Healthcare Revenue Assurance… The Deming Way

Edwards Deming is widely acknowledged as the leading management thinker in the field of quality. He was a statistician and business consultant whose methods helped hasten Japan’s recovery after World War II and later he was instrumental in bringing total quality management to the U.S. auto industry. While Deming is most renowned for applying quality management to manufacturing, his approaches have since been applied across all industries and business functions including healthcare revenue cycle management.

The Healthcare Financial Management Association (HFMA) defines revenue cycle management as “all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue.”  In other words, RCM spans the entire life of a patient account from creation to payment. The objective of RCM is to streamline processes allowing charges to flow through to revenue with minimal friction.

Revenue Assurance is a Revenue Mid-Cycle charge capture function that identifies missed, misplaced or miscoded charges that have leaked out of the RCM work stream.  Revenue Assurance’s focus is to recognize how, when and where leakage occurs and return charges to the top of the RCM funnel. HFMA estimates that 3 – 5% of all patient charges are never posted which in manufacturing terms would be considered “waste”.  Applying Deming’s Total Quality Management approach to RCM, Revenue Management professionals own the responsibility for capturing all patient charges by minimizing the waste of missed, misplaced or miscoded charges.

The implied charter of any Revenue Cycle Management or Revenue Integrity team is to “optimize” the company’s revenues consistent with the patient care services that are delivered.  In other words, to get paid for all the patient care that has been delivered.  To only collect “some of the revenue” and disregard the “waste” of missed charges is a disservice to our caregivers and falls short of our fiduciary responsibilities to properly manage the company’s revenue stream.  RCM and RA are complementary and essential functions that must be architected into the Total Quality Management of revenue because Revenue Cycle Management without Revenue Assurance ≠ optimization.

Six Sigma

Deming’s Total Quality Management approach and statistical concepts later lead to Lean Management and Six Sigma quality management methodologies that are now common place across the healthcare industry. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects, driving toward six standard deviations of the mean at which an organization would be performing at 3.4 defects per million opportunities.  If HFMA’s estimated 3 – 5% of charges never posted rings true, we’re looking at a Revenue Management defect rate as much as 10,000 times greater than expected at a Six Sigma level!

On the path to Six Sigma performance levels, it is common practice for companies to set targets related to the achievement of a “sigma level” or a “10-fold improvement”.  Assuming HFMA’s high-end estimated 5% charge capture defect rate, a 10-fold improvement would yield a 99.5% charge capture accuracy target; a goal readily achievable via a Revenue Assurance Program.

The revenue recouped through Revenue Assurance goes directly to a company’s net income and has the potential to add percentage points to a provider organization’s profit margin since the expense of patient care has already hit your books.  More importantly, the ability to identify the who, what, where, when and why of revenue leakage allows you to patch holes in your charge capture processes and make permanent fixes that will pay long-term dividends.  Deming would remind us all that the ability to measure leakage is the critical initial step in being able to manage waste out of your system.

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3 thoughts on “Healthcare Revenue Assurance… The Deming Way

  1. This is a compelling argument for implementing Revenue Assurance. Describing the opportunity using the Six Sigma approach zeroes in on the large benefit potential. Clearly, Revenue Assurance makes sense for improving providers’ financial outcomes.

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