What is Revenue Leakage & How to Stop it

What is Revenue Leakage & How to Stop it

“Revenue leakage” refers to situations where a healthcare provider has issued care and services to a patient but does not receive payment. Typically, revenue leakage occurs when accounts receivable (i.e., outstanding bills for care and services rendered) remain unpaid for too long and unintentionally go unnoticed.

The longer an account receivable (AR) remains unpaid, the less likely healthcare providers are to recover reimbursement—even partially. If the AR cycle lasts longer than 120 days, providers can only expect a ten-cent reimbursement rate for every dollar.1

No single fix addresses the causes of leakage, as culpability may fall to providers’ processes, patients, or payors. However, a comprehensive strategy or outsourcing to a revenue cycle management (RCM) company helps minimize revenue leakage and the associated financial damage.

AR Cycles & Revenue Cycle Management (RCM)

Healthcare providers view accounts receivable and revenue according to cycles. The revenue cycle begins with an individual client or patient’s appointment scheduling and remains open until the care provider has received reimbursement. As AR cycles may last months, providers must continue to meet expenses through slow reimbursement periods.

Revenue cycle management (RCM) aims to minimize inefficiencies that contribute to ARs being denied by payors, deferred by patients, and aging without notice or follow-up. A comprehensive approach RCM optimizes administration and process flow from the moment the front desk collects patient information.

The AR cycle occurs within the revenue cycle, from when the provider bills a patient or their insurance company until they receive reimbursement. Providers typically classify ARs according to their age (e.g., 30 days, 60 days, 90 days), which helps them monitor outstanding payments. ARs left to age heavily contribute to revenue leakage.

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The Severity of Revenue Leakage

Providers cannot afford to ignore their revenue leakage. Even before the effects of COVID-19, some of the US’ top hospitals demonstrated an inability to keep pace with growing expenses and posted losses of hundreds of millions of dollars.2 Providers must navigate slim margins of error to protect their profits when various leaks can account for up to 20% of revenue losses, and 75% of their “bad debt” relates to unanswered billing questions.3

Across the healthcare industry, providers of all shapes and sizes face financial struggles. Academic medical centers—which provide 25% of the nation’s healthcare and 40% of its charity care while only accounting for 5% of hospitals—have suffered despite their avenues for additional funding.4 

Struggling rural hospitals cannot afford the losses either. UNC’s Cecil G. Sheps Center for Health Services Research reports that in 2019, roughly 20% of rural hospitals were nearing collapse, and 40% of rural hospitals operated in the red.5 

Since 2005, 180 rural hospitals have shut their doors permanently. The numbers have steadily grown worse since 2017:6

  • 2017: 10 closures
  • 2018: 15 closures
  • 2019: 18 closures
  • 2020: 19 closures

Effects of COVID-19

Given the tenuous financial state many healthcare organizations have been operating in, COVID-19 could not have struck the U.S. healthcare system at a worse time. Setting aside instances of leakage directly related to caring for patients during the pandemic, many individuals have deferred treatments while fearing infection.

Deferred treatments present the healthcare system with losses on two fronts:

  1. Providers lose revenue from drastically lowered numbers of incoming patients.
  2. Payors (and patients) must reimburse more expensive treatments, as many individuals’ conditions have worsened in the gap between care visits.

Assuming patient and revenues return to expected levels in July 2021, private physicians in the U.S. have lost an estimated $158.35 billion in revenue since the start of the pandemic.7

Top Causes of Revenue Leakage in Healthcare

Revenue leakage may be attributed to numerous sources, but identifying the top causes allows healthcare providers to find solutions. According to Effy, a company that leverages big data analysis for healthcare organizations, revenue loss or leakage can be attributed to ten primary causes:8

  • Insufficient registration data entered
  • Absence of payor authorization before delivering care
  • Ineffective registration of materials used during treatments
  • Errors in checking insurance coverage during patient in-take
  • Incorrect or inadequate recording of medical procedures
  • Billing errors
  • Errors in payor-provider agreements
  • Pursuing a procedure without insurance coverage
  • Payor reimbursement denials
  • Delays or mistakes when codifying procedures for claim submission

The good news is that providers can address many of the revenue leakage causes listed above by evaluating their processes, identifying inefficiencies, and targeting improvement. Unverified insurance coverage remains the primary source of claim denials. Coding errors are the primary contributor to Medicare and Medicaid complex claim denials.9 Cleaning up common clerical errors will reduce claim denials based on incorrect insurance and billing information. 

Patient Leakage

Healthcare’s broad but incomplete shift from “fee for service” (or a volume-based model) to value-based care requires providers to grow revenues while prioritizing patients’ roles as decision-makers. When patients decide to seek care from providers in other networks or those delivering less value within the network, clinicians lose referral-based revenue and risk losing future income.10

How can Revenue Leakage be Stopped?

The four primary efforts healthcare providers can rely on to help them minimize or prevent revenue leakage are:

  • Process optimization
  • Price Tracking
  • “Big data” analytics
  • Outsourcing revenue and AR cycle management to other companies

Process Optimization

Incidents that lead to revenue leakage can occur as soon as the revenue cycle begins with a patient. Should staff incorrectly record information about the patient and their health insurance plan, providers risk payors denying claims right from the cycle’s start. Making mistakes when adding line items of services rendered and the equipment used to claims equally contributes to higher chances of denial.

AR Follow-Ups 

Reminding payors and patients of outstanding bills costs providers money. If done manually, claims tracking can cost $3.59 and $4.74 per claim and remittance advice. Process optimization for following up ARs includes methods such as:1

  • Collect accurate personal and insurance information from patients, and check eligibility before their first appointment
  • Use appointment reminder calls to inform patients in advance of what their expected costs will be
  • Emphasize to front desk staff the importance of collecting patient copays immediately following care 
  • Eliminate AR aging brackets from the bottom of statements, as they suggest to patients that they can postpone payments
  • Send no more than two notices by mail before switching to phone calls
  • Run monthly reports on aging ARs along with previous years for comparison

Making a quick reduction in your aging ARs could be as simple as making a concerted effort to achieve consistent copay collection before patients have left your premises. Allowing patients to leave with the expectation of billing them later results in a 20% decrease in collections.9

Big Data Analytics

Big data refers to extensive data sets collected from various sources that reveal trends and patterns but are too difficult to analyze with a standard computer’s processing power. Providers can leverage big data analytics to notify them of oversights that contribute to revenue leakage and discover new opportunities to collect reimbursements.

Big data analytics allows providers to pull reports identifying issues such as:4

  • Incorrect insurance information
  • Changes in payor reimbursements and underpayments for similar services
  • Reasons for consistent claim denials (e.g., incorrect codes)

Big data analytics has helped providers reduce expenses by 10% and increase revenue by 30%.4

Outsourcing RCM & AR

Healthcare organizations that struggle with revenue leakage may wish to consider outsourcing their revenue cycle and accounts receivable management. Partnering with an RCM company like PayrHealth allows clinicians to focus on providing care while others manage the burden of minimizing losses.

RCM companies can leverage their experience and analysis of your processes and data to identify the main sources of revenue leakage for your organization. From insights revealing how to optimize AR follow-up processes to renegotiating payor contracts due to continual underpayments, RCM companies offer insight and services that help providers minimize losses.

PayrHealth: RCM Support for Your Practice

For over 25 years, PayrHealth has been a leading provider of outsourced RCM and payor contract management services. Partnering with ParyHealth eases providers’ RCM burdens and opens opportunities to discover new revenue. 

Contact us today to see how we can help.

Sources: 

  1. Physician’s Practice. A/R Primer for Medical Practices.  https://www.physicianspractice.com/view/ar-primer-medical-practices
  2. Harvard Business Review. How U.S. Hospitals and Healthcare Systems can Reverse their Sliding Financial Performance.  https://hbr.org/2017/10/how-u-s-hospitals-and-health-systems-can-reverse-their-sliding-financial-performance 
  3. RevCycleIntelligence. Patient Leakage Costs Mosts Healthcare Facilities 10% of Revenue.  https://revcycleintelligence.com/news/patient-leakage-costs-most-healthcare-facilities-10-of-revenue
  4. HIT Consultant. Revenue Leakage: How Big Data can Address Challenging Medical Denials at Academic Medical Centers.  https://hitconsultant.net/2018/11/12/revenue-leakage-academic-medical-centers/#.YL7LEmZKhdg
  5. Statista. 155 Rural Hospitals have Closed in the U.S. since 2005.  https://www.statista.com/chart/19527/rural-hospitals-closing/
  6. Cecil G. Sheps Center for Health Services Research. Rural Hospital Closures.  https://www.shepscenter.unc.edu/programs-projects/rural-health/rural-hospital-closures/#citem_3b75-ca6b
  7. Statista. Cumulative revenue losses due to COVID-19 among independent physician practices in the United States, for two scenarios, from March 2020 to June 2021 (in billion U.S. dollars). https://www.statista.com/statistics/1187275/covid-us-independent-physician-revenue-loss-cumulative/
  8. Effy Healthcare. Infographic: Healthcare’s Top 10 Revenue Leakage Causes.  https://www.effyhealthcare.com/post/infographic-healthcare-s-top-10-revenue-leakage-causes
  9. Health IT Answers. Revenue Leakage in Hospitals and Healthcare Systems: 10 Numbers You Absolutely Must Know.  https://www.healthitanswers.net/revenue-leakage-hospitals-health-systems-10-numbers-absolutely-must-know/
  10. Fibroblast. Patient Leakage: A new survey highlights high costs, limited control.  https://fibroblast.com/wp-content/uploads/2018/10/Patient-Leakage-A-new-survey-highlights-high-costs-limited-control-October-2018-1.pdf