What is revenue cycle management in healthcare?
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Inovalon
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Revenue cycle management (RCM) in healthcare is the fiscal process of identifying, managing, and collecting payments for patient services. It begins with patient pre-registration, followed by claims submission, remittance processing, and financial reporting.
The main objective of revenue cycle management is to capture the full payment amount for care provided as quickly as possible. When it runs smoothly, this process streamlines and automates how organizations receive timely payments.
In this article, we’ll break down what revenue cycle management is and how it works in healthcare — from the seven steps of the medical billing revenue cycle management process to the most common RCM challenges providers face and how technology can help organizations capture more revenue with less friction.
Overview: Understanding revenue cycle management in healthcare
Healthcare revenue cycle management can be broken down into seven basic steps:
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- Patient pre-registration
- Pre-authorization
- Claims submissions
- Claims denials, resubmissions, and management
- Payment posting
- Payment processing
- Financial reporting
The revenue cycle management process starts when the patient makes an appointment. To ensure successful revenue capture, it’s best to engage the patient throughout the entire process, starting with the first contact and pre-registration. This is where the provider establishes the patient’s account, including all relevant patient information, such as demographic information, payer information, and medical history.
After pre-registration comes pre-authorization. This is when front office staff will schedule the patient’s visit(s) and verify insurance eligibility. The purpose of pre-authorization is to establish a service as medically necessary according to the insurance plan’s agreement. This confirms benefits and helps identify payment options.
Once the patient-provider interaction ends, the reimbursement process begins with the patient’s insurance company by submitting a claim. If the claim is accepted upon first submission, it’s considered to be a clean claim, and reimbursement will be released to the provider. If, however, the claim is inaccurate (e.g., incomplete patient information or out-of-date payer information), the claim will be denied.
At this point, providers must rework and resubmit the corrected claim. It has been reported that around 60% of denied claims were never resubmitted for payment. While reworking and resubmitting claims by hand is time-consuming and tedious, this represents an opportunity for providers to potentially capture more reimbursements with some help from RCM software.
After the claims submission (and rework) process, claims are accepted, and payment is posted to the patient’s account. Typically, if there is a remaining cost for the service that is not covered by the patient’s insurance, the provider must notify and collect payment from the patient. When completing this step, under the No Surprises Act, providers must ensure that they do not charge patients more for out-of-network services than they would for in-network services. Applicable charges can be sent to patients through paper patient statements or via email and/or text notification with eStatements.
Next, patient payments are processed in a timely manner to ensure that the provider receives the maximum revenue possible in the shortest amount of time. Then, the final stage of the claims lifecycle is financial reporting. Leveraging software to develop custom financial and management reports is key for ongoing revenue cycle success, along with reports on key performance indicators (KPIs) to track whether or not your team is meeting their defined short- and long-term goals.
Common healthcare RCM challenges
Between constantly evolving healthcare regulations and an ongoing nationwide staffing shortage, achieving and maintaining stable, efficient revenue cycle management processes can be extremely challenging. In 2021, providers only collected 55% of what was owed by patients, with revenue capture delays up to three months. In 2022, Health Leaders Media reported that 11% of all medical claims were denied – up from 8% in 2021. It’s clear that revenue cycle challenges are on the rise, especially around denials and incomplete reimbursements.
Barriers to patient payment collection
Capturing patient payments at the point of service can be a significant challenge for providers, especially those who are not equipped to accept patients’ preferred forms of payment. Today’s healthcare consumers expect payment options such as credit card, online payments, and other alternatives like Apple Pay.
Further, many patients are unable to pay all of their financial responsibility at the time of care. Without accessible payment plans with options like automated card-on-file payments and online payments, patients are less likely to pay what they owe.
Claims denials due to inaccurate patient information
Beyond patient payments, providers also run into significant challenges with claims denials. Claims are often denied due to coding errors, incomplete patient information, and/or inaccurate payer information. As we discussed earlier, as much as 60% of denied claims are never resubmitted,1 eliminating the chances of receiving full reimbursements for those claims.
Denials due to lack of prior authorization
Failure to gain prior authorization presents another barrier to payment. Prior authorization becomes a challenge when, for some treatments and services, patients or providers must acquire authorization from the patient’s care plan to ensure that care is covered under their benefits. If authorization is not acquired, the insurance company is likely to deny any claims submitted for the service.
Legislative restrictions on reimbursements
The No Surprises Act has presented some of the most recent RCM challenges for today’s providers. Out-of-network providers are prohibited from billing patients at a higher rate than in-network providers. To comply with the policy, providers must rely solely upon reimbursements from payers and may not seek to collect the billing balance from a patient after a claim is denied or partially paid.
Using software to overcome RCM challenges
Fortunately, implementing revenue cycle management technology can streamline RCM processes and help providers capture more complete payments. According to the 2022 CAQH Index, annual healthcare spending could be reduced by 41% by transitioning to fully electronic transactions. While it may not be possible to go 100% electronic right now, implementing SaaS software to simplify RCM processes could help providers strengthen revenue.
Updated payment processing technology enables providers to capture more patient payments at the point of service by accepting payments via credit card, check, eCheck, Apple Pay, and Google Pay. For patients who cannot pay all of their financial responsibility up front, advanced payment software provides options like automated payment plans, online payments, and other convenient forms of payment.
When billing patients’ insurance plans, advanced RCM technology reduces instances of human error with features like batch submissions and coverage discovery for all primary and secondary payers. Using Inovalon’s Insurance Discovery solution, for example, a collection agency increased its insurance collections by 10%. Discussing the difference that this technology made for the agency, COO, Marie St. James, commented, “About a quarter of our revenue is generated from insurance payments. We get these accounts a little bit later in life, so we have a very small window of opportunity.” With limited time to submit claims for payment, advanced software gives providers and healthcare organizations the breathing room they need to achieve fuller reimbursements.
End-to-end revenue cycle management software enables providers to leverage insurance discovery solutions to uncover all applicable payers to capture more reimbursements. In addition to ensuring more complete reimbursements, this also reduces the financial burden on patients by reducing any back end billing.
Inovalon is here to support your healthcare revenue cycle management
Effective revenue cycle management is essential for organizations to run smoothly and provide the high quality of care their patients deserve. The right technology and processes help medical practices, hospitals, and other healthcare providers overcome barriers to deliver a much better patient experience.
That’s why we’re here. Inovalon solutions streamline claims management and billing to help you increase the flow of income, reduce costs and, ultimately, improve patient care.
Schedule a demo to discover how we can help – or see your potential RCM ROI with our free RCM calculator!
Frequently asked questions on RCM in Healthcare
What is RCM in healthcare?
Revenue cycle management in healthcare is the financial process of identifying, managing, and collecting payments for patient services. It covers everything from patient pre-registration through claims submission, payment posting, and financial reporting. The goal of RCM software is to capture the full payment for care delivered as quickly as possible.
What is the revenue cycle management definition in a medical billing context?
In medical billing, revenue cycle management refers to the end-to-end process that connects clinical care to payment. It includes verifying insurance eligibility, submitting and managing claims, processing patient payments, and reporting on financial performance.
What are the biggest challenges in healthcare revenue cycle management?
Claims denials, incomplete patient information, prior authorization failures, and barriers to patient payment collection are the most common friction points. Denied claims are a particularly costly problem, with a significant portion never resubmitted, meaning providers forfeit reimbursements they were owed.
How does technology improve revenue cycle management?
RCM software reduces manual errors, automates claims submissions, supports insurance discovery across primary and secondary payers, and expands patient payment options. Together, these capabilities help organizations collect more of what they’re owed, faster, while reducing the administrative burden on staff.
