Bad Debt

Two New Revenue Cycle Models For Three Key External Challenges

February 10, 2017 10:39 am

Denials and avoidable write-offs, underpayment, and a shift in patient liability all pose risks for complacent providers. These risks can be mitigated through an improved revenue cycle structure, with better reporting and technology enabled processes.

Avoidable Write-offs

There are many bases for the denials that can end up as write-offs, including the following common ones.

Medical necessity. Was the procedure or surgery medically necessary, and thus eligible for payment? An answer of “no” often comes down to inadequate documentation. The supporting documentation must represent the severity of the patient’s illness if the claim is to be paid.

Non-covered insurance. Payment can be denied when patients receive services that are not covered by their insurance. Most often, these denials are due to communication breakdowns between the revenue cycle and clinicians.

Missing authorizations. This problem has become more widespread as health plans increasingly require prior authorization for services. In some instances, authorizations of additional days for inpatients may be missing as a result of process or coverage gaps within case management.

Although these bases for denials can be understood as stemming from external pressures, they demand internal responses. Whether it’s getting authorizations prior to the service and communicating new preauthorization requirements to the clinical front lines, getting a handle on where untimely filing is originating, or informing clinicians that they are not consistently providing needed documentation, these concerns constitute major areas of opportunity for proactive organizations.


In the case of underpayment, organizations have trouble recouping what they are owed for two reasons: a distorted picture due to incorrect contract modeling and an inability to take action to address real variances. There is ample room for error in the process of translating a verbal contract into a database, as employees with the expertise to accurately interpret the terms often don’t know how to build contracts into the system. Technical experts typically don’t have the managed care background to grasp the granular detail of complicated health plan/provider contracts. Add to this complexity the fact that providers have different contracts with different health plans, each with its own coding and payment structure, and the possibility of inaccurate modeling becomes acute.

Revenue can be lost even under contracts that are modeled correctly if the health plan is not properly executing the terms of contract; organizations may be accepting underpayments routinely without even knowing it. The only way a health system can know the extent of such lost revenue is by actively monitoring expected payment versus actual payment (with a rational variance allowed so as not to tie up staff unnecessarily), driving workflow to resolve individual underpayments, and creating and using a feedback loop to send this information to a managed care expert who can review revenue on a macro level. Devoting some portion of the revenue cycle team to resolving underpayments will help stem the tide of underpayment and can also yield important data for negotiations.

Greater Patient Liability

With the massive shift of liability from large health plans and employers to individual patients, patients are becoming much more cost conscious. For example, the amount of individuals with high deductible plans has increased six-fold since 2006. More targeted outreach, with more accurate information around the cost of care, soon will be a baseline requirement for healthcare providers looking to attract and keep patients.

One of the pillars of these best practices is a “preservice center” that engages patients prior to service to discuss and arrange appropriate paths to payment. In some ways, the conversation itself is as important as securing the payment: For the sake of the provider’s reputation and trust among patients, each patient should receive an accurate projection of what he or she will owe. Providing this information can allay unnecessary anxiety, thereby improving the patient’s experience.

One health system has improved several metrics by taking the preservice center concept a step further, implementing a sophisticated “schedgistration” model integrating demographic collection, insurance verification, liability communication, and access to financial counseling into the scheduling process. This model has enabled the health system to increase point-of-service collections and identify coverage proactively, thereby reducing registration times and bad debt.


Improving revenue cycle performance requires a commitment to developing such internal solutions. Two such solutions, in particular, can enable revenue cycle leaders to effectively address the challenges outlined here: forming a revenue cycle integrity team and establishing a preservice center like the one alluded to previously.

The revenue-integrity team. Healthcare organizations should form a dedicated revenue-integrity team that drives the overall organization toward prevention, not just resolution, of denials and underpayments. Most healthcare organizations still view revenue integrity as charge and chargemaster-focused. But organizations that are serious about rooting out revenue losses make the concrete organizational changes that are necessary: The establish a standalone department with a cross-functional team that handles everything related to gross and net revenue.

To assemble this revenue-integrity team, the organization must first identify the department’s crucial functions, write job descriptions for the positions on the team, place the department logically within the existing organizational chart, establish policies and procedures for its operations, and finally, set goals for the team. High-functioning revenue-integrity teams will consist of a strong, visible leader and individuals with operational, analytical, and clinical expertise. The team should be committed to performing accurate reporting and should use its cross-functional composition to create feedback loops back to the appropriate departments to ensure each resolved problem leads to prevention of similar problems—no matter the original problem’s source.

Preservice center. A preservice center serves as a central hub for patient and insurance outreach prior to service. It draws on different sources of data to understand each patient’s benefits, including the patient’s out-of-pocket payments and eligibility and authorization for different procedures. Getting an accurate picture of the patient’s situation before a procedure is the first step. The second is using that information, together with an estimate of all the costs associated with the given procedure or service, to compute the patient’s liability and provide the patient with accurate information regarding what he or she will owe. The final step is to provide a direct connection to financial counseling if the patient needs more specific assistance.

Ultimately, providers should understand that most patients today are to some extent self-pay patients, and they need to be understood as such. Health systems should reckon with the fact that $10,000 deductibles mean that they may end up delivering charity care even to insuredpatients.

A financial triage approach is the best solution to this new reality. These financial clearing tiers might include one tier of people able to pay in full; the next of people who need to be offered a regular, manageable payment plan; and a third tier of people requiring more complex financial negotiation, perhaps via external solutions such as medical loans.

With provider revenue currently being squeezed on several different fronts, a fresh approach to revenue cycle challenges is necessary.

Kent Ritter is director, revenue cycle practice, with Navigant Consulting, Inc. 


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