What is Revenue Cycle in Healthcare?

The practice of healthcare concerns itself with achieving the best outcomes for patients. How healthcare companies deliver care and get reimbursed for services provided often depends upon well-honed processes. To be successful, the business side of providers’ systems must be operationally solid to ensure that billing and claims management deliver the capital needed. That means an unwavering focus on the revenue cycle, from start to finish, along the patient-care continuum.

But what is the healthcare revenue cycle? The Healthcare Financial Management Association defines revenue cycle as “all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue.” Basically, then, the revenue cycle is everything that happens from the moment a patient account is created (at intake, whether that’s a doctor’s office, outpatient clinic, tertiary care center, or other site) through payment for the particular treatment, surgery, or care package.

Healthcare organizations use revenue cycle management (RCM) to optimize financial performance and improve patient satisfaction, according to authors of a 2024 study about RCM. Revenue cycle management software serves as both a compliance and auditing tool, offering financial teams an efficient way to:

• Locate information
• Load the latest data, such as billing codes
• Comply with regulatory requirements
• Provide patients with accurate billing or collections summaries
• Track claims and pull reports

For the revenue cycle to work most effectively, it must be predictable. That means its processes must be executed correctly, which is no small task. An early error can derail the process at multiple points along the way, causing errors in billing, slow payments, and other negative actions. Getting things back on track can be time-consuming and costly.

Effective RCM can help healthcare organizations minimize claim denials, reduce days in accounts receivable, and increase collections. Below are the key steps that link the healthcare revenue cycle.

8 Steps in an Effective Revenue Cycle

1. Preregistration – Scheduling the appointment and collecting a patient’s demographic and insurance information before their visit. The medical practice verifies the collected information by sending it to the patient’s insurance carrier to confirm eligibility and obtains authorizations for procedures. They review specific coverage information such as deductible, co-insurance, co-payment, and any services that require a referral.

2. Patient registration – Confirming a patient’s medical history, personal details, and insurance information. Double-checking that a referral or authorization is in place at the time of treatment improves the likelihood of payment for that service. During registration, financial forms are signed, and the provider may collect a co-pay to gather a portion of revenue at the time of service.

3. Medical coding and charge capture – Translating medical procedures, diagnoses, and services into standardized codes (e.g., ICD-10 and CPT codes) for billing and reimbursement purposes. These codes indicate how much the healthcare provider may be reimbursed by the insurance carrier. The charges associated with each code are used to create insurance claims and bills for patients.

4. Claims submission – Sending coded claims to insurance companies for payment. This step is often done electronically. The payer evaluates each claim according to payment policies and agreements, and decides whether to pay in full, pay in part, deny, or reject the claim.

5. Denial management – Managing and appealing denied insurance claims. If the insurance company determines that the claim does not meet their coverage criteria or requirements, they can refuse to pay it and provide a denial reason code. Examples of these include missing information, coding errors, lack of medical necessity, or eligibility issues.

6. Remittance processing – Posting payment to the patient’s account once the insurance company pays the healthcare provider. Once a practice’s claims have gone out, they will get remittances. The explanation of benefits shows the practice the payment amount per service provided. Line items include:

• Allowables – A listing of which services are “allowed” and how much the insurance company will pay for each service. These are negotiated by the provider and the insurance carrier.
• Fee schedules – The amounts providers charge for each of their services – often adjusted annually.

7. Patient billing and collections – Billing patients for any balance that insurance didn’t cover. This can include copayments, deductibles, or charges for noncovered services. If a patient does not remit payment, an accounts receivable team may follow up on unpaid charges by sending reminder bills, setting up payment plans, or sending bills to collections.

8. Reporting – Capturing and organizing data based on parameters. Medical practices need reports for compliance and auditing. Systems that include predictive analytics tools can generate reports using historical data to forecast outcomes. Modeling various cash flow scenarios based on denials, appointments, charges billed, and reimbursement collection data can help organizations make revenue cycle decisions.

Benefits of Revenue Cycle Management in Healthcare

Revenue cycle management is important because it promotes financial stability. Prompt capture of payment for services rendered provides a steady flow of income for healthcare providers. Key benefits of RCM include:

• Reduced claim denials and rejections: By implementing proper coding practices, improving documentation accuracy, and staying up to date with billing regulations, organizations can substantially reduce claim denials and bring in more money.

• Greater productivity and time saved: The management side of RCM examines each step and asks how it performs. What can be adjusted to streamline billing and collection? How can more claims be processed (without resulting in staff burnout) to generate more revenue? Automation of tasks such as patient registration, eligibility verification, coding, billing, and claim submission helps save time and resources.

• Compliance with regulatory requirements: By staying up to date with coding and billing requirements and implementing proper documentation practices, healthcare organizations can protect themselves from compliance-related risks.

Challenges of RCM

Managing financial operations related to billing and collecting revenue for medical services is complex. It takes smart systems, well-trained people, and great attention to detail. Healthcare CFOs should pay close attention to how these 5 actions are managed:

1. Coding and billing to avoid denials

To receive payment for services performed, healthcare organizations rely on accurate billing and coding. Errors and improper knowledge of intricate coding and billing practices result in missed revenue. Medical insurance claims may be denied due to missing or inaccurate data, incomplete patient information, or lack of authorization for a procedure.

Frequent changes to payer policies complicate the claims process. Reimbursement may be denied if there is a new policy or delayed because office staff must correct errors and resubmit follow-up claims. The AAPC notes that patient satisfaction with the billing process is impacted by errors, therefore appropriate charging of the patient is paramount.

2. Hiring and retaining enough people

“Constantly evolving regulations add significant work to already overburdened revenue cycle teams,” says the Healthcare Financial Management Association (HFMA). “Many organizations still struggle with RCM personnel shortages.”

Retaining competent staff requires significant investment in recruiting, hiring, and training. To meet staffing challenges, companies can focus on:

• Allocating resources to hiring additional staff and offering cross-training or mentors to broaden their skill sets.
• Providing support to their people along with training and systems that shift the workload. Investing in automation software for front- or back-end processes can reduce human burnout, mitigate errors, and improve accuracy. It allows staff to spend the time saved on broader problem-solving tasks versus data input or policy-checking.
  

3. Training revenue cycle staff

Empower RCM teams by enhancing their knowledge of payer policies, coding guidelines, and insurance billing processes. Since both medical coding and billing rules change frequently, organizations can administer assessment tests and provide standardized revenue cycle training sessions. Proper onboarding can equip new hires with the understanding and skills they need to perform their roles effectively and efficiently.

4. Meeting compliance standards

Navigating the complex regulatory environment can pose compliance risks. A healthcare company must work to:

• Protect patients’ personal information per HIPAA privacy and security requirements
• Code claims accurately and monitor the lifespan of policies or codes
• Follow rules for filing medical claims electronically
• Prevent fraud
• Manage all required documentation

Failing at these requirements could result in significant fines or penalties. Companies that utilize software programs that track reporting requirements, store attestations of compliance and safety training, and map to policies can ease the burden of meeting compliance standards.

5. Monitoring healthcare regulations and payer contracts

With a multitude of payers – each with their own reimbursement rates and requirements – staying current with changes is essential. Errors drain time and money. Since healthcare policies and payer strategies vary significantly by region, experts recommend a flexible approach to contract negotiation.

Achieving a Healthy Financial Circulatory System

The healthcare revenue cycle can be likened to the body’s blood flow—if it’s cut off in one spot, the entire system is affected. That’s why it’s important to look at the different administrative and clinical functions that make up the cycle and ensure that each is functioning properly. Any technical or operational solution should consider:

• System Integration: A siloed revenue cycle will lead to lost revenue. Review all integrated software and hardware systems and combine patient electronic health records, accounting, billing, and collections.

• Billing and Claims Management: Improve productivity and speed up payables by reducing denials and rejected claims through staff training on denial-management processes, better point-of-service collections, and decreased delays in patient billing.

• Contact Analysis: A fully fledged data collection and management system, alongside a well thought out strategy, will help providers to negotiate better rates and contracts with payers.

• Coding: Physicians and supporting personnel must ensure that they are coding everything correctly, as a single mistake can lead to overbilling and failed audits.

• Clinical Documentation: Like coding, all electronic documentation solutions must integrate with other revenue-collection and monitoring procedures to ensure fewer rejected claims.

How technology can help with RCM

Having just reviewed the challenges and functional considerations for achieving a healthy financial system, tapping into technology can be like a boost to one’s metabolism. An array of technology tools can alleviate time-intensive steps and accelerate the revenue cycle. For example:

• Using an electronic billing system allows for digital communication with patients and potentially faster online payment capture.

• Automating key revenue cycle tasks such as checking claims for errors and flagging issues that could lead to denials helps the RCM team focus their time on correcting any problems before the claim is sent to the insurer. Submitting a clean claim increases the probability of the provider being paid.

“Automation technologies such as AI and robotic process automation are invaluable tools for improving coding accuracy,” says the HFMA. “They can perform regular analysis on charts and clinical documentation with limited human intervention.”

It is important to note that healthcare technology used in RCM needs to retain a human element. Technology can speed up processes and eliminate redundant tasks. However, healthcare technology systems require regular monitoring and adjustments by people to prevent data errors, system failures, or potential harm to patients.

How to Optimize the Healthcare Revenue Cycle

If the overall goal of RCM is to increase and ensure accurate revenue, then the transfer of information to various other departments and partners is vital. Here are 3 ways to optimize your revenue cycle:

1. Implement efficient workflows to make your reimbursement process efficient.

Consider front-end processes that involve patient contact. Being proactive in getting pre-authorizations for services can help lessen the number of claim denials further into the RCM process. Back-end patient accounts processes involve administrative-type responsibilities. These may benefit from systems that integrate with electronic health records to review patient chart entries and assist with medical coding and reporting.

2. Deploy integrated healthcare technology solutions that apply data analytics.

Data analytics is the process of examining data to answer questions, identify trends, and extract insights and this process can help improve financial outcomes. Healthcare organizations might look at information such as co-payment collections, days in accounts receivable (until payment is obtained), and debt that is unlikely to be paid back to see which areas are negatively impacting revenue. Understanding when and where these patterns appear lets the team address the root cause and make improvements.

3. Prioritize continuous staff training and education.

To help your team stay informed of relevant government regulations and changes, including medical code and service updates, make it a priority to provide them continuous education. Revenue cycle-focused education and training, from live sessions to online learning and webinars, will be key to ensure that clinicians and staff understand their role in the revenue cycle.

Learn more about how HealthStream can help you optimize your revenue cycle and develop your RCM workforce through education.