Outsourcing and Beyond: How to Cut RCM Costs after a Pandemic

Cost containment has been a central topic in the healthcare revenue cycle management (RCM) conversations for years now, and the pressures of a pandemic have made it even more important. 

COVID-19 has shifted the revenue cycle landscape quickly and dramatically, leaving healthcare leaders considering options ranging from alternative approaches to labor to outsourced medical billing. But before healthcare providers should make any decisions, it’s important to understand the challenges they face, as well as the range of options they have in reducing RCM operations costs. 

Revenue cycle operations are facing financial pressures from two different directions. 

First, commercial reimbursement is falling while self-pay is rising. Organizations that saw a large portion of their revenue come from elective services have taken a hit as governments have taken action to slow the disease and patients remain wary of seeking care. At the same time, patients are taking on greater portions of costs even as unemployment rates rise. 

In response, many revenue cycle IT budgets are facing cuts as leaders adjust to these new challenges. A survey out of the Healthcare Financial Management Associate (HFMA) found that only 35 percent of responding executives planned on increasing RCM IT budgets over the next year, while 27 percent plan to make cuts. Many respondents were planning on focusing on decreasing revenue cycle costs and increasing economies of scale, with 32 percent considering outsourcing to achieve that goal [1].

The Response

As you review options like outsourcing medical billing, consider taking the following steps to reduce costs in your revenue cycle management. 

Shift Your Perspective

Successful revenue cycle cost reduction will rely heavily on where you start and how your organization is looking at the problem. 

Make sure you’re fostering an organizational and departmental culture that prioritizes cost awareness, continuous cost improvement, and breaks down silos of unnecessary spending. Looking at departmental cost savings and opportunities to reduce costs should be a priority.  Consider focusing on areas like data analytics and disciplined cost management to see the greatest results. Additionally, make sure your RCM cost-saving strategy involves: 

• Planning to create a roadmap for success
• Establishing a repeatable and proven process
• Implementing a project management system to track cost improvement initiatives
• Following performance measures that focus on exceeding industry norms

As you work through this process, you will be investigating benchmarks and setting targets, which will mean a necessary focus on your most critical cost KPIs. As you reduce cost to collect, here are a few to consider prioritizing: 

Net Days in Accounts Receivable

This is a good trending indicator of overall A/R performance that points back to revenue cycle efficiency.

Remittance Denial Rate 

This KPI is also an efficiency and quality indicator, and will highlight inefficiencies in your denials processes. 

Aged A/R as a Percentage of Total Billed A/R 

This trending indicator reflects receivable aging and collectability and points to revenue cycle effectiveness at liquidating A/R. Pay particular attention to claims over the 120-day mark, since they may point to inefficiencies. 

Don’t Immediately Think Labor.

While one of the most glaring line items in reviewing RCM costs might be labor, think carefully before making cuts in this space since there are solid reasons that a cost reduction strategy shouldn’t center on reducing labor costs through furloughing workers and implementing layoffs. 

There are stronger opportunities in supply chain sourcing and achieving department cost savings. Additionally, options in outsourcing new and emerging revenue cycle functions (like awareness around new, pandemic-related billing) can help you balance internal labor costs with adjusting to the pandemic.

If there’s any lesson the pandemic has taught us, it’s that the revenue cycle workforce doesn’t have to be housed in an expensive building. Many revenue cycle leaders are finding that the costs of on-premise staff, including office space, maintenance, etc. weren’t as essential as originally thought. 

Options like the virtual workforce, or even outsourcing medical coding and billing functions have allowed RCM leaders to cut the cost of expensive real estate while keeping revenue cycle functions moving. 

Don’t Forget the Basics. 

Perhaps most importantly, remember that it’s not necessary to completely reinvent the RCM cost savings wheel. Many of the basics that applied before COVID-19 hit will be invaluable in decreasing revenue cycle costs even as we move through the pandemic.  

Cost to Collect

You likely still have ample opportunity to decrease cost to collect by addressing denials (90% are preventable) and improving the denial management processes. 

Consider Technology

As you look for opportunities, don’t neglect options like automation and predictive analytics that can help you better process denials, find new opportunities to turn claims around faster, and update the revenue cycle process to maximize reimbursement and minimize cost to collect at scale. 

Most importantly, keep your options open. Your ideal cost reduction strategy will probably involve a mix of tactics, including leveraging technology, revamping culture, and finding an outsourcing partner that can walk with you as revenue cycle challenges evolve into the future.