BLOG: The difference between profit and loss: Why strong RCM technologies are vital for success in today’s health care climate


While some claim that the recession has hurt health care market initiatives to improve revenue cycle management (RCM) and has decreased the importance of healthcare back office technology investments, the global recession, the movement towards consumer medicine, and government legislation have actually made RCM and related technology vital to payer and provider operation. In fact, according to an article in Healthcare Financial Management magazine, strong RCM processes make the difference between profit and loss, accounting for up to $9 million in yearly revenue for a typical 300-bed hospital. The same report indicates that costs could be even higher, because RCM technology has an effect on metrics that are difficult to quantify, such as:

  • Lost charges,
  • Incorrect payments,
  • Repeated and redundant work.

Furthermore, a recent report from HIMSS indicates that increasing RAC audits, movements towards managed care, and a larger focus on customer experience are the inspiration for adopting electronic claims and attachment processes. These technologies have the highest adoption rates in organizations looking improve their RCM.

The true cost of rework

The article cited above states that 75% of business office staff in any hospital is dedicated to the massive amounts of work necessary for reworking claims, attachments, and bills. Note that this does not include the number of floor staff members, such as and case workers working to investigate, revise, and refine patient account paperwork.

Although providers operate in much smaller profit margins (often less than 2%, according to a report from Mark Anderson and the AC Group) the true cost of rework must be examined by both payors and providers. Payors must retain adequate staff levels for documenting denials and reviewing resubmitted claims that often have additional supporting documentation. In order to succeed and thrive in a health care environment that increasingly relies on consumers, costs need to be managed or cut on both sides, if health care groups want to stay competitive and profitable.

While the prospect of controlling this situation is daunting, electronic systems, and electronic attachments in particular, have great potential to improve RCM in a variety of ways, including reducing or eliminating rework, improving collection schedules, and increasing revenues.

How electronic attachments strengthen RCM and boost revenues

RCM can be the difference between profit and loss, and since rework is perhaps the largest complicating factor for any RCM program, electronic claim and attachment submissions, are a clear contender for “best” way to improve RCM by reducing rework and streamlining process.

Electronic submissions and attachments improve RCM by:

  • Drastically increasing first-pass rates,
  • Reducing the 30-day average for reimbursements and payments,
  • Controlling and reducing administrative costs.

Improving Accuracy

According to Aetna, one of the most unfortunate realities in the health care industry is that, on average, only ¼ of all health care claims are approved on the first pass. A major contributing factor to this bleak situation is inaccurate submissions and attachments. Electronic submissions and attachments improve RCM efforts by driving first-pass submission success further than traditional methods. Electronic submissions and attachments can help organizations to reduce or improve staffing control because claims are initially submitted with the necessary supporting documentation.

Electronic processes improve this rate by putting information directly into standard formats and transmitting information via electronic means, so errors and omissions are more easily identified and information loss is minimized. No more illegible handwriting and lost mail. In addition, electronic attachment service providers like NEA have proprietary systems that automatically review images and other information for fidelity.

Increasing speed

The average hospital receives complete payment 75 days after services are provided, and fails to collect up to 4% of revenue. Compare this to an average 28-day cycle for other markets. The truth is that electronic claims and attachments reduce the length of the average payment cycle to only 7 to 14 days. In fact, on rare occasions, clients working with NEA have received payment for services in as little as 3 business days.

Slashing Overhead

HIMMS recently reported that, of the $1.3 trillion in outlays spent in the health care industry, 31% of that, or about $403 million dollars, goes to administrative costs. That means that about 1/3rd of the cost of running not just hospitals, but payment organizations as well, goes to administrative and paperwork costs. Electronic submissions and attachments slash this cost by 50% or more by automating the submission process. Not only are submissions made without the need for labor-intensive filing or processing, but they are also stored in perfect condition for years, making recall and review quick and easy.

The most progressive and flexible aspect of electronic attachments is they need not replace existing processes. Organizations that are ready to experience the advantages of automation, but are not ready to retrain employees on an entirely new process, can simply add a layer of electronic management over traditional methods, rather than replacing them completely.

Starting Today

By improving first-pass rates, cutting revenue cycles to 14 days or less, and eliminating overhead costs with electronic attachments from companies like NEA, hospitals and payors can begin to get a handle on the $1.3 trillion dollars they spend every year processing and reprocessing paperwork. With current economic realities and government legislation, technologies like these will be a must for any competitive health care group. Luckily, starting now is easy because electronic technology can simply be added to existing process.