The Butterfly Effect: How to master the chaos of your revenue cycle

It finally felt like the light at the end of the tunnel. After years of preparation and months of moonlighting the practice was finally standing on its own.

In the black and seeing a full patient load, the revenue was covering all the business and personal bills, and getting paid a wage that actually justified the new house and “new spending”.

I had come to healthcare with a background in corporate business consulting. One of my strengths was taking revenue predictions for a business unit inside the company and streamlining it’s spending and operations to squeeze out more profit and better productivity.

It’s now more trendy name is “Six Sigma” or “Lean Processes”

Since I had just spent the past year up til 1 am every night pouring over EOB’s, and fighting for every claim, I could recite the reimbursement rate for every service code and I felt ready to create some sort of financial forecast.

When you start making real money in medicine, the first thing you should do is plan for “growth and protection”. ( lame financial planner language) So after a series of meetings with a certified planner who specializes in working with Physicians and a few thousand dollars spent, I had the plan for the “dream” scenario.

Armed with a giant black binder outlining visions of vacation homes, charity involvement, community service, and investment strategies, I sat down to see if the practice would continue to pay out and pay into the dream life I imagined.

I was in for a rude awakening:

Predicting cash flow in a medical practice is like trying to predict the weather.

Seemingly small fluctuations at the front end can have big impact on success factors on the back end. It is like the butterfly effect of the medical revenue cycle.

Understanding The Revenue Cycle: The Circulatory System of Your Practice Finances

In healthcare, because we operate in a (mostly regulated) 3rd Party Payor System, there is a lot of complexity to the process of providing a service to patients and getting paid for that service

The entire process of a patient visit, pricing, coding, claim submission, and collections is called the Revenue Cycle.

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What is the Revenue Cycle?

Imagine the entire patient visit from when they walk in the door (Time of Service), to the visit with the doctor (Patient Encounter), then submitting the charges (Billing & Claims), finally collecting all money owed (Collections) and posting the payments (Account Reconciliation).

All of this is the act of getting paid for that visit and all the time spent is the revenue cycle.

Understanding the Revenue Cycle in its entirety helps you to see how certain things have a butterfly effect on how much money flows into your practice and where the bottlenecks are keeping you in the red.

A small misstep in one area (like a wrong zip code) carries the consequence of a denial, delay or underpayment for that claim. Here are the four main areas and tasks of the revenue cycle.

Patient Date of Service

  1. Insurance Eligibility Verification
  2. Time of Service Fees Collection
  3. Patient Registration & Demographics

Charge Entry and Coding

  1. Patient Encounter Documentation
  2. Patient Visit Coding
  3. Claim Submission to Clearinghouse / Insurance Company

Billing and Claims Management

  1. Delivery of Explanation of Benefits (Payer Remittance)
  2. Claim Posting into Practice Management Software
  3. Management of Denied Claims

Collections and Account Reconciliation

  1. Patient Balance Billing
  2. Patient Collections on Outstanding Balances
  3. Patient Payments Posting in Practice Management Software

All of the pieces of the revenue cycle have a specific effect on getting paid. You should pay close attention to each phase individually and have an internal process in place you make sure your revenue cycle is Bulletproof.

Accounts Receivable: The Key Performance Indicator of Your Revenue Cycle

Accounts Receivable is simply a reporting structure that allows us to understand and expect when money will flow into our practice.

It is usually defined by breaking out timelines of when we expect to receive that money based on the claims / invoicing that we have submitted. The report is broken out into buckets or groups of timelines that we expect money to come in.

When we track incoming money, we commonly do it in 4 – 5 main timeframes.
1. 0-30 days | 2. 30-60 days | 3. 60-90 days | 4. 90-120 days | 5. 120 + days

Each claim amount is treated individually and tracked as “days in accounts receivables”.

You can collect this information with your Practice Management Software or Accounting software by generating an “aging report”.

What to look for in your report:

Your aging report will tell you how much money is waiting to be collected. You want to take into account that most payments will arrive within 0-45 days as part of processing. Beyond that there is a problem that needs to be addressed. When you are reviewing an aging report for your practice, you are not only trying to predict when you will receive the money in, you are also trying to predict how much you will receive against the actual amounts that we submitted in the claims.

This simple calculation is: Charges vs. Reimbursements. I call this “tracking the gap”.

This is an important indicator because over time it tells us what we can expect from a certain insurance plan based on the fee schedule, how well we provided documentation, and contract terms.

When you use a payer report card , it will let you know how each insurance plan is doing against the others and you can be in control of your own destiny.

Awareness: Your first step into better financial performance.

The first step into better financial performance is awareness. You must be able to see how much, from where, and when money is flowing into the practice. You need to be aware of what is having the biggest impact on your income and your expenses.

Your Revenue Cycle Self Assessment Simplified

Here is a simple system with a series of 12 questions to ask yourself every month to track how smooth your revenue cycle was working.

  1. How well are you scheduling patients?
  2. How much are you collecting at time of service?
  3. How quickly are you submitting clean claims?
  4. How many claims are being denied?
  5. How long is it taking to get paid from payers?
  6. How well are you collecting on outstanding accounts?
  7. How much are you making in profit for professional services?
  8. How much are you making in profit for specialty services?
  9. How much are your making in profit per Physician?
  10. What are your costs per Physician?
  11. How long is it taking to get paid on average?
  12. How predictable is your cash flow?

Revenue Cycle Performance Assessment (Detailed)

REV-CYCLE-DETThe Approach: Collect data from the most relevant indicators of how your practice revenue cycle is working to keep money flowing into your practice.

Get the detailed version outlining the key points that you will want to track month over month.

You can collect the data needed for the above with a series of reports from your Practice Management system or billing software.

 

  • Weekly Patient Schedule Reports from Scheduling Software
  • Patient Payment Collection Report
  • Claim submission reports
  • Claims Sent vs. Date of Service – average days
  • Productivity Report / Denial Report from PM software
  • Aging Reports (by Payer)
  • Aging Report (by Tax-ID)
  • Productivity or Collection Report by Provider
  • Productivity or Collection Report by Service
  • Payroll Reports
  • Profit / Loss
  • Total Practice Revenue Report (Deposits)
  • Fee-Schedule

Right now our main goal is to maximize the amount of money we bring into the practice and get it into the practice as fast as possible.

Tactical tips for a better revenue cycle

8 Bulletproof Strategies to Get More Money Into Your Practice Faster

Strategy 1: Have an Eligibility Verification Sentinel
You should have a well defined process in your office with one staff member in charge of all patient visit insurance eligibility verification’s.

Strategy 2: Collect All Patient Responsibility Fees
In the age of the Affordable Care Act and the Health Insurance Exchange plans, very high deductible health plans are becoming the norm. Collecting patient responsibility goes beyond just the visit co-pay. You can and should be able to estimate the visit costs at the time of service and collect a portion against the outstanding deductible and coinsurance amounts at the time of service.

Strategy 3: Learn How to Code Better
You need to be armed with three main weapons in order to code each visit for maximum reimbursement.

  1. An understanding of how the visiting patient’s insurance network pays for your common codes.
  2. How to perform and document a patient encounter visit at the highest possible level.
  3. Know which key diagnosis codes Medicare deems medically necessary for that particular visit.

Strategy 4: Submit Speedy Air Tight Claims
Submit claims as soon as possible with all proper documentation. Submit 100% complete patient demographic information and follow the insurance networks submission guidelines.
This will help to avoid claims being denied based on incomplete information and delaying the time it takes to receive that money into the practice.

Strategy 5: Create a Denial Diary
Create a journal using a spreadsheet tracking which codes are commonly denied for which insurance networks. This will allow you to identify trends to understand which types of claims are getting denied and why.

Strategy 6: Have a Solid Financial Policy in Place
Have clear and well documented patient financial policies in place such as, when payments are due, when they go to collections, and even fees for outstanding accounts.

Most importantly, there should be a policy about visit restrictions for patients (and family members) that have high outstanding balances. They should all be clearly communicated and signed off on at the time of visit as part of the financial policies agreement.

Strategy 7: Plan to Follow Up Constantly
Working and reworking claims is the process of following up on claims that are denied, restricted, or delayed. Often the insurance plan will request claim adjustments and resubmission for denials. Learn how to do this efficiently so you maximize the amount you will receive for that claim. This requires time and man hours and/or very good communication with your billing vendor.

Strategy 8: Keep an Eagle Eye on the A/R Buckets
You should absolutely be looking at the changes in your accounts receivable buckets monthly at minimum, bi-weekly is preferred. The likely hood of collecting the full claim amount goes down the longer a claim sits.

How to use the 80/20 rule to survive the chaos

Working inside the this system of medicine is incredibly frustrating. We are all entitled to get paid for all the work we do.

Unfortunately, that is not the way it works when there are so many factors dictating how much, when, or if at all, a claim gets paid. In such a high volume industry there is a high margin for error. This means sometimes it is just not worth it to spend the extra time to collect on a small balance claim.

The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

Create a strategy and use the tools at your disposal to understand how 80% of your administrative headaches are probably caused by 20% or your patients and 20% of your payers.

  • What 20% of patients are taking up 80% of your time?
  • What 20% of insurance plans are paying the lowest and costing the most in admin?

Think Big Wins instead of chasing claims

Focus on smart moves that will have a larger impact on your long term revenue and success. Here are a few examples:

  • Create referral partnerships for services you know pay well already
  • Invest in marketing to attract more of the right types of new patients
  • Make smart personal and business financial decisions
  • Only accept insurance plans that pay well and on time for your service
  • Improve your time of service collections
  • Offer more self-pay options for patients

The most important thing to understand about the revenue cycle is that there are many moving parts that have variables which seem daunting at times.

By raising your awareness and putting simple tools in place you can have better visibility into how money is flowing into your practice and where to make adjustments.

 

About The Author

James Riviezzo

Over the past decade, I have served over 50,000 (mostly) satisfied patients. I have tracked measured and documented what makes a successful practice inside (and outside) the third party payer and oversight system of medicine.