I remember repeatedly memorizing the Krebs cycle in both college and medical school, and hating it intensely. I did not know much, but I knew I was not interested in any job where knowledge of the Krebs cycle was important, and so I never seriously “learned” it. I would simply “spec and dump” it for the test, which ensured that within 24 hours I could only vaguely remember Krebs had something to do with ATP and acetyl-CoA — and that was always good enough to get me to the next level of training.

Not all cycles are so worthless for a surgeon to understand, though. The revenue cycle is equally as complicated as the Krebs cycle, but is enormously useful to understand when running a practice. Most surgeons possess a superficial understanding of the revenue cycle — enough to know commercial insurance yields more revenue per relative value unit (RVU) than government insurance. But, is that all we should know? Hardly! Just like the Krebs cycle, the revenue cycle has inputs, processes and outputs; the real issue at the most granular level is output net of input, ie, how much revenue survives the costs of the billings and collections process and results in surgeon take-home pay. At the macro level, there are further issues.

Revenue cycle

In this blog, we will take an executive tour of the revenue cycle to stimulate some thought regarding the business strategy of practice. The good news is no memorization is required and one only needs a basic understanding of how different payers interact with the revenue cycle to significantly increase the sophistication of the practice’s payer analysis, which can translate into higher revenues and lower costs for the practice, and higher take-home pay for the surgeons.

If one were to Google “revenue cycle” and click on “images,” he or she would note there is no universally accepted version. Different revenue cycle management companies have their own artistic interpretation, which emphasizes their particular strengths. So, let us build a simple revenue cycle from scratch. At the most basic level, there are four key components. The practice performs work, bills, collects and then administers the payer relationship, which includes fighting over the differences between what we understand is owed and what (and when) the payer and patients feel they should pay.

For most payers, there is another step: contracting. From a patient perspective, the penalties for using a non-participating (or uncontracted) provider are now typically so massive that only people with massive wealth can afford to see their provider of choice, regardless of insurance participation.

Contracting sounds easy, but if one were to believe that, he or she should simply ask the chief executive officer or practice administrator for an explanation. To get paid even a modicum of what the practice deserves, it needs clout (size), a good community reputation, key relationships with other providers and facilities, toughness, an experienced negotiator and a lot of time. How much effort each negotiation requires often comes down to previously negotiated rates, the size of the relationship and what has changed in the market since the last negotiation. If there is a payer with a small piece of the local market, then the practice can be tougher; but when a payer has a large chunk of the market, the balance of power leans the other way. Other than patient access to the practice, the major reason to contract with a payer is to streamline the collections process to minimize accounts receivable.

Analysis

With these five key components in mind, let us analyze the revenue cycle for two different payers with widely differing collection rates to see why a practice would want to keep both payers.

Let’s start with the “blue-chipper” in many markets: Blue Cross Blue Shield (BCBS). Most practices in all states do significant work with this payer and report strong collection rates.

Step 1) contracting: Contracting can be tough and can reoccur every year, requiring the practice’s business office to expend many expensive man-hours on this task.

Step 2) work: BCBS patients are often young and healthy, so a high percentage of these clinic visits are nonoperative. Many procedures and tests require pre-approvals and dreaded “peer-to-peer” phone calls.

Step 3) billing: This part tends to be easy, assuming documentation and steps 1 and 2 above were done correctly.

Step 4) collecting: Here is where the wheels often come off. Yes, the negotiated rate is good, but collections on BCBS patients require two different processes — collecting from the payer and collecting from the patient. Both processes can be expensive and occasionally fruitless. The patient component is often shockingly high to the patient — high enough to make payment a questionable proposition. This is a problem because services have often already been rendered and a patient relationship is established.

Step 5) administering: Who is checking to make sure BCBS paid what the contract said? Who is answering audits from BCBS demanding documentation for claims after the work was done and pre-certified? Who is filing complaints when BCBS goes silent on old claims? Your ever-expanding staff is doing all of that while surgeons pay their salaries and benefits.

Now, let’s contrast BCBS with Medicare.

Step 1) contracting: Nothing to it. Take it or leave it. There is no negotiating of fees, even though Medicare controls a massive chunk of the economy. Currently, the U.S. government is considering allowing Medicare to negotiate on drug prices. If that ever comes to physician fees, surgeons are in big trouble. With the size of CMS, it could undoubtedly push prices lower and overhead costs higher.

Step 2) work: Again, there is nothing to it. No pre-approval requirements and an elderly population that more often needs operative work are two important criteria that make Medicare more attractive than one might have expected.

Step 3) billing: Pretty much the same process as BCBS. This is no surprise as commercial payers typically follow Medicare rules in the end.

Step 4) collections: Is Medicare looking better and better? It should. Medicare pays what it owes, on time and without fuss. It does pay less, but the practice exerts little back-office effort to obtain this revenue. That means dramatically lower overhead (remember “output net of input”) and there is little patient component here ($183 deductible and straight 80/20 fee split). That means minimal accounts receivable (and busy Januarys and Februarys when commercially insured patients do not go to the doctor). Remember, elderly people are the wealthiest demographic in the United States. They are more likely to have the money to pay their obligations than any other group, even neglecting that their copays and deductibles would be considered “Cadillac plans” if commercial.

Step 5) administering: This is where people get angry at Medicare. Merit-based incentive payment system, the Medicare Access and CHIP Reauthorization Act of 2015, Recovery Audit Contractor audits, and a myriad and changing list of compliance rules and unfunded requirements contribute to significant angst around your practice’s board room table, but here is the interesting thing: commercial payers inevitably follow Medicare rules within a couple of years of Medicare adoption. Medicare is the canary in the coal mine for your practice. Working with Medicare keeps the back office on its toes and makes sure the practice is ready for prime time whenever commercial payers follow suit. Dropping Medicare might offer a small honeymoon where the practice can save some money on compliance costs, but before long, the practice will be behind its competitors when it comes to changing with the times.

Strengths and weaknesses

As we can see, each payer has its relative strengths and weaknesses at each point along the revenue cycle. The analysis of payer strength and ideal practice participation needs to be much more comprehensive in a practice than a simple conversation regarding collection rates. Each practice shareholder needs to understand how each payer contributes to clinical volume, community engagement, overhead requirements, collections risk and administrative compliance. A full understanding of the role each payer plays in the practice’s business strategy will diminish the number of rash outbursts at board meetings and ridiculous requests of the administrators that waste time and cost money.

No payer is perfect; each has warts. From the perspective of a private practice, the strategy that carries the lowest risk is one in which each payer is engaged, and the practice employs a comprehensive scoring system for each payer, uses real data to analyze payer performance, negotiates based on this analysis and uses a data-driven method to balance the aggregate share of appointments each payer earns for its members. Medicare may not be the star payer, but if one looks carefully, it may be appreciated more.