Revenue Management: The Cycle, Payment Models, and KPIs
The revenue cycle
Front end: scheduling, registration, eligibility/benefits verification, prior authorization, financial counseling. Mid cycle: charge capture, charge description master (CDM) maintenance, coding, clinical documentation integrity (CDI), and claim edits. Back end: claim submission, remittance posting, denial management, accounts receivable follow-up, and collections. Know the standard transactions: 837 claim, 835 remittance advice, 270/271 eligibility.
Coding and payment
Inpatient payment uses the MS-DRG, driven by principal diagnosis, procedures, complications/comorbidities (CC/MCC), and present-on-admission status. Case mix index = sum of DRG weights divided by discharges. Outpatient payment uses CPT/HCPCS mapped to APCs under OPPS. Medical necessity drives coverage; an ABN is used when Medicare may deny a service as not medically necessary. CDI queries must be non-leading and compliant.
KPIs
Days in AR = (total AR / total charges) x days in the period, or AR / average daily charges. Net collection rate = payments / (charges - contractual allowances). Also track clean claim rate, initial and final denial rates, cost to collect, and write-offs by reason.
Traps
Do not confuse gross with net collection, charges with payments, DRG with APC, or a contractual allowance with bad debt or charity care. Denials should be tracked by root cause: registration, eligibility, authorization, coding, or medical necessity. A favorable expense variance means spending less than budget; a favorable revenue variance means collecting more than budget.
Worked example: charges $500,000, contractual allowances $200,000, payments $270,000. Net collection rate = 270,000 / (500,000 - 200,000) = 90%.