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When April rolls around, thoughts turn from the beauty of spring to the general unpleasantness of filing the federal income tax return. For the healthcare provider, filing a tax return has become even more distasteful, as it is one more reminder that line 37, Adjusted Gross Income, continues to decline. The bigger picture impact of this revenue decline is its effects on the provider's staffing levels and ability to invest in technology that is supposed to improve practice efficiency and patient care quality.

Read almost any report from investment analysts about the healthcare provider segment and you'll see the words "revenue cycle management" as the leading area of concern. Why? Because it is the system used to bill for and collect cash for healthcare services rendered. The revenue cycle begins when a provider goes into business and signs on with a payer to provide care. It continues with patient care (service) and then with billing and collection of fees.

The process seems simple enough, but it becomes complex and costly when providers contract with several payers, each with their own rules for what services are covered at what rates, and the multitude of practice management systems available. Dr. William Soper, president of Mid America Medical Affiliates in the Kansas City area, recently reported, "Most doctors are spending from 8 to 15 percent of their revenue just getting paid by the insurance company."

Adding to this problem are two other factors affecting the provider's ability to collect: the growing number of self-pays and the movement to high-deductible plans where the various providers wonder "who's on first" and who's on the hook to collect the deductible from the patient. It's a taxing situation, indeed.
From an investor perspective, we see some positive impact when all parts of the revenue cycle are considered important and managed accordingly. Thus, the term revenue cycle management. There's a good reason it's not just called "billing and collections management." So what can be done?

First, know thy costs. Really know what it takes to run the practice, including all people, whether they are clinical or support staff (oh, and, Doc, don't forget your value) and overhead: rent, supplies, equipment, computer systems and software, and other costs.

Look at all of the contracts in place. Do they still make sense for your practice today, both in terms of 1) the types of patients covered, the services being covered, and the payments being made, and 2) the ease of which the claims are paid when submitted? Why put up with a payer who micromanages everything, denies every other claim, or just doesn't pay worth beans?

Walk through the process of scheduling and serving patients. Does the patient have insurance? If so, is the co-pay promptly collected and only covered services provided so extraneous ones don't get denied or the provider gets left holding the bag? If the patient has a high deductible plan or is a self-pay, do you know the patient's ability to pay? Does the patient have a health debit card? Can the patient pay by credit card, or if the service is for large dollar amounts, can they apply for a payment plan? Unfortunately, providers may need to start treating patients like consumers when they purchase "big ticket items." This may mean collecting credit information from patients. Banks don't provide loans without the proper documentation and/or collateral. Why should a healthcare provider?

Providers are also going to need more data on patients to determine the likelihood of needing to collect full service amounts under high-deducts. Statistics should include the time of year patients tend to come in, how often patients come in and for what types of services, how many providers the patients see for various ailments, how healthy the patients' families are, and other relevant data. If the patient comes in for services in the first quarter of the year, then the provider has a high probability of needing to collect the full amount of the charges for those visits. If the patient has a family with kids who are injury prone, then the probability of being on the hook declines (unless, of course, you're that family's pediatrician). It's also a good idea to have open communication with the other providers so that these issues can be shared.

Then there's the billing and collecting system. Do all of the parts work smoothly together to collect the maximum amount of cash in the least amount of time? The first step is ensuring that documentation and coding for the services rendered is correct. Has the billing system been updated regularly as new algorithms or payers are added? Do you know how many claims are being rejected and for what reasons? Who works these claims? Is the aging of the receivables within standard? What are the policies for sending collections out to a collection agency? Some providers believe that it's impolite to send dunning notices to patients for collection; but if you provided the service, shouldn't you get paid?

Without thorough or new ways of looking at revenue cycle management, providers may find their revenue continuing to decline, followed by hard decisions about staffing, technology and many other factors that are critical to high-quality patient care. Unless providers devote resources to comprehensive revenue cycle management, they may not be around to devote themselves to patient care.


Denise Yennie, director of advisory services for Nashville-based merchant banking firm 2nd Generation Capital, LLC, may be reached at dyennie@2ndgeneration.com.


April 2007

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