How to manage your revenue cycle managers

Juvenal, the 1st century CE Roman poet, famously asked, "Who shall watch the watchers?" Many healthcare leaders who have outsourced or co-sourced their revenue cycle operations now ask, "Who shall manage the revenue cycle managers?"

Rising labor costs and increased operational and regulatory complexity have influenced many healthcare organizations to transfer many revenue cycle management functions outside. A study by CWH Advisors conducted in April of 2023 found that no less than 61% of surveyed providers were planning on outsourcing their revenue cycle management within the coming 24 months. Another study by Kaufman Hall found that 27% of healthcare provider organizations had already (as of 2022) outsourced their revenue cycle management.

Like many other contemporary business concepts in healthcare, outsourcing is a complex concept that can come in many flavors. You can think about offshoring, by which some or all functions of the revenue cycle management transition to a group beyond the United States; or of domestic outsourcing; or of co-sourcing, by which only certain functions are outsourced; or of any combination of the above.

In any case, however, there remains a question of managing the performance of the outsourced functions. Or again, who shall manage the revenue cycle managers? How can you tell if they are doing a good job?

The Non-Transferrable Core

Regardless of the level of outsourcing, a non-transferrable core of revenue cycle management functions should always remain in-house. It may not necessarily mean a whole dedicated team, but somebody must track the performance of the outsourced revenue cycle team. Typically, a successful revenue cycle function is measured by its ability to collect to the maximum, to operate fast, and to do so within reasonable cost limits. And so we recommend tracking performance along the following lines:

Collections Management

No matter which revenue cycle function is outsourced, we should expect the organization to collect to the maximum. This means a focus on the net collections rate, a useful KPI that can broadly be defined as the percent of collections after reducing uncontrollable deductions such as contractual allowances.

We should expect this to be above 95% (over time, excluding the most recent periods where payment has not come in yet). If not, it means that our outsourced operation is writing off too much. Are they not appealing denials energetically enough? Are they not reporting back denial trends to inform clinicians of better documentation?

Notice that effort should be spent on deciding exactly what "uncontrollable" write-offs are. This may vary by practice, policy, and market and should be re-examined from time to time.

Additional secondary KPIs should be tracked, such as collection percentages by specific payers known to cause troubles, patient collections vs. insurance collections, denial-reason trends, etc. All these measures, to varying degrees, will answer the question - is my outsourced revenue cycle service collecting enough?

Accounts Receivable (AR) Management

A perennial truth is that time is money, especially in revenue cycle. Our collection percentage might be satisfactory, but are we collecting fast enough? How long does it take us to collect?

AR management should always be examined closely and in-house, no matter how much of the revenue cycle is outsourced.

The reigning metrics here, which should be trended overtime, are those of average AR days, AR distribution buckets by ageing, and lag times (additional detail below).

Baseline performance can vary greatly by practice type and the payer mix. A practice specializing in complex surgeries should expect a longer AR baseline than a practice specializing in outpatient psychotherapy.

An interesting set of measures providing a look "behind the scenes" into the performance of an outsourced revenue cycle team has to do with lag times. If AR days are too high, it can be revealing to break down the AR process into its components: What is the delay from service day to charge capture (can be attributed to providers not signing notes, coders not coding, or other reasons)? What is the delay from charge capture to claim submission (can be attributed to claim edits not worked, staff leaving for the day before submitting all claims)? What is the delay from claim submission to payment (can be attributed to denials, lack of automation, and more)?

Cost Management

We might be collecting to the maximum, we might even be doing so very fast, but does it justify the cost of the outsourced service? Would it be cheaper to achieve the same results in-house, or simply with another service provider?

They who manage the revenue cycle managers must also look into the cost of the operation. Whether you pay the service by the hour or by claim, it always makes sense to do the math and look at your cost to collect. How much of each submitted claim are you paying for the outsourced service?

It is also useful to look at the cost as a percentage of your revenue. Is it comparable to other services? Is it higher or lower than an in-house operation?

The cost structure may highly depend on performance in the categories detailed above: If you pay by the hour, then AR lags may hurt you more; if you pay claim, this may encourage your outsourced service to submit as many claims as possible, without necessarily doing the due diligence to prevent eventual write-offs.

Various forms of contracting with the outsourcing provider can achieve a golden mean (say, a percentage of payments to encourage successful payments plus a bonus/penalty for delays). However, on-going management of both performance and cost is essential.

Who shall manage the managers? Ultimately it has to be somebody equipped with the transparent metrics described above, and that you can trust.

Case Study - MIMIT Healthcare

The Midwest Institute for Minimally Invasive Therapies, or MIMIT Health, is a multi-specialty physician group with a focus on minimally invasive treatment for peripheral artery disease and non-surgical treatments for fibroids, varicose veins, and more.

In pursuit of focusing on its core competency of clinical excellence and white-glove patient experience, MIMIT chose to co-source it's back-end revenue cycle functions with a 3rd-party partner. While achieving the desired cost-management goals, the practice was not completely confident it was achieving the best possible outcomes of collections and AR speed.

To solve the issue, in collaboration with Arrowwood Healthcare Consulting, MIMIT created an RCM performance management function and invested in technology capable of tracking key RCM metrics on a daily, weekly, and longer term frequency. While trusting the abilities of its co-sourcing partner, MIMIT chose to verify the partner's performance by tracking metrics such as the net collection rate, gross-collections over time, time-to-bill, AR days, and other metrics related to both collections and AR speed.

MIMIT also began to use insights from the RCM performance management function to inform changes to its clinical notes and documentation practices, to minimize denials and to further maximize its billing potential.

August, 2023, in collaboration with Arrowwood Healthcare Consulting.