By Rayanna Moore and Lori Brocato 

For decades, North Carolina's High Country health care was provided by three unique and independent hospitals-Blowing Rock Hospital in Blowing Rock, Charles A. Cannon, Jr. Memorial Hospital in Linville, and Watauga Medical Center in Boone. Over the past five years, the hospitals have joined together not only to expand the services offered, but to enhance the quality of care as well. Today, Appalachian Regional Healthcare System (ARHS) is the premier healthcare system in Northwest North Carolina, serving a population of 85,000. However, the road to becoming a successful health system was filled with revenue cycle potholes.

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Less than one year after the third hospital joined ARHS, accounts receivable (A/R) days were hovering in the high 70s, and more than 90 percent of claims could not pass the first round of edits. ARHS had an overabundance of back-end claim denials, and staff were sorely lacking time for claim clean-up.

From an organizational perspective, each hospital managed its own business office technology, processes, and staff. Health information management (HIM) departments operated in silos, and communication among the revenue cycle stakeholders was minimal. Reporting tools available within the legacy third-party billing systems were obsolete and lacked any type of dashboard capabilities. And finally, only minimal data were available to support managed care contracting. It was time for immediate 

Once ARHS's leaders realized the depth of the situation, they immediately set out to assess the problem and develop a recovery strategy. A new corporate director of revenue cycle was hired in early 2008, and three high-level goals were defined: centralize business office (CBO) functions, reduce A/R days, and clean up billing claims.

To achieve these goals, three revenue cycle functions-patient accounting, patient access, and HIM-were brought together under one umbrella. All processes were centralized to the fullest extent possible, and reporting rolled up to the corporate director of revenue cycle, who subsequently reported to the corporate CFO. Once reorganized, the team set out to conduct an in-depth assessment of the situation in three steps.

Step 1: Map every rejection. The first action plan focused on evaluating current systems and identifying where process breakdowns had occurred. A matrix was developed, and every rejected claim from a two-week period was analyzed. For each rejection, the team recorded what went wrong, why the claim did not pass edits, and where in the process the rejection occurred. At this point, the team was not concerned with the reasons for rejection; it simply focused on completing the matrix. All types of claims were reviewed, including series claims.

Step 2: Identify where each hospital information system (HIS) rejection occurred. Once complete, matrix data were analyzed and rejections separated according to where the rejection occurred. HIS rejections were further reviewed, and the specific problem identified. This step disclosed a number of simple corrective action steps within the HIS that were taken to reduce rejections:

  • Settings within the billing module were corrected. Some settings were inaccurate (e.g., wrong bill type).
  • Condition codes were set up to post automatically to the claim. Previously, they had to be added by hand.
  • Revenue, CPT, and Healthcare Common Procedure Coding System codes coming from the chargemaster were corrected.

With these minor problems easily remedied in the HIS, the team turned its attention to the other leading culprit for rejected claims: the third-party billing system. Here the organization found its greatest challenge-and biggest opportunity for improvement.

Step 3: Identify where each third-party billing rejection occurred. In going through the claims rejected at this level, the team immediately realized that the existing third-party billing system and claims scrubber could not accommodate current-day needs. Updated compliance rules for items such as medical necessity and national coverage determinations (NCDs) were not supported in the legacy system. More than 90 percent of claims were dirty and could not even pass the first round of edits. In addition, the system required extensive maintenance to load updates and keep the database current. At this time, new technology options were explored.

Taking Action

ARHS needed new revenue cycle technology that would include updated third-party billing capabilities and advanced claims scrubbers and would support the upcoming centralized revenue cycle model. However, ARHS also had a corporatewide mandate to reduce capital costs and total cost of ownership for new technology investments. Only systems provided on an application service provider (ASP) basis were included in the evaluation.

Furthermore, because ASP solutions are web-based, all users would have access to a centralized repository of billing and claim information regardless of location. This factor was important, as separate locations could easily be maintained and all have access to the same information until the new CBO was fully operational. Finally, with a web-based system, all system updates are totally automated and available in real-time with little or no staff intervention, thereby reducing revenue cycle dependence on the IT department.

The system chosen met all the above requirements and provided advanced technology in four areas: integrated compliance tools, flexibility to override codes, ease of use, and executive dashboard capabilities.

Integrated compliance rules. Industry-leading editing and compliance software was embedded into the new revenue cycle technology, which provided coders with both outpatient code edits and local medical policy review (now called local coverage determinations [LCDs]) edits. The prior technology system did not provide these edits, so a high volume of claims were being rejected-and denied.

Flexibility to override codes. As good as the new technology is, sometimes coders disagree about a particular edit or code. In these situations, the system gives coders the ability to override and edit claims easily-a capability that in conjunction with the integrated claims scrubber has led to cleaner claims. In the past, 90 percent of ARHS's claims failed edits. Now, more than 90 percent of its claims are completely clean.

Ease of use. Billing staff report the new technology is easy to use. The learning curve was about one month with all staff comfortable within eight to 12 weeks. System navigation is intuitive and walks billing staff through the process step-by-step. The team was able to reallocate 3.5 of the five full-time staff members away from the day-to-day processing of primary and secondary claims; these staff now follow up on delayed payments from payers and handle rejected claims.

Executive dashboard capabilities. The new corporate revenue cycle director uses the executive dashboard daily to monitor activity and weekly to create executive reports. At any time, the director can see how much has been billed, what is on hold, and when payments are expected. The CFO can be informed of dollars expected from each payer on specific dates, a capability that has helped the organization to accurately forecast revenue and predict cash flow. They can also see which claims are being held, for what reason, and the specific dollar amount with drill-down capability to view individual claim detail.

Measuring the Results

At Watauga Medical Center, A/R days have fallen from the high 70s to the low 40s on average. Unfortunately, the denial rate was not accurately measured before this process began, but team members report a dramatic reduction in back-end denials, such as those associated with failed edits. Furthermore, the new system easily handles the payment differences of ARHS's two critical access hospitals.

In addition, the new revenue cycle system enables many more payers to send remittance advices online. At any time, the revenue team can see the status of Medicare claims, compare payers, and extract real-time data to help with managed care contract negotiations.

Unexpected Opportunities for Improvement Appear

In the end, careful analysis of rejections and denials led to improvements in ARHS's financial health. The strategic decision to reorganize and consolidate revenue cycle departments also led to better teamwork, stronger communications, and faster resolution of issues.

The new compliance rules embedded within the revenue cycle system identified potential rejections, but did not highlight these in red for the clinical coders. If not highlighted in red, coders were ignoring the system's suggestions. Unfamiliar with medical necessity, NCD, and LCD rules, coders previously were unaware that they needed to check information the system identified. Now they do. Although it may take coders a few extra minutes to investigate all line items highlighted in the system, they spend dramatically less time cleaning up rejections and denials after they occur.

One thing the new system could do better is to see real-time status of claims for more payers than just Medicare. But this capability will have to wait until more payers open their doors to revenue cycle technology. Unfortunately, payer participation in real-time claims status reporting is beyond the privy of vendors and ARHS-at least for now.  

Rayanna Moore is system director, revenue cycle, Appalachian Regional Healthcare System, Boone, N.C. ( 

Lori Brocato is RCM product manager, HealthPort, Columbia, S.C., and a member of HFMA's Georgia Chapter ( 

Results of ARHS's Revenue Cycle Improvement Initiative

  • A/R days reduced by 34 days
  • Over 90% clean claim rate
  • 70% of staff reallocated
  • Back-end denials eliminated
  • Real-time data for contract negotiations

About Appalachian Regional Healthcare System

Appalachian Regional Healthcare System includes:

  • Blowing Rock Hospital, a private, not-for-profit 25-bed critical access hospital
  • Charles A. Cannon, Jr. Memorial Hospital, a 25-bed critical access hospital
  • Watauga Medical Center, a not-for-profit corporation with 117 acute card beds

System data for 2008 include:

  • 7,908 inpatients
  • 30,637 emergency department visits
  • 5,903 surgery cases
  • 1,394 employees
  • 147 medical staff members

Publication Date: Friday, December 11, 2009