Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Value-Based Care News

7 Reasons to Merge Revenue Cycle and Supply Chain Management

By Jacqueline DiChiara

- Hospitals demand increased revenue to strengthen their bottom lines within an era of evolving healthcare reform. Comprehending the total cost of care and maximizing revenue capture projections and opportunities can be complex and cumbersome. Healthcare experts suggest merging supply chain management and revenue cycle management to enhance revenue stream, strengthen hospital sustainability, and advance decision-based operations.

Supply chain management

From bandages to surgical instruments, hospitals have a massive supply inventory to keep track of. Supplies cover 15 percent of the average hospital operating budget, according to research from the Health Sector Supply Chain Research Consortium at Arizona State University (HSRC-ASU). This number can reach up to 40 percent of a total operating budget, according to Materials Management in Health Care.

Despite the high budget percentages, many hospitals do not implement supply chain optimization strategies. Nonetheless, supply chain is an important facet of revenue cycle management. Supply chain functions requiring special concentration include contracting, strategic sourcing, procurement, and inventory management, HSRC-ASU researchers maintain. Likewise, areas of the revenue cycle functions demanding closer examination include patient record access, charge master accuracy, coding, charge capture, and patient accounting.

Using technology to merge supply chain management and revenue cycle departments may help advance cost-to-charge transparency and increase accuracy in terms of managing reimbursement costs. “In most provider organizations[,] supply chain management (SCM) and revenue cycle operations function in silos, occasionally responding to anecdotal evidence to make improvements in the processes linking the two areas,” confirms HSRC-ASU. “Hospitals and health care systems that become proficient in managing the revenue environment achieve strategic advantage by reaching their financial goals and assuring a stream of revenues to support their clinical efforts,” the researchers explain.

According to HealthITAnalytics, supply chain management should be considered as a marathon endeavor, not a short-lived sprint. Successful supply chain involves connecting costs with analytics to enact substantial long term change. Additionally, hospital executives claim non-EHR health IT acquisitions strengthen the supply chain, states HealthITAnalytics.

READ MORE: Leveraging Group Purchasing for Hospital Supply Chain Management

Consistency is an essential key to ensuring accurate coding and pricing efforts. “Linking the traditional aspects of supply chain management (e.g., strategic sourcing, logistics, and inventory management) to margin management decreases the probability of lost charges occurring,” the researchers state. “Prices should be strategically set to optimize maximum allowable reimbursement. Charge capture processes should be incorporated in pricing strategies in each of the targeted areas,” they add.

HSRC-ACU confirms seven reasons to combine revenue cycle management and supply chain management:

  • Increased and more accurate reimbursements
  • Strengthened contract negotiations and enhanced contract compliance
  • Improved transparency
  • Streamlined cross-check utilization of supplies and ease of monitoring supply revenue
  • Capturing cost-to-charge data visibility will be smoother
  • Billing will be more accurate
  • Labor will be wisely utilized and not wasted

According to, leading healthcare organizations exceed their supply chain objectives via the active incorporation of three specific methods – waste hindrance, money management, and enhancing long term quality of care. A plethora of moving parts means many facets, including care deliverers, physicians, and beneficiaries, are directly impacted.

“From a supply chain management perspective, the healthcare provider market is uniquely challenging,” states Paul Martyn in Forbes. “Despite its already massive and still growing share of the GDP,  far too many of its procurement tools are retrofitted from other industries — they lack a credible provider heritage — and strangely enough, the industry’s own practitioners seem slow to recognize it, despite all the failed implementation evidence,” he adds.

The global healthcare supply chain management market is expanding expediently due to rising healthcare costs – projections estimate it will increase from $9 million in 2014 to $13.8 million by 2019. It is expected to increase at a compound annual growth rate of 8.3 percent during this period.

READ MORE: Healthcare Supply Chain Issues Cause VA Center Director Change

“The need to lower healthcare cost is a major concern and growth driver for the healthcare supply chain management market,” confirms PRNewsWire. “The trend of hospital consolidation in countries such as U.S. offer new growth opportunities for supply chain management solutions such as inventory management software catered towards hospitals and ambulatory surgery centers. The manufacturers in the healthcare segment face intense competition.”

As the healthcare industry transitions into a value-based realm, the importance of blending supply chain management with revenue cycle management may be increasingly vital. “The shift toward outcomes-based reimbursement has focused the nation’s health system on comparative effectiveness, safety and quality reporting,” confirm Michael Darling and Sandy Wise, Senior Managing Director of Healthcare Industry Advisory and Manager of Healthcare Industry Advisory and PricewaterhouseCoopers (PwC), respectively, in Materials Management in Health Care. “Hospital supply chain costs are increasing at the same time double-digit health premium increases are spurring greater scrutiny by payers of medical supply costs," Darling and Wise state. "For hospitals, this is increasing demand for greater efficiency, pricing transparency and accountability throughout the entire hospital supply chain and driving a new level of discipline in supply chain management," they add.

A keen awareness of supply chain management will thwart cost and enhance value. Such a sentiment cannot be ignored within the healthcare industry.


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