top of page

Revenue Cycle Management is a complex and costly process that involves many steps and systems. From invoicing to payment, each handoff in the process is susceptible to human error, leading to costly remediation and time delays. Rejected claims can further worsen the problem and may result in costly adjudication and revenue loss for the payor, and significant surprise out-of-pocket expenses for the patient.



A patient who needed a hip replacement visited his personal physician. The Primary Care Physician [PCP] referred him to a specialist for further examination. This visit with a PCP was partially reimbursed by insurance.

The specialist surgeon contacts the hospital he is affiliated with to start the claims process by getting a preauthorization from the insurer for the recommended procedure.

  • The surgeon recommended by the PCP may not be in the payor’s network. This means the patient could end up paying significantly more than expected if they choose to go with an out-of-network surgeon.

The hospital RCM team starts the pre-authorization request process by sending the required information to the insurance company.

The insurance company's preauthorization person then reviews the patient's coverage, ensuring that the procedure is covered by the specific terms of the patient’s health plan.

After checking all the boxes required by the patient’s policy, the insurance company reviewer grants a preauthorization to the hospital’s RCM team. The surgeon notifies the patient that their insurance company has given the green light.

  • The insurance company has not seen the specifics of all the cost items involved in the surgery. There are many reasons some or all of the cost items in the procedure may not be reimbursed. Neither the  reimbursement or the details such as patient out-of-pocket cost are guaranteed.

A hospital administrator receives the pre-authorization approval from an RCM teammate and begins scheduling all the necessary components for a medical procedure. The operating room, surgeons, other operation room personnel, hospital room, and drugs are all reserved. This scheduling  is without regard for cost, specific payor limits or the patient's out of pocket exposure.

  • Although the administrator may not focus on the costs, there are various hospital people who are incentivized to maximize revenue and profitability for the hospital. Surgeons, for example, are compensated based on the RVU which determine the hospital's potential reimbursement and profitability. These incentives drive the entire team involved to higher prices.

The procedure is performed successfully and the patient is discharged.

A hospital RCM team member handles the collation of line-item costs into an invoice once the surgery is completed. This involves a manual process of sifting through surgeon's notes and paper forms, often requiring chasing down physicians for necessary information and signatures. Then, a coding team applies ICD or CPT code to each line item in the invoice for the completed surgery.


  • The ICD coding system has over 150,000 clinical codes and the CPT coding system has more than 10,000 procedural codes. These codes determine pricing and reimbursement for each line item. This process is plagued with human error.

Once the first cut invoice is generated, it undergoes a thorough accuracy and compliance check. This is typically done by a third-party service, or another part of the hospital's revenue cycle management department. As the information is now structured digital data, much of the procedural details are no longer visible. Although a trained individual will examine the data, the scrubbing process relies heavily on powerful algorithms to ensure maximum efficiency.


The hospital RCM team submits its invoice to the insurers approved clearing house. It goes through another rigorous cleaning process, called scrubbing. This is generally an automated process using a scrubbing algorithm to catch any discrepancies. If the invoice does not pass this process, it is rejected and sent back to the hospital with feedback for improvement.


  • At any step of this process we have outlined, the work product can be kicked back to a previous step and this can happen multiple times.

After passing through the clearing house, the invoice undergoes a thorough review by an insurance claim processor.


  • A significant time may have elapsed since the patient's last payment, during which new expenses may have been discovered. The claims processng person has to check for special pricing and discounts negotiated with the provider hospital.


In our example, The hospital had agreed to a discounted rate for hip replacement surgery, but only for a limited number of procedures per month. Unfortunately, our patient's surgery was scheduled after the hospital had already hit its quota in the month of the surgery, resulting in a much higher surgery charge. The claim was denied by the insurer because the invoice showed the higher price.

  • Resolving this issue, is very difficult as is insuring these unique special terms are properly handled. With over 40 different payors to deal with and complex EHR and accounting systems, visibility of unique special terms can easily be overlooked. The insurance company claims processor tasked with pre-authorizing claims can only access the information within their own IT system, which is limited solely to the invoices submitted through a clearing house. Yhey have no insight into the hospital's intricacies of scheduling and patient care.

Each insurer/payor has negotiated different rates and discounts based on a wide range of variables.  Within the payors portfolio there are different policy terms for different employers.  At a single employer, each individual employee can be offered choices.  And wait, this all changes at least once a year and typically at least once within contract years.

After a difficult negotiation between the insurer and the hospital they agree to compromise. Our patient was told his out of pocket cost was $3,000. The hospital sent a bill for $8,000. The hospital the patient invoice to a collections agency due to the extended period of time that has passed since the surgery. Neither the insurer nor the hospital will tell the patient why there is the unexplained price hike. The collection agency charges a percentage of the consumer invoice to collect adding cost to the health provider.

The patient is desperate and makes many phone calls and goes directly to offices where claims people sit. Hours are spent with benefit administrators at the patient’s company which promptly calls the policy broker and the broker's support team.

The broker appeals to the insurer’s higher-level management. After much back and forth they reduce the charge to the consumer from $8000 to $5000. The broker is now a hero, but the cause of the overcharge is still not explained to the patient who had to pay $2000 more than he was told he would have to pay.


Insurers and the government regularly hire billing bounty hunters to find fraud and billing abuse.These companies are paid for unrooting bad billings.This hip replacement surgery raised a red flag when a bounty hunter scanned the hospitals system and saw adjustments and inconsistent pricing.The hospital is getting an audit on this transaction and all hip surgeries for the past 18 months.


bottom of page