Breaking Down the Back-End Revenue Cycle, Key Best Practices

February 22, 2024 - The healthcare revenue cycle is a continuous process that relies on each step to keep revenue flowing. However, many organizations break down the revenue cycle into front- and back-end steps to manage what happens before and after a patient encounter. Back-end revenue cycle deals with revenue collection and management after a patient leaves the exam room and the following days.

Back-end revenue cycle covers claims submission and transmission to denials management and accounts receivable (A/R) management. Efficient back-end processes are vital to revenue collection, reimbursement optimization, and revenue integrity. Obstacles to efficient back-end processes can also impact patient experience.

Healthcare providers must ensure a seamless revenue cycle; back-end optimization is key to quick and accurate revenue collection.

Back-end revenue cycle steps

The back end of the healthcare revenue cycle refers to processes that occur after patient care, so when a patient leaves the office and middle tasks, such as coding, health information management, and charge management, have been completed. Some refer to this final stage of the revenue cycle as patient accounting.

The key components of back-end revenue cycle are:

• Claims submission: Providers generate claims to detail services rendered and associated codes (e.g., CPT and ICD-10). They then scrub the claims to ensure accuracy and compliance with coding and medical billing rules and regulations, depending on the payer tied to the patient account.
• Claims transmission: Once providers have completed a claim, they send it to payers for reimbursement. Many providers use electronic means to transmit claims, including electronic data exchange, to promote efficiency and accuracy.
• Claims adjudication: During claims adjudication, payers review the claim and make a reimbursement determination. While providers wait for payers to send their determination, back-end revenue cycle staff will check on a claim’s status via manual channels (i.e., phone, mail, fax, and email), a payer’s portal or IVR system, or through a fully electronic method like ASC X12N 276/277. Payers may approve a claim and reimburse the provider for services rendered or deny a claim.
• Denials management: Providers must manage any denials they receive from payers to recoup reimbursement for services rendered. This may include reworking claims to correct errors, resending claims, or appealing a denial with the payer to collect reimbursement.
• Payment posting: When claims are approved, providers record payments in their accounting system and reconcile payments with expected revenue from the patient encounter. This may also involve resolving discrepancies in how much was received versus how much a provider expected.
• A/R management: In healthcare, A/R management encompasses monitoring, analyzing, and optimizing outstanding balances owed to a provider for services rendered. It involves timely, accurate revenue collection from payers and patients, as well as financial reporting and analysis.
• Patient collections: Patients may owe a remaining balance after their insurance reimburses providers for services rendered. Providers must bill the patient, follow up on unpaid claims, and assist the patient with paying their financial responsibility, including negotiating payment plans.
• Revenue integrity: Providers ensure revenue integrity through audits and compliance checks. Audits and other checks verify accurate coding, billing, and compliance with regulatory requirements. Findings then impact reimbursement optimization strategies.

These back-end functions of the revenue cycle are essential to keeping a practice operating smoothly. Providers typically collect the majority of revenue from payers, so having processes in place to submit clean claims and post reimbursement is vital to a practice’s financial health.

However, patient collections has become more important to providers as patient financial responsibility continues to increase under popular high-deductible health plans, so having a strategy in place to bill patients and collect payment quickly is just as important.

Top KPIs to monitor back-end efficiency

Without a working back-end, revenue cycles can come to a halt. Whether a provider belongs to a small practice or a large health system, a seamless back-end revenue cycle is key to revenue generation. Key performance indicators (KPIs) can help providers track their back end’s performance and inform strategies for revenue optimization.

The Healthcare Financial Management Association (HFMA) has developed strategic KPIs called HFMA MAP Keys to set the standard for revenue cycle excellence in healthcare. Several MAP Keys refer to back-end revenue cycle functions and provide organizations with formulas to track revenue cycle performance related to denials management, days in A/R, and other back-end areas.

The key KPIs, as defined by HFMA MAP Keys, include:

• Clean claim rate: The clean claim rate measures the percentage of claims submitted to payers that require no additional processing or reworking for acceptance. Providers should divide the number of clean claims by the total number of claims to find the KPI. A higher clean claim rate indicates efficient claims submissions and low denials, resulting in lower collection costs.
• Denial write-offs as a percentage of net patient service revenue: This KPI takes the net dollars written off as denials and divides the number by the average monthly net patient service revenue. HFMA says it is a trending indicator of the final disposition of lost reimbursement, meaning all efforts of appeal have been exhausted or the provider chooses to write off the reimbursement.
• Remittance denial rate: The remittance denial rate indicates a provider’s ability to comply with payer requirements. However, this KPI divides the total number of claims denied by the total number of claims remitted to provide a trending indicator of the percentage of claims denied.
• Net days in A/R: The KPI provides a look into overall A/R performance and indicates revenue cycle efficiency. The formula takes net A/R from the balance sheet and divides it by the average daily net patient service revenue from the revenue statement. A lower number of days suggests a more efficient revenue cycle.
• Aged A/R as a percentage of total A/R: Revenue cycles should be able to liquidate A/R. To assess how effective one’s revenue cycle is at this, providers can divide unbilled A/R and A/R by aging category (i.e., 0-30 days, 31-60 days, 61-90 days, 91-120 days, and >120 days) and divide those by total A/R. Tracking each aging category gives providers insights into how efficient their revenue cycles are and indicates any challenges they have with collecting outstanding revenue.
• Cash collection as a percentage of net patient service revenue: To find how well the revenue cycle can convert net patient services revenue to cash, providers can leverage this KPI by dividing total patient service cash collection by the average monthly net patient service revenue. The resulting value indicates fiscal integrity and the financial health of an organization.

These KPIs leverage revenue cycle data to give organizations a comprehensive view of their revenue cycle. Any undesired values, like a high claim denial rate, suggest an obstacle providers must overcome to guarantee efficiency and financial health. Providers should track these KPIs regularly to monitor revenue cycle efficiency and adjust when numbers slide in the wrong direction.

Best practices for optimizing back-end revenue cycle

Back-end revenue cycle helps providers close the loop when it comes to patient accounting. Yet, many inefficiencies get in the way of ensuring a smooth revenue cycle. At the top of the list of inefficiencies is manual processes.

The healthcare industry could save $16.4 billion by automating everyday administrative transactions, including several back-end revenue cycle tasks, according to the Council for Affordable Quality Healthcare, Inc. (CAQH). Those tasks include claim submission, claim status inquiry, and claim payment.

Administrative transactions in healthcare are only increasing, rising by 11 percent in 2023. Healthcare organizations will need to invest in technologies to automate back-end revenue cycle tasks in order to keep up.

Electronic data exchange, or EDI, can increase the speed of claims submissions and other administrative transactions tied to claims management by automating the exchange of data between payers and providers. EDI can also reduce manual errors, increase processing speeds, and enhance efficiency.

Revenue cycle management (RCM) software can also automate other back-end revenue cycle tasks like denials management and payment posting to reduce manual interventions. Many RCM software products leverage robotic process automation, machine learning, and artificial intelligence to automate more mundane back-end revenue cycle tasks, freeing staff to tackle more value-adding activities like chasing appeals or tackling complicated denials.

Denials management, in particular, can benefit significantly from technology implementations and interested focus. Claim denial rates are on the rise, increasing by 56 percent in Medicare Advantage and 20 percent in commercial payer lines from January 2022 to July 2023. These denials pose an expensive problem for healthcare organizations, with about a third of larger providers losing between half a million dollars to $2 million annually from denials.

Providers should perform root cause analysis to identify why payers are denying their claims. Data analytics embedded in RCM software can help providers parse through claims data to find root causes. Findings should then inform targeted solutions to prevent similar denials in the future.

Additionally, providers should ensure prompt appeals of denials. Prompt appeals with the necessary supporting documentation have a higher likelihood of successful resolution and quicker reimbursement.

Another area of focus should be patient financial counseling. As patient financial responsibility increases, providers must collect more revenue from their patients to keep operations going. However, patients are also navigating this relatively new landscape of high-deductible health plans and other cost-sharing agreements.

Financial health literacy is low in the US, and the systems providers have in place to help patients pay their medical bills aren’t necessarily helping. A 2021 survey of over 1,000 patients showed that 38 percent find the online bill payment software their primary medical provider uses confusing. About a quarter of patients, respectively, also said it’s unclear how much they owe, the platform lacked insurance information or an explanation of benefits, and customer support was lacking.

Providers can help their patients understand and pay medical bills through financial counseling and assistance. Clear communication around billing and financial responsibilities is critical, while a variety of payment options and financial assistance programs can also encourage patients to pay.

Implementing best practices can increase the efficiency of back-end revenue cycle processes, increasing the overall speed of revenue generation and collection. By leveraging technology, particularly around problem areas like denials management and patient collections, providers can optimize their revenue cycles, reduce collection costs, and improve the patient experience.