Let's Talk

The Hidden Cost of “Cheap” Revenue Cycle Management

Episode 175: The Hidden Cost of “Cheap” Revenue Cycle Management

Hi everyone, and welcome back to Medical Money Matters. Today we’re going to talk about something that seems really practical on the surface… but has massive implications for your income, your stress level, and the long-term health of your practice.

And that is this:

Why going cheap on your revenue cycle is almost always a mistake.

Now, I want to start by saying—this is not about criticizing any specific vendor or company. This is about understanding how these systems actually work… so you can make better decisions.

Because revenue cycle is one of those areas in your business where… what looks like savings on paper… often turns into lost income in reality.

 

The Very Real Temptation to Go Cheap

Let’s start with the obvious. Most of you are under pressure. Margins are a lot tighter than they used to be. Staffing is more expensive. Reimbursement is… unpredictable, at best. So when someone comes to you and says: “Hey, we can do your billing for 3% instead of 6%…” That’s a very compelling offer.

And it *feels* responsible. It feels like you’re being a good steward of your business. Because on the surface, revenue cycle looks like a commodity. Claims go out. Payments come in. How difficult could it really be?

And this is where I see a lot of very smart physicians and administrators get into trouble. Because the assumption is: “Billing is billing.” But that’s not actually where the difference is.

 

Where the Real Work Happens

Here’s the key idea for today: The difference in revenue cycle performance is not in claim submission… it’s in everything that happens after the first pass.

Let me say that again.

It’s not about getting the claim out the door. It’s about what happens when things don’t go perfectly. And in healthcare… things don’t go perfectly all the time. So let’s talk about what many lower-cost revenue cycle vendors are actually built to do.

They are very good at:

Because those things are labor-intensive. And labor is expensive. So if a vendor is offering you very low pricing… they have to make that up somewhere. And usually, where they make it up is by not doing the hard work.

I sometimes describe this as the “one-and-done” revenue cycle.

A claim gets denied… It might get touched once. Maybe resubmitted. And then… it quietly disappears from meaningful follow-up. Not because anyone is trying to do a bad job. But because the business model doesn’t support deep work.

Their margin depends on: speed, volume, and minimal time per claim

So anything that requires: multiple calls to a payer, reviewing documentation, writing an appeal or following up again… and again… and again? That work often doesn’t get done consistently. Or at all. And over time… that creates what I call **quiet revenue leakage.**

 

The Money You Never See

Here’s the tricky part. This doesn’t always show up immediately. Your collections might look… okay. Your reports might look… acceptable. But underneath that… there’s money being left behind. Every day.

Let’s say you have: denied surgical claims, underpaid procedures, coordination of benefits issues, or timely filing edge cases.

Those are not “easy” claims. But they are often **high-value claims.** And if no one is really chasing them… you’re losing money you never even knew you had.

And this is where the math gets interesting.

Because even a 3–5% revenue leakage… in a multi-million-dollar practice… is a very big number.

In a $5 million practice… that’s $150,000 to $250,000 per year.

So when someone says: “We saved 3% on billing…” What we often see in reality is: “We lost 10% in performance.” So, going cheap is actually really expensive.

And, please also beware the vendor who promises you they have solved everything with AI. While much of this can be automated, and I’m a huge fan of AI and RPA, there are quite a few things that still require a trained human in the loop. Make certain your partner is responsibly using AI, and that they are achieving the KPI’s you want them to. More on that in a minute.

 

Where Revenue Cycle Actually Creates Value

Here’s a perspective shift that is really important. The real value in revenue cycle is not in the clean claims. Clean claims are important—but they’re the easy part.

The real value is in what I call **the last mile.** It’s the messy stuff. It’s the claims that don’t go through the first time. It’s the denials that require thinking. It’s the underpayments that require someone to say: “Wait a second… this isn’t what the contract says.” That’s where great revenue cycle teams earn their keep. And that’s also where lower-cost models tend to fall apart.

Because that work takes skill, persistence, systems, and time.

 

What a Good Revenue Cycle Partner Actually Looks Like

So let’s shift from problem to solution. If you’re thinking: “Okay… so what should I be looking for?” Let’s make this very practical.

First—and this is more important than anything else—you want a *partner*, not just a processor. You want someone who is thinking with you. Not just clicking buttons for you.

There are several things to look for:

  1. Depth of A/R Management: A good partner is actively working your A/R across all buckets: 0–30, 30–60, 60–90, 90+ And yes—especially the 90+.

If you ever hear: “We mostly focus on recent claims…” that’s a red flag.

  1. Real Denial Management: Not just resubmitting claims. But: categorizing denials, identifying patterns, and fixing root causes

A question you can ask to elicit information on this one is:

“What are our top 5 denial categories, and what are we doing about them?”

If they can’t answer that clearly… you don’t have a denial management system.

  1. Persistent Follow-Up

Great revenue cycle requires persistence. Not one call. Not one resubmission. But a structured follow-up process. Because payers are not designed to make this easy. In fact, just the opposite. As we’ve said in previous episodes, the payers know that 65% of denied claims are never followed up. Because groups claim they don’t have time. Or they don’t have expertise. Or, it doesn’t pay the billing group well, so they move on to the easy stuff. Don’t let that happen to you.

  1. Underpayment Analysis: This is one of the most overlooked areas.

Are you being paid according to your contracts? Many practices don’t actually know. And many vendors don’t check. This is a huge opportunity area.

  1. Transparent Reporting

You should have clear, consistent visibility into:

Because if you can’t see it, you can’t fix it.

  1. Integration with Coding and Front-End Processes

Revenue cycle doesn’t start at billing. It starts at: scheduling and continues through registration, documentation and coding.

A strong partner helps connect all of those dots.

  1. Communication

You should not feel like you’re chasing your billing company.

There should be:

And this is where I’ll say—very gently—firms that really understand physician practices… and understand both the financial *and operational* side… tend to perform very differently than companies that are purely transactional.

 

The KPIs You Should Know

Now, let’s talk numbers. Because you don’t need to be an expert… but you do need a dashboard. Here are a few key metrics every group should know.

This tells you: Are you collecting what you’re actually owed? Out of the money you should have collected after contractual write offs, how much actually came in?

If this is creeping up… something is off.

This number asks the question: if I see a patient today, how many days from now will I be paid? We want that to be a short time period. Preferably less than a month.

This is a big one. Because this tells the story of how many claims are languishing out there. Unpaid. Not followed up. Not collected… until… they are never collected. And you just rendered a lot of care for free.

This is how many claims are rejected on the first pass. And, this number should be low,and kept that way. If denials are creeping up, it’s time to analyze denial reasons, and get after some root cause analysis. Then fix the systems or the workflows or do the extra training so you reduce your denials. Simple as that. The low cost companies know, it’s much easier to handle when it goes through the first time.

This is the inverse of the Denials rate – again, we want the vast majority to go through the first time. We go into many groups where this number is 80 or 85%, which is way too low. We want you above 95%!

This is the amount of time between when a patient is seen, and when their visit is documented, coded and shipped out to the clearinghouse. Again, the shorter the better here.

And here’s the key point: If your vendor cannot easily and clearly give you these numbers… that’s a problem.

 

Red Flags You’ve Gone Too Cheap

Let’s make this very real. Here are some signs we see all the time:

And this is my favorite line for this: If you’re doing the thinking… and they’re just doing the clicking… and you don’t have a partner.

 

Why This Actually Matters More Than You Think

This is not just about money. Although it is about money. A strong revenue cycle means:

And ultimately… healthier practices create healthier communities. Which is really what this is all about.

So let me leave you with this. Revenue cycle is not an expense to minimize. It is a system to optimize. And yes—cost matters. But performance matters more. Because in this area… you almost always get what you pay for.

If this episode got you thinking—if you’re wondering: “Are we actually performing the way we should be?” That curiosity is a really good place to start.

If you haven’t already:

 

And if you’re ready to go deeper—

We do offer full revenue cycle assessments and education programs designed specifically for physicians and medical groups.

You don’t have to figure all of this out alone.

You just need the right tools… and the right partners. Until next time.

Leave a Reply

Your email address will not be published. Required fields are marked *

Loading...