- September 7, 2023
- Posted by: Steve Smith
- Category: Revenue Cycle Management
The healthcare industry has been facing a number of challenges for the past few years. Some of the most common challenges include inefficient revenue cycle management (RCM), rising costs, declining reimbursements, and staff shortage. As expected, these challenges are putting a strain on hospitals’ financial performance and leading to closures of departments, lay-offs, and other cost-cutting measures.
A comprehensive study by the American Hospital Association (AHA), entitled “The Current State of Hospital Finances: Fall 2022 Update”, has revealed that the operating margins of hospitals have faced a steady decline across multiple years. The report highlights that the average operating margin for hospitals was 3.2% in 2022, a decline from the 4.7% witnessed in 2015. Adding to this complexity, hospital expenses are projected to surge by 5.5% in 2024, while reimbursements are predicted to inch up by a mere 3.5%.
Echoing these concerns, a distinct analysis by PwC, titled “Medical cost trend: Behind the numbers 2024“, anticipates a 7% surge in healthcare costs in 2024. This surge in costs can be attributed to factors like aging population, increase in chronic ailments, and rise in medication prices.
Efficiently Outsourcing RCM Services will be key for Hospitals
To strengthen their bottom line, decision-makers at hospitals are looking for ways to slash costs and grow revenue. Delegating RCM services to external entities may serve as one of the pathways toward this objective.
A survey conducted by the Association for Healthcare Resource & Materials Management (AHRMM) underscores this premise, affirming in their report that medical practices that outsourced revenue cycle duties such as medical coding and billing reported a higher net operating margin compared to counterparts that retained these functions in-house. A parallel stance is observed in a report by the Healthcare Financial Management Association (HFMA), which asserts that medical practices that outsourced revenue cycle tasks boasted a more robust net income in comparison to those that chose not to outsource.
Outsourcing revenue cycle management functions including activities like prior authorization requests, medical billing, coding, and accounts receivable management, offers various advantages. Some of the proven benefits of outsourcing include:
- Prudent cost reduction via RCM services
Companies engaged in healthcare revenue cycle management often provide RCM services at a substantially reduced cost in contrast to hospitals that undertake these tasks internally. This disparity in cost arises from the economies of scale harnessed by these firms, which enable them to procure technology and services at a significantly lower cost. Moreover, many revenue cycle management companies operate from offshore locations while staying in compliance with HIPAA guidelines, allowing them to hire staff for medical billing, coding, and prior authorizations at a lower cost compared to in-house setups.
- Elevating revenue through efficient outsourcing of revenue cycle functions
Owing to the nature of their business, companies that provide revenue cycle management services usually have better payer relations and understanding of insurers’ policies, enabling optimal reimbursements for hospitals and subsequently boosting revenue.
- Efficiently outsourcing revenue cycle functions leads to improved patient satisfaction and loyalty
When operational functions like billing and collections are executed seamlessly and with efficiency, patients are more likely to encounter a favorable engagement. This increased patient satisfaction can be a catalyst for enhanced loyalty.
However, while the advantages of outsourcing revenue cycle functions are evident, it’s vital to recognize that drawbacks can also emerge if the choice of an revenue cycle management vendor is not judicious. Engaging the wrong vendor for non-clinical administrative functions can yield unfavorable outcomes.
Factors to consider when choosing a partner to outsource RCM services
- Ascertain the firm’s experience and established prowess in healthcare RCM
- Solicit reliable references from the potential partner
- Ensure the vendor has a sound understanding of your hospital’s specific requirements
- Negotiate an equitable contract that benefits both parties
For inquiries about comprehensive end-to-end RCM services tailored for hospitals, it is recommended to consult a respected healthcare revenue cycle management entity.