In the intricate dance of healthcare financial management, the connection between Net Revenue and Revenue Cycle performance is often overlooked or misunderstood. Finance teams may wield their analytical magic at month-end, declaring success or failure against budgets, while the Revenue Cycle, if engaged, grapples with specific encounter-level questions without full understanding of financial model mechanics. The result? A disjointed process that hinders a holistic and common understanding of performance. In this blog post, we’ll explore the intricacies of linking Net Revenue improvement with Revenue Cycle performance and offer practical strategies to achieve alignment.

The Status Quo: Silos and Misalignment

Traditionally, Finance teams and Revenue Cycle teams operate in silos, often disconnected from one another with neither group exposed to each other’s intricate considerations relating to performance. Finance conducts their end-of-month analyses often aided by a net revenue software solution, to the revenue cycle stakeholder this sometimes resembles “voodoo math” without an apparent link or crosswalk to Revenue Cycle performance. Net Revenue metrics are frequently compared against historical performance, budget, and other factors but how does this relate to the intricacies of day-to-day revenue operations? 

Revenue Cycle teams on the other hand are often managing to a specific set of operational processes and performance metrics that may not always directly align to positive net revenue outcomes on a month-to-month basis. In addition, Revenue Cycle leadership often lacks comprehensive training on the net revenue tools and valuation models that drive financial statement outcomes.

Delineating Ownership and Process Engagement

A key opportunity lies in clearly delineating responsibilities between Finance and Revenue Cycle teams. Net revenue teams should take charge of explaining model-driven scenarios, including changes to underlying inputs / configuration, manual adjustments, or environmental factors like payer mix, service mix, and price adjustments. Revenue Cycle, in turn, should be accountable for scenarios stemming from internal or payer performance issues that result in delays in payment or reduced / no payment (e.g., denials / write-offs). Revenue Cycle should also be expected to forward communicate any known out-of-the-norm activities for the month that will impact the model (e.g., cleaning up write-offs, credits, etc.)

Common Disconnects 

Given the delineation of responsibilities, it is natural that there are common and recurring disconnects that occur during the month-end close process. Some of these items are a function of the financial models being used and the assumptions that are made regardless of whether it is a sophisticated platform or a collection of proven spreadsheets reviewed and adopted over time. However, recurring themes do emerge.

  1. Contractual adjustments. There may be a lack of alignment between Finance and Revenue Cycle teams regarding the application of contractual adjustments. If finance or revenue cycle teams do not fully understand the terms of contracts negotiated, it can lead to discrepancies in the estimation of accounts receivable.
  2. Uncollectable account estimation and valuation. Finance teams may estimate allowances for doubtful accounts based on historical data and financial modeling. Revenue cycle teams, on the other hand, may have a different assessment of the collectability of accounts receivable based on process driven initiatives, leading to differences regarding the allowance for doubtful accounts (e.g., payer processing delays that may only delay payment, but results in valuation loss as they age in the model).
  3. Delayed benefit realization. Changes whether process related or tangible changes like price or rate changes are often not proactively adjusted within the model, but rather are absorbed in the model over time. This often leads to delays in realization of net revenue improvement while the model “catches up.” 
  4. All these points can have a direct impact on net revenue and have implications as Revenue Cycle teams using net revenue from the financial models to establish various metrics like cash collection goals or net accounts receivable days. The result, if there isn’t alignment, can be a false sense of performance good or bad based on the outputs of the model.

Key Action Items

  1. Establish a clear and defined month-end close process. A structured net revenue close process with representatives from both Finance and Revenue Cycle that include defined roles, responsibilities, and methods to review models, process implications, and accounts receivable populations of interest.
  2. Actively engage key Revenue Cycle stakeholders in the month-end close process. This will foster collaboration and a shared understanding of the methods used to value reserve balances and consideration of allowances for doubtful accounts. Conversely, Finance representatives should understand and participate in performance discussions of the revenue cycle, including key metric reviews, process enhancements or breakdowns, and denial management discussions.
  3. Training for all. Ensure all participants in the month-end close process, including Revenue Cycle resources, receive comprehensive training on how the net revenue software and valuation models work and how operational focus has an impact on those models and their outputs. Never assume either set of stakeholders fully understands the implication of an action or outcome outside of their realm of responsibility. Eventually this knowledge empowers teams to make informed working decisions as well as provide accurate insights into account populations.
  4. Communication is key. Establish clear channels for sharing any changes made to the model or factors that are influencing the model from month to month. Open communication ensures that everyone is on the same page and understands the implications of adjustments or changes in outputs. Establish a structure outside of the close process that allows Finance to escalate concerns and questions while allowing Revenue Cycle a platform to convey progress on initiatives to address root issues.
  5. Engage Revenue Cycle in model design. If implementing a new Net Revenue model or implementing new valuation technologies, involve Revenue Cycle from the outset. Their insights into day-to-day operations are invaluable during the design and implementation process. Models can often integrate expected reimbursement calculations but interpretation and usage of such a value can differ. An underpayment team will use this calculation to determine if the primary payer paid the appropriate amount considering the patient liability but these models tend to neglect the impact of secondary payers and the actual collections from the patient. 

Key Populations for Revenue Cycle Review

  1. Encounters Closed to Zero. Investigate encounters closed to zero in the prior period with zero payment. Understanding the reasons behind these occurrences is crucial for optimizing revenue performance.
  2. Declining Rates. Monitor and analyze declining rates by payer, service, or market. Identifying the root causes helps prevent further deterioration in revenue streams.
  3. Post-Claim Submission Changes. Scrutinize significant changes made to insurance plans after the initial claim submission. These alterations can have profound effects on revenue outcomes.
  4. Avoidable Write-offs. Quantify impact of avoidable write-offs and their impact on net revenue for the period in review. Many times avoidable write-offs are the easiest place to start to identify opportunities that can have a significant impact on the net revenue model.
  5. Contractuals Above Threshold. Keep a close eye on contractual adjustment exceeding the standard threshold by 10%. This can be indicative of issues that need prompt attention and/or process intervention.
  6. Large Balance Accounts. Many net revenue models will fall short if applying a general rate to larger balances. These accounts can hit more nuanced clauses in the contract languages and often require a more deliberate pricing exercise to confirm the expected value. Work with contract management or an underpayment team to develop a process to actively confirm pricing.

The journey toward harmonizing Net Revenue realization and Revenue Cycle performance is one of collaboration, transparency, and clear delineation of responsibilities. By breaking down silos, engaging in joint processes, and ensuring comprehensive training, healthcare organizations can navigate the complex terrain of financial management with confidence. In the end, an aligned approach empowers teams to proactively address challenges, optimize performance, and secure the financial health of the organization.