Revenue Cycle Management and Its Integral Role in Clinical Care and Financial Efficiency

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By Knowledge Hub

In 1852, Florence Nightingale emphasized the importance of understanding the costs and benefits associated with treatments for various patient ailments. She stressed the significance of categorizing patients based on similar diseases to facilitate a systematic examination of treatment modalities. Her insights were prescient, positioning her far ahead of her contemporaries.

After a century and a half, healthcare providers began recognizing and acting upon her insights. This strategic approach ensures that optimal care is rendered most cost-effectively. To realize this aim, care providers document specific parameters: the practitioner involved, the nature of care, the care recipient, the resulting clinical outcomes, and the associated costs.


There is a common misconception regarding RCM among clinicians. Often, it is perceived mainly as a financial or billing mechanism geared towards revenue collection. In actual fact, RCM is a linchpin for clinical excellence. I like to underscore the multifaceted benefits given to care providers by a robust RCM system:

  1. Enhancement of the Patient Journey: The system acts as a compass, guiding patients through their healthcare experience. From the first touchpoint of scheduling an appointment to the culmination of post-care follow-ups, an optimized RCM streamlines and enhances every patient interaction stage with the healthcare facility.
  2. Optimal Clinical Outcomes: Transcends its traditional role in revenue management and plays a pivotal part in achieving better clinical outcomes, ensuring that resources are divided judiciously, and ensuring a precise alignment between care provision and billing.
  3. Facilitation of Clinical Protocols Development: Repository of crucial patient data. This data can be harnessed to develop, refine, and implement clinical protocols. Care providers can institute best practices tailored to their patient demographics by analyzing trends, challenges, and outcomes.
  4. Enabling Health and Safety Standards: The nexus between RCM and clinical operations allows care providers to develop and fine-tune health and safety policies.
  5. Promotion of Superior Clinical Documentation: Contribution to clinical documentation. Ensuring that every patient interaction, procedure, and outcome is recorded creates a culture of comprehensive documentation. This is invaluable for case reviews, audits, research, and continuous clinical improvement.
  6. Emphasis on Coordination: For clinical excellence to be achieved, coordination among various stakeholders is paramount. A robust RCM system acts as a linchpin, ensuring that every department operates in coordination, from administration to clinical care. This synergy improves the patient experience and bolsters the overall quality of care.
  7. Value-Driven Purchasing: Financial data enhances performance by pinpointing areas that require attention. This facilitates the preparation of bottom-up budgets, value-driven purchasing decisions, and forecasting demand.
  8. Claims Denials Management: The detailed clinical data helps to decrease claim denials from insurance entities.
  9. Strategic Negotiations: Understanding of the financial profitability across varied clinical services (e.g., Pathology, Radiology, and Inpatient Wards), third-party stakeholders (such as Insurers and Corporate entities), and specific medical services (like Surgery, Oncology, Pediatrics, and more) strengthens the management’s strategic positioning and negotiation capabilities.



Six functional components of RCM ensure the system’s efficacy.

  1. Scheduling is when a patient contacts a hospital’s admissions department to arrange an appointment with a specialist. The admissions team records essential patient details and discusses their symptoms to ensure an appropriate consultant is assigned. It is common for patients to express a preference for a particular consultant. The team inquired about the patient’s payment method and financial coverage. Patients who bear the costs without an insurer’s or corporation’s backing are categorized as “Self-pay.” Patients with insurance or sponsorship are expected to present evidence of their coverage upon arrival.
  2. Registration: This step includes the initial data collection and verification phase. During this crucial stage, comprehensive patient information—including identification, country of residence, gender, and age—is gathered. Concurrently, payment methodologies—cash, insurance, embassy sponsorship, or corporate backing—are identified and documented in the patient’s account. The financial coverage and the patient’s eligibility for certain services are reconfirmed. For instance, an insured patient would need to produce a pre-authorization number, while those sponsored by embassies or corporations would be required to provide a letter of guarantee. Depending on the policies of the care provider, patients paying out-of-pocket might be necessary to make an upfront deposit before the commencement of any medical services. Before or during the registration phase, patients are presented with an estimate of the prospective treatment costs. These cost estimations are contingent on the patient’s payment modality. For example, a patient paying out of pocket would be charged the standard rack rates. Those affiliated with insurance companies or embassies would be billed according to pre-negotiated rate agreements. It’s also worth emphasizing that the cost estimation process is collaborative. Clinically and medically trained professionals, with supply chain and finance colleagues, come together to ensure accuracy. Could you consider, for instance, a patient needing a knee or hip replacement? The overall estimate would factor in the cost of necessary prosthetics—ranging from hips and knees to plasters and screws.
  3. Charge Capture: Every intervention, service, and procedure must be documented. Dedicated clinical staff, comprising nurses, physicians, and other allied health professionals, work in tandem to ensure that every aspect of the patient’s care is recorded. This is more than just an administrative function; ensuring continuity of care and proper financial processes is critical. Upon completing the patient’s treatment or at designated intervals, the clinical documentation undergoes another layer of scrutiny. Certified medical coders, specialists trained in the language and intricacies of medical coding, analyze the patient’s record. Their goal? To allocate the appropriate standardized codes corresponding to the specific services rendered during the patient’s episode of care. This coding process ensures uniformity and clarity, allowing healthcare providers, insurance companies, and other stakeholders to have a clear and standardized understanding of the patient’s treatment journey.
  4. Claim Submission: This claim isn’t just a list; it’s a comprehensive invoice detailing the services rendered, each associated with pertinent fees. These fees are determined based on the applicable reimbursement model, which refers to a specific fee schedule. These schedules are often negotiated between healthcare providers and payers, ensuring that costs are transparent and fair. The claims submission protocol might differ for patients covered by insurance or affiliated with other third-party entities. Insurance companies often mandate that care providers submit these claims on behalf of their patients. In many healthcare scenarios, the insurer (or sponsor) and the patient pay for care, resulting in co-payments. Patients must cover these co-payment fees upon discharge or before exiting the hospital. When medical bills are submitted to insurance companies, it’s typical for insurers to cover 70-90% of the total billed amount. Insurance company’s medical claim assessors examine these submissions. Certain charges may be contested during their review, leading to denials or rejections. Care providers can then provide additional information and engage in negotiations over these rejections. Once an agreement on the final balance is reached, the outstanding amount becomes a liability payable by the insurer or corporate entity to the care provider.
  5. The Accounts Receivable department tracks outstanding balances. They log incoming payments and, every month, issue statements detailing any exceptional amounts, following up to ensure timely payments. Leadership reviews these balances for cash forecasting and bad or doubtful debt provisioning. The ultimate aim of the Accounts Receivable team is to optimize collections and minimize claim rejections and patient payment defaults. For patients paying out of pocket, the admissions process is more rigorous. A contract is drawn up and signed to safeguard against potential defaults. Both the admissions and billing teams collaborate to ensure patients receive accurate estimates of their care costs, and these estimates are communicated. Care providers often request advance payments or deposits from patients. Established thresholds dictate when additional fees are necessary. If a patient’s accumulated charges surpass this threshold, they’re prompted to make another deposit to reduce their outstanding balance.
  6. Contracting: Negotiating contracts and pricing with insurers, corporations, and other third-party payers is paramount for care providers. I want to point out that conducting a comprehensive financial profitability analysis encompassing all associated medical, clinical, and nursing disciplines relevant to the respective payor is essential. Primary charge categories for negotiation include but are not limited to:


  • Room charges
  • Ward supplies
  • Oncology supplements
  • Intensive Treatment Unit (ITU)
  • Progressive Care Unit (PCU)
  • Transplant Units
  • Day case charges, including those incurred beyond a specific hour threshold and associated supply and accessory costs.
  • Primary and Secondary Procedures: Charges corresponding to Minor, Intermediate, Major, Major Plus, and various complex variations.
  • Theatre packs: charges for Day Surgery Units (e.g., Endoscopy), Minor, Intermediate, and Major procedures, both under local and general anesthesia.


In addition to the charges above, terms for payment and discount rates are determined and agreed upon. Thorough charges presented on patient accounts are essential to facilitate meaningful contractual negotiations.


Before 1983, the prevailing view held that patients were unique, with over 10,000 distinct disease diagnoses. The intricacy of healthcare provision was such that it was deemed impossible to quantify or standardize.

However, a pivotal study emerged in 1982, as authored by Fetter and Thompson. This comprehensive investigation scrutinized over 100 million inpatient records to discern clinical and cost variation patterns. It introduced a novel concept: patients exhibiting similar clinical conditions and resource utilization patterns could be grouped under a unique category known as Diagnosis-Related Groups (DRG). This groundbreaking research laid the foundation for the initial set of DRGs and paved the way for advanced clinical costing solutions.

In subsequent years, healthcare payers recognized the advantages of the DRG system and embraced it as a funding method, ensuring consistent reimbursement rates for patients classified within a particular DRG. This uniformity was vital to simplifying the payment process. These include the Fee for Service introduced in 1980, the Fee Per Case launched in 1983, Capitation, and several other payment structures.


Accurate costing is fundamental to determining pricing strategies, budget allocations, cost-effectiveness, informed decision-making, managing resources more efficiently, and improving the quality of care. The costing function must understand the Direct and Indirect costs to arrive at a comprehensive understanding of the financial landscape.

Direct Costs

These costs are directly attributed to the care of individual patients. These costs vary with the volume of care provided and are therefore often termed ‘variable costs.’ Here are some of the primary constituents:

  1. Nursing and Consultant Time: The workforce hours put in by healthcare providers form a substantial part of direct costs. This includes the base salary, overtime, benefits, and professional development costs.
  2. Theatre and Ward Charges: These involve the medical facilities’ costs. These could include rent or amortization of capital expenses, utility costs for the specific duration of use, and any related fees.
  3. Medical Supplies and Consumables: These are tangible items used for patient care, such as medication, surgical tools, bandages, and other materials.


Indirect Costs

These costs cannot be traced back to individual patient care but are essential for the healthcare facility’s functioning. These are also known as ‘fixed costs’, as they rarely vary with patient volume. They include:

  1. Board of Directors and Executive Leadership: This category includes the governance and strategic decision-making functions. Their expenditure includes salaries, benefits, and other compensation.
  2. Information Technology: The IT department has a significant but indirect cost, from maintaining electronic health records (EHR) to ensuring cybersecurity.
  3. Finance and Communications: This includes the cost of the workforce that handles billing, insurance claims, patient communication, and community outreach.
  4. Project Management and Marketing: This section includes costs for planning new service lines, advertising, and other forms of patient engagement.


While advanced financial methodologies exist to allocate these costs to specific service lines, such discussions are intricate and warrant a separate and more extensive piece.


Given the complexity of RCM, it is challenging to address every facet in a singular session. The aspects not covered in this piece are:

1.     Chart of accounts and cost centres setup

2.     Direct cost allocation methodologies

3.     Overhead cost allocation methodologies

4.     Teaching costs

5.     Claims management

6.     IT system designs and implementation

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