How hospitals can reduce compliance and revenue cycle management costs

A significant percent of hospital administrative costs come from billing and insurance-related activities. How can institutions address those expenses?

Identifying who to bill is a huge challenge among hospitals.
January 26, 2017

Looking ahead into 2017, it appears delivering health care will require more resources than last year. A report from PricewaterhouseCoopers found medical costs will increase 6.5 percent this year. Hospital inpatient and outpatient spending make up the bulk of these costs – 30 percent and 19 percent, respectively. 

Why is the cost of care rising? Administrative resources are stretched thin. PwC noted care utilization is rising among patients, but hospitals are struggling to find the human capital required to manage an increasing number of payments while complying with state regulations. How can administrators reduce hospital revenue cycle costs without violating compliance standards? 

"In 2012, business and insurance-related spending accounted for 15% of health care spending."

The costs of revenue cycle management and compliance 

Let's start with a fiscal overview. A study conducted by Aliya Jiwani, a researcher at the University of California San Francisco's Philip R. Lee Institute for Health Policy Studies, determined the percentage of billing and insurance-related (BIR) activities as a part of overall care costs in hospitals, physicians practices and insurance companies.

Jiwani and her colleagues discovered BIR expenses totaled approximately $471 billion in 2012. Overall, BIR accounted for 15 percent of health care spending. Recent research suggests this percentage may be even greater today. Given the complexity associated with hospital billing, it's not surprising BIR expenses are so high. What's happening in the background?

What's behind RCM costs? 

There are several reasons as to why revenue cycle management (RCM) consumes so many resources, especially with respect to billing auto carriers, worker's compensation firms and other payers specializing in accident claims. Motor vehicle accident (MVA) claims, for example, are regulated by every state's property and casualty laws, which determine who is responsible for providing payment in certain situations. These laws leave administrators with the task of:

  • Figuring out how to bill for a service.
  • Determining how long the accounts receivable should be on the books.
  • Authenticating the patient's place of residence and other demographic information that may affect the claims process. 

Further complications arise when a patient residing in a no-fault state, such as Florida, is injured while driving in a fault state such as Georgia and visits a hospital in Atlanta to receive treatment. According to the Insurance Information Institute, as per Florida law, the insurance company has to cover the patient's financial losses associated with the accident, but does that stipulation apply when the patient in question is injured in Georgia? This doesn't even touch on which party the Atlanta hospital should bill for services. 

The advantages of outsourcing RCM 

It's more financially viable for administrators to outsource their MVA revenue management responsibilities to businesses that possess the knowledge and resources required to process payments efficiently. When selecting an RCM partner, hospital administrators must ensure a prospect has the following capabilities:

  • A fully-staffed legal team that can address litigious issues. 
  • A rules engine that spots underpayments when they occur. 
  • Revenue cycle service staff specializing in MVA, worker's compensation and other niche insurance facets.
  • A database of all statewide laws regarding MVA. 

Overall, partnering with an RCM specialist enables administrative staff to focus on processes with which they're more familiar. In addition, hospitals can reduce the costs associated with managing MVA claims while ensuring they're complying with statewide regulations. If care costs continue to increase in the near future, it's likely outsourcing will become a more popular strategy among administrators.