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Revenue Cycle Management: What It Is, and Why It's Important for Healthcare Providers

Adam Uzialko
Adam Uzialko

Revenue cycle management (RCM) is the core financial process of any healthcare organization. Medical practices, hospitals and labs all need to establish an efficient and effective RCM process if they want to survive and turn a profit. But what is RCM exactly?

The healthcare industry is different from many others, in that healthcare providers seldom know what they will be paid when they deliver their services. Moreover, there is a lag between delivery of care and payment, so managing funds responsibly and keeping accounts receivable moving is key to success.

Editor’s note: Looking for a medical billing service? If you’re looking for information to help you choose the one that’s right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

Here's a look at the basics of RCM for the healthcare industry and some of the options healthcare providers have when setting up their billing departments.

How does RCM work?

The process of RCM revolves largely around the "payers," which are organizations like insurance companies, Medicare or Medicaid. As the name suggests, payers are the organizations that actually pay providers for their work. While patients will often have a co-pay due upon delivery of care, the vast majority of cost is billed out to payers in the form of a "claim."

"Revenue Cycle Management is a complex term used to identify the entire cycle of the healthcare revenue billing process," said Sean McSweeney, founder and president of Apache Health. "Each healthcare practice RCM process is different, but the standardized process includes insurance billing, patient billing [and] claim life cycles."

Here's how the process generally works from start to finish:

  1. Eligibility verification: A patient arrives at a medical practice. Their insurance eligibility is verified and essential patient information is recorded in the practice's electronic health record (EHR) system. [Find out more about the best EHR systems on the market.]
  2. Charge capture and coding: The patient receives the practice's services. The visit is coded into a bill using ICD-10 medical coding standards.
  3. Patient collections: The patient pays any co-pay amount due prior to leaving the practice.
  4. Claims submission: The coded bill is sent to the appropriate payer, typically through a clearinghouse. Many times, billing departments will have to follow up to ensure a payer's timely response.
  5. Reimbursement: After the payer has reviewed the claims, they will determine how much the provider receives based on the patient's coverage. Sometimes, claims will be denied for coding errors, incomplete patient data and other reasons.
  6. Denial management: When a claim is denied, billing departments make the appropriate changes and resubmit the claim. This involves scrubbing for coding errors, reviewing patient data and working with the payer directly.
  7. Patient collections: If a patient received services for which they are not covered, providers need to send them an additional statement for the services rendered. Billing departments will need to continue to follow up on patient statements until the outstanding balance is paid.

If that sounds like a confusing and tedious process, that's because it is. Healthcare providers generally only collect a portion of the claims they submit. Many providers, even those with an efficient billing department, could see about 10 percent of claims rejected on first pass. That means even as new patients are coming in, the billing department will be working on rejected claims and outstanding balances.

Because in-house billing is such a daunting task, especially for small practices with limited resources and thin margins, an industry of outsourced billers has risen up to handle RCM for healthcare providers. [Interested in medical billing services? Check out our best picks from our sister site]

Outsourcing medical billing

Medical billing services allow healthcare providers to outsource their RCM process in exchange for a percentage of their net collections, typically between 3 and 7 percent. These billing services will integrate with their clients' practice management software and handle the RCM process from start to finish. Some features you can expect from a good medical billing service include:

  • Claims scrubbing: Looking for errors prior to submission of claims in order to reduce the rejection rate on first pass. Good medical billing services maintain certified coders on staff.
  • Claims follow up: A good medical biller won't let your claims sit unaddressed for months on end. In industry parlance, a medical billing service is most effective when it "reduces your days in A/R."
  • Denial management: Medical billing services worth their percentage will aggressively follow up on any denials or rejections and do everything in their power to make sure the claim is paid.
  • Reporting: Since medical billing services are being trusted with a provider's financial stability, detailed reporting and analytics is a must.
  • Dedicated support team: Communication is important, so medical billing services often appoint a dedicated account manager and support team to act as liaisons to the healthcare provider. Any and all questions about billing should be addressed to this team.

A medical billing service is doing its job well when it increases a provider's total collections and maintains a regular cash flow to the practice. Nancy Rowe, CEO of Practice Provider, said outsourcing your billing can be advantageous because medical billing services have a great deal of experience working with payers and understand the industry as a whole.

"More often the coders are certified and more experienced," Rowe said. "Consultative billing companies work with physicians to optimize coding and most often increase physician revenue, more than offsetting their cost. Billing companies have the advantage of seeing trends across several practices and can react more quickly to regulatory changes."

The drawback, Rowe added, is that outsourced medical billers are not on site, so communication with the provider can be a bit delayed. Whether outsourced or in-house, Rowe added, a thorough intake process and documentation review on the part of the practice is critical to establishing billing success.

"Much of the financial success of a practice starts with the front desk staff determining patient eligibility and obtaining authorizations for treatment," she said. "Physicians must also spend a great deal of their time ensuring their clinical documentation will withstand a carrier audit."

The medical billing process is complex and difficult to manage, but with the right processes in place, aided by good software and third-party partners, healthcare providers can ensure they quickly collect more of the money they deserve for the care they've provided.

Editor’s note: Looking for a medical billing service? If you’re looking for information to help you choose the one that’s right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

Image Credit: Gajdamak/Shutterstock
Adam Uzialko
Adam Uzialko
Business News Daily Staff
Adam Uzialko is a writer and editor at and Business News Daily. He has 7 years of professional experience with a focus on small businesses and startups. He has covered topics including digital marketing, SEO, business communications, and public policy. He has also written about emerging technologies and their intersection with business, including artificial intelligence, the Internet of Things, and blockchain.