identifying their highest costs, setting realistic goals, leveraging technology and data analytics and partnering with industry experts, organizations will set a course toward a more financially sustainable future.