Kent Gale

Study findings show the functionality providers are seeking from revenue cycle management systems.

At a Glance

  • When choosing a new revenue cycle management (RCM) solution, hospitals must decide whether to go with a best-of-breed solution or an enterprisewide or single-vendor solution.
  • A recent study suggests that most organizations are opting for the sole-source solution, because of the promise of enterprisewide integration.
  • RCM products appear to be meeting purchasers' expectations, but many do not believe the products have yet achieved adequate functionality, and third-party bolt-on applications still seem necessary for some revenue cycle processes.

Patient accounting systems have been at the heart of hospital automation for more than 30 years. As with many mature markets in healthcare IT, these systems are offered by established vendors whose products are widely adopted and tend to enjoy longevity within healthcare facilities.

However, in light of this tradition of longevity, recent advances in the next generation of these systems-known as revenue cycle management (RCM) solutions-are presenting a dilemma for many healthcare finance executives. This dilemma is summed up in two questions: Is there an ROI to be found in replacing legacy patient accounting systems with feature-rich, next-generation alternatives? And do the advantages of advanced features such as eligibility checking and demographic reports, which offer the promise of greater accuracy and efficiency, outweigh the pain of replacing a system, albeit an aging one, that works?

Hospital executives who decide to upgrade should also consider the kind of solution that best fits their organization. Generally, the alternatives are split between two camps: best-of-breed solutions and enterprisewide or single-vendor solutions.

Healthcare executives who must navigate these difficult choices can gain valuable insight from the results of recent market research into the ROI of replacing a legacy patient accounting system with a next-generation solution that features a front-end, patient-centric approach to claims management (The New HIS Revenue Management-Is the Next Generation Patient Accounting Ready?, KLAS, December 2008).

Next-Generation Revenue Cycle Management

The research focused on the 45 acute care organizations with 200+ beds that have implemented new RCM systems in the past three years. Of these implementations, 25 featured systems with next-generation capabilities. In most cases, the implementations were driven by the expected benefits of the new solution, rather than a need to replace existing functionality that no longer meets basic requirements or product support that is ending.

Among the key questions respondents addressed are:

  • What has been the impact to collections and accounts receivable (A/R)? 
  • Do providers still need bolt-on applications?
  • Are hospitals going live on time?

Finance executives at organizations considering a move may find the answers to these questions helpful in predicting ROI for their implementations.

And evidence suggests many healthcare organizations are indeed poised to adopt the new technology. Results of earlier research published in an April 2008 report, Revenue Cycle Reformation: Will Software Solutions Keep Up?, disclosed that half of the organizations interviewed at that time were seriously considering replacing their RCM solution, with a major influence coming from their core clinical information system (CIS) vendor. These organizations also regarded having the same integration in both inpatient and ambulatory departments as an additional benefit. The study concluded that vendors that can support the sole-source strategy are the early winners.

And the more recent data confirm these findings: Organizations are moving ahead with sole-source solutions, even if the functionality is not yet mature. Responses to the question of whether the organization's new RCM vendor was the same as its core CIS vendor disclosed that 36 organizations were using the same vendor, while only seven were not.

Are New Systems Meeting The Needs?

New RCM systems are meeting clients' expectations, but not all of their needs, according to the study. When asked about functionality, most customers described their RCM solution as immature or not yet fully capable. Although answers varied by vendor, in only seven out of 37 organizations was functionality reported to be adequate.

It also was a reality check to learn that there is a continuing need for third-party bolt-on products. Nonetheless, providers are looking for more seamless integration of the information obtained from these third-party products to improve the collection process and the bottom line.

To date, eligibility checking, demographic/credit checking, and medical necessity verification are the least likely functionalities to be core to a new RCM solution. On the collections side, however, a number of functionalities have replaced third-party products in some single-source solutions, including contract management/modeling, denials management, and self-pay/third-party collection (see Exhibit 1). A closer look at these functionalities follows.

Exhibit 1


A Look at Actual Functionality

Apparently, it was premature to suppose that the newer solutions would eliminate the need for third-party bolt-on products. RCM is a complicated matter, and designing software to support and track the rather tortuous cycle of patient billing and revenue collection is a steep assignment.

Thus, health care still supports a vibrant IT industry for vendors that are solving problems in the revenue cycle left unaddressed by the core systems. Nonetheless, customers expect that these third-party products will work well together in a more integrated and transparent way. Some of the new solutions are making good progress eliminating add-on applications, but they are not there yet.

Eligibility checking. Eligibility verification is the cornerstone to successful revenue collection, and some providers report that they are now performing this step at the previsit stage. Copayments and remaining deductible amounts add up, and collecting them and coinsurance information up front makes sense; otherwise, providers could later spend more on collecting the copayments than they are worth. Until automated, this process was labor-intensive while also absolutely necessary for real-time claims adjudication. Although some providers elect to forgo an automated solution, this is the area most often augmented by third-party solutions.

Demographic/credit checking. Demographic and credit-checking functions have the lowest adoption, but they are gaining exposure and broader consideration as possible third-party solutions embedded with the core RCM solution. Many organizations are evaluating these solutions as tools to confront identity theft issues, determine a patient's ability and propensity to pay, or support the administration of charity policies or other potential grant eligibilities.

Medical necessity verification. More than 80 percent of respondents in the study are automated in this area, with over half using third-party products.

Contract management/modeling. Core RCM solutions appear to be making a dent in this area, as just over 50 percent of respondents indicate using contract management/modeling functionality that is core to their new RCM system. Several RCM vendors have shown some success in displacing third-party solutions. At the same time, the respondents who are using this functionality are still seeking greater capabilities for both contract management and modeling than are currently available.

Denials management. Forty-one percent of study participants report being automated in this area with a tool set from their core RCM vendor. All of the vendors reviewed indicate that denials management is native to their solution.

Self-pay or third-party collection. Most providers report using a third party for a specific encounter type or payer, or simply in place of functionality provided by their core RCM solution. More than 90 percent of study participants report using their core solution for all or a portion of the process of collections from third-party payers or self-pay accounts.

Beyond the functionality itself, implementation timelines are also an important variable in determining ROI.  Although 68 percent of the newly installed systems have gone in on time, some delays have been material. Vendor-caused delays were off the charts at an average of 17 months. The bulk of any delay can be attributed to software, whether it is software immaturity, challenges with software configuration, or the need for additional software testing.

Best-of-Breed Versus Sole Source

Once healthcare facilities determine the probable ROI is worth the risk of an upgrade, they must next tackle the question of best-of-breed and its promise of superior functionality versus sole source with its promise of enterprise integration. The researchers for the study interviewed 39 unique organizations that had installed new RCM systems from a variety of vendors, and among these organizations, a majority (73 percent) of RCM decisions were tied to integration with the core clinical solution. When this percentage is combined with the percentage of organizations that want integration, a whopping 93 percent are determined to buy from a sole-source vendor. Only 7 percent of these organizations bought a solution that was not from an integrated or sole-source vendor (see Exhibit 2).

Exhibit 2


Bottom Line

RCM is more than just billing and collections; it is about improving processes, and the newer systems are attempting to do just that. For healthcare finance executives, however, the advances in technology raise challenging questions: Is there an ROI in replacing aging patient accounting software with next-generation upgrades? And do best-of-breed products or integrated solutions make the most sense?

On the question of ROI, the research findings cited here highlight two important measures: whether product functionality is meeting providers' needs and whether new solutions have been able to adequately replace predecessor products. The findings were revealing: Next-generation RCM products are meeting clients' expectations but not all of their needs, with only seven out of 37 sites reporting that the functionality is adequate. And there is a continuing need for third-party bolt-on applications in a number of areas of the revenue cycle process-a requirement many expected to disappear.

As for what kind of RCM solution to implement, the research found that healthcare providers are very interested in the advantages realized when the clinical and financial IT solutions are from the same vendor, including, for example, facilitywide integration, concurrent coding, and many others. That is a primary reason why the early leaders in RCM solutions are vendors that also offer core clinical systems. Indeed, more than 90 percent of those implementing a new solution weighed the product integration or sole-source benefit so heavily that they went with their core CIS vendor for the RCM solution.

The factors considered in the decision to replace an aging patient accounting system with a next-generation solution are unique to each organization. Some hospitals that have made the jump are realizing measureable benefits, particularly if the solutions foster integration with core clinical systems. On the other hand, some of the products' advanced features are being underutilized and the need for many third-party bolt-on applications continues. Which path a finance executive decides to advocate will no doubt be a topic of intense discussion in the challenging year ahead.


Kent Gale is founder and chairman, KLAS, Orem, Utah (


Publication Date: Sunday, March 01, 2009

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