What Are the Six Stages of the Revenue Cycle in Healthcare?
Understand the essential process healthcare providers use to manage billing, ensure accurate payment, and maintain financial stability.
Understand the essential process healthcare providers use to manage billing, ensure accurate payment, and maintain financial stability.
The revenue cycle in healthcare is a comprehensive process managing the financial aspects of patient care, from initial patient contact to final payment collection. It encompasses all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue. An effective revenue cycle ensures timely and accurate reimbursement for services provided, which is essential for the financial health and sustainability of healthcare providers. This process helps minimize claim denials, reduce the days it takes to collect payments, and improve overall financial performance.
The revenue cycle begins with patient access and pre-service activities, which involve administrative tasks performed before a patient receives medical care. This stage includes scheduling appointments, registering patients by collecting demographic and insurance information, and verifying insurance eligibility. Accurate data collection during this initial phase is foundational, as errors can lead to claim denials and payment delays later in the cycle.
Healthcare providers also obtain necessary pre-authorizations or pre-certifications from insurance companies for specific procedures or services. This step confirms that the patient’s insurance plan covers the planned treatment and reduces claim rejections. Patient access teams also discuss potential out-of-pocket costs, such as deductibles, co-insurance, and co-pays, providing financial counseling to help patients understand their obligations before services are rendered.
The second stage involves charge capture and clinical documentation. Charge capture is the process of accurately recording all services provided to a patient and assigning a monetary value. This includes medical procedures, diagnostic tests, medications, and supplies used during a patient’s visit. Clinical documentation by healthcare providers is the foundation for charge capture and subsequent billing. Detailed notes in electronic health records (EHRs) or encounter forms justify services rendered and support medical necessity. Ensuring all services are accounted for at this stage prevents revenue leakage and ensures compensation for care delivered.
The third stage translates clinical documentation and captured charges into standardized medical codes, which are then used to generate claims. Medical coders assign codes to diagnoses and procedures using systems like ICD-10-CM and CPT (Current Procedural Terminology). These codes must be highly accurate and specific to ensure proper reimbursement and compliance with payer policies. Once services are coded, a “clean claim” is generated, typically in an electronic format like the ANSI X12N 837, which is the electronic equivalent of forms such as the CMS-1500 or UB-04. The CMS-1500 form is used by individual healthcare providers, while the UB-04 (also known as CMS-1450) is for institutional providers. This claim includes patient demographics, insurance details, diagnosis and procedure codes, and total expenses.
The fourth stage involves submitting the generated claim to the appropriate insurance payer, followed by adjudication. Claims are typically submitted electronically through clearinghouses, which act as intermediaries between providers and payers, performing additional scrubbing to check for errors before transmission. This enhances efficiency and speeds up processing.
Payer adjudication is when the insurance company reviews the claim to determine its validity and reimbursement amount. This review includes verifying patient eligibility, interpreting policy benefits, assessing medical necessity, and confirming coding accuracy. Outcomes include full payment, partial payment, or denial. The payer issues an Explanation of Benefits (EOB) to the patient and an Electronic Remittance Advice (ERA) to the provider, detailing the payment decision and reasons for adjustments or denials.
The final stage of the revenue cycle focuses on managing outstanding balances and collecting payments. Accounts receivable (AR) represents money owed to the healthcare provider from both insurance companies and patients. This stage involves sending patient statements for their portion of the bill and handling inquiries about charges. A significant part of AR management is denial management, which involves identifying reasons for denied claims, appealing incorrect denials, and resubmitting claims with corrected information. Common reasons for denials include missing or incorrect information, lack of prior authorization, or services deemed not medically necessary. Effective AR management aims to reduce the days it takes to collect payments, ideally below 25 days, and minimize bad debt write-offs.