Mastering revenue cycle management

March 16, 2020

What you need to know to boost your profits.

Doctors are fond of complaining that they didn’t go to medical school to practice business, but independent physicians do spend much of their time on their practices’ finances. 

That requires mastering revenue cycle management (RCM), the financial process practices use to administer all the functions associated with claims processing, payment, and revenue generation.

At the level of the individual patient, RCM begins when that patient makes an appointment and ends when all claims and payments resulting from that appointment and subsequent services have been settled. At a higher level, it means ensuring that the practice generates enough income to pay  its expenses and yield a profit. 

RCM has never been easy, but the move to value-based care and reimbursement, as well as more risk-based payer contracts, has made it harder than ever. A 2016 survey by research firm Black Book found that 90 percent of small, independent practices were unprepared financially and technologically to implement value-based care.

Difficult though it may be, efficient and disciplined RCM is key to a practice’s ability to remain independent. “Effective revenue cycle management isn’t going to guarantee your practice’s financial success, but neglecting revenue cycle management might result in its failure,” says Melissa Lucarelli, MD, a family physician in Randolph, Wis., and a member of the Medical Economics editorial advisory board.

A move to outsourcing

As RCM becomes increasingly demanding, more practices are turning to vendors to handle part or all of it.

The Black Book study predicted that the U.S. market for physician and ambulatory RCM outsourcing and extended business office services would grow by 42 percent between the end of 2016 and the beginning of 2019. The same survey of 2,000 independent physician practices found that 59 percent of providers intended to outsource some or all of their billing.

“High-impact drivers of the physicians practice outsourcing market include the increasing emphasis on compliance and risk management, and the need for more efficient and cost-effective processes,” Black Book Managing Partner Doug Brown says in the study.

The rising costs of operating a practice also underscore the importance of RCM. A 2018 Medical Group Management Association study found that over the past five years median operating costs for primary care practices have risen by 13 percent, from $391,798 to $441,559 per physician. And while revenue can fluctuate, expenses such as salaries, rent, insurance, and equipment payments must be paid on a regular, fixed schedule.

Outsourcing RCM is comparable to a primary care physician referring a patient to a specialist, says Todd Van Meter, senior vice president, ambulatory care, for Optum360, a revenue cycle management firm based in Eden Prairie, Minn.

The specialist has greater resources, knowledge, and expertise than the generalist to handle the situation, he says. And unlike a practice whose primary mission is providing healthcare, a vendor is focused solely on RCM, making it easier for them to stay current on regulatory and reporting requirements while discovering new efficiencies.  

Lucarelli says outsourcing much of her RCM has been a boon for her small, rural practice. “These are tasks we could do and we used to do, but the system does the heavy lifting and the drudgery stuff that keeps us away from the medical stuff we want to do,” she says.

She uses her EHR vendor for coding, billing, verifying insurance coverage, interfacing with payers, and other functions. The system has been particularly helpful for meeting reporting requirements under the Merit-based Incentive Payment System, as well as providing upgrades, such as free interfaces with labs.

“There is no way that I would go back to the old way and be able to provide medical care the way I want to,” she says.

Keeping it in the practice

Not all practices find it beneficial to outsource RCM, however.

Associated Physicians is a 20-doctor independent practice in Madison, Wis., that offers comprehensive primary care services, including physical therapy, nutrition counseling, and diabetes education while operating its own lab.

The accompanying volume and complexity of paperwork, reporting, and regulations would push some practices to outsource their RCM, but Associated Physicians does nearly everything with its own employees. “We want to remain independent. Part of that independence is wanting to do as much inside as possible,” says Executive Director Terri Carufel-Wert, RN, MHA.

The practice employs 11 back office personnel, including coders and billing and payment specialists. While that’s a substantial amount of overhead, Carufel-Wert and Business Operations Manager Margaret Wilkinson, CMC, say the team saves money by performing at a very high level.

Communication and coordination are key, Carufel-Wert says. Everyone, from physicians to billing clerks, works from the same guidelines, and new providers are quickly trained on office procedures. The coders are so well-versed in regulations that they seldom make billing errors and even occasionally correct commercial payers, she adds.

Employees are cross-trained on jobs so there’s no drop-off in performance when  someone is absent. The staff analyzes potential new practice offerings and equipment to determine if reimbursement will make them profitable.

The practice is proactive with patients as well. Whenever possible, it obtains payment upfront and frequently has to educate patients about what their insurance covers and how much it pays.

The hard work pays off. The average time between billing and reimbursement from payers and patients is 22 days, which Wilkinson says is much less than average.

“We had to do a lot of training and educating, but we are now able to deliver quality care at an affordable price,” Wilkinson adds.

A personal touch

Newton Family Physicians has done its own RCM for its entire 37 years of existence and expects to continue to do so, says practice administrator Melissa White.

“We find it just works better for us,” says White. The practice in Newton, N.C, has six physicians and four nurse practitioners. Doing its own RCM requires three full-time equivalent employees doing coding, billing, and other back-office tasks, while White and a part-time employee handle collections.

The practice has considered using a vendor and probably would save money by doing so, White adds, but worries that introducing a third party would hurt long-standing patient relationships in the rural communities it serves.

For example, the practice, which offers no-interest payment plans, knows when a patient has lost a job or been sick and will take that into consideration during billing, White says. “It’s not always about saving two cents,” she says. “From a community perspective, we just have better reception.” 
RCM patterns
As part of his RCM, Jeffrey Kagan, MD, an internist and member of the Medical Economics editorial advisory board, meets with his accountant annually to project income and expenses for his two-physician practice in Newington, Conn.

The accuracy of those predictions determines whether the practice is profitable or if Kagan must tap into a line of credit to pay himself and employees. After 25 years in practice, he has identified reimbursement patterns, such as slower and fewer patient payments in the first half of the year because people have not yet met their insurance deductibles. This trend has gotten worse as more employers switch to high-deductible plans, he says.

The practice uses an outside vendor for billing and occasionally hires a collection agency, but performs other functions itself.  Kagan does everything he can to get patients to pay co-pays and other costs at the time of their appointment.

“If I can get my money in three months, I’m thrilled,” he says. “There are some who take longer, but none of my expenses get held up for three months.”

He has had to get stricter with non-paying patients. His staff also knows to verify insurance eligibility before an appointment. “It only takes a few minutes, but it probably takes an hour to fix it later,” he says.