Revenue Cycle Management in the U.S. Hospital Industry.

Abstract

Revenue cycle management — all clinical and administrative activities related to generating and collecting patient revenue — has gained in importance in today’s business environment, in which hospitals are confronted with stricter regulations and billing requirements, underpayments, and greater delays in payments. Despite the continued interest of practitioners, revenue cycle management has not received much attention in health care finance research. The three studies that comprise this dissertation seek to complement anecdotal evidence and fill some of the gaps in the literature by defining and exploring the financial benefits hospitals derive from effectively managing the revenue cycle. The first study describes current revenue cycle management practices and develops measures of their financial benefits in terms of increases in the amount and the speed of patient revenue collection. Using financial statement information for California hospitals for 2004–2007, correlation analysis shows that hospitals that collect their revenues faster tend to record higher revenues indicating that there is no trade-off but that these financial benefits of effective revenue cycle management often go hand in hand. The second study explores the determinants of revenue cycle management performance with a particular focus on hospitals’ payer mix. Using data from Medicare cost reports and financial statements for bond-issuing, not-for-profit hospitals for 2000–2007, fixed effects regression analysis finds that hospitals serving more Medicare patients collect somewhat more revenue while also collecting their revenue faster. Higher Medicaid payer mix, on the other hand, is associated with neither the amount nor the speed of revenue collection. Unlike frequently claimed by hospital managers, government payers therefore do not appear to undermine hospitals’ ability to generate and collect patient revenue. The third study analyzes the link between revenue cycle management and hospitals’ long-term financial performance. Fixed effects regression analysis of audited financial statement information for bond-issuing, not-for-profit hospitals for 2000–2007 finds that effective revenue cycle management has the potential to boost not-for-profit hospitals’ profitability and strengthen their ability to grow equity. This link is particularly strong for measures of operating performance indicating that the pathway through which revenue cycle management improves financial viability focuses on operations.