Hospitals are operating in one of the most unforgiving environments in recent memory. Labor costs have spiked, experienced RCM staff are hard to find, payers are more aggressive with denials, and patient volumes are shifting to ambulatory and virtual settings. At the same time, many health systems are still running revenue cycle management (RCM) on legacy processes that were never designed for today’s complexity.
For CFOs, CMOs, COOs, and RCM leaders, the question is no longer if the operating model must change, but how quickly and in what sequence. This article lays out a practical roadmap for hospital revenue cycle leaders who need to stabilize margins, protect cash flow, and build a more resilient RCM operation without betting everything on a multi-year technology project.
Reframing the Hospital Revenue Cycle Around Margin Protection
In many hospitals, the revenue cycle is still managed as a series of departmental tasks instead of an integrated financial engine. Registration teams focus on throughput, coding teams on accuracy, billing on clean claims, and follow-up teams on aging buckets. Each group has its own KPIs, workflows, and technology. The result is fragmented accountability and hidden leakage across the continuum of a single encounter.
To navigate the current “perfect storm,” hospitals need to reframe RCM as a margin protection system. That means connecting patient access, mid-cycle, and back-end processes around a small set of enterprise financial outcomes, such as net patient revenue, cost to collect, denial rate, and avoidable write-offs.
A practical framework for margin-focused RCM
- Define enterprise financial guardrails: For example, target net collection rate > 96 percent, cost to collect < 3 percent of net revenue, initial denial rate < 6 percent, and bad debt < 2 percent of gross charges. These numbers will vary by market, but the key is to set explicit guardrails.
- Map upstream drivers to each metric: For denials, trace root causes to pre-authorization, eligibility, registration accuracy, documentation quality, coding specificity, or late charges. For net collection rate, link to contract management, underpayment detection, and timely follow up.
- Align teams and incentives: Replace siloed KPIs with shared, cross-functional metrics. For instance, tie patient access and clinical teams to authorization-related denial rates, not only to “patients registered per hour.”
- Instrument the process: Use analytics to show how a missed authorization or incomplete document in week 1 becomes a denial in week 4 and a write-off in month 6. Visibility is what brings clinical and financial stakeholders to the same table.
Why this matters now: Hospitals facing negative margins do not have the luxury of incrementalism. A margin-centric view of RCM uncovers where every point of EBITDA is being lost, and it creates a defensible business case for process changes, technology investments, or strategic partnerships.
Stabilizing Patient Access to Prevent Denials Before They Start
In today’s payer environment, denial prevention at the front end is far more cost effective than back-end firefighting. Yet patient access is often under-trained, under-resourced, and evaluated mainly on speed or patient satisfaction scores. That profile is no longer sustainable.
For hospitals, a single missed step at the front end can generate thousands of dollars in lost revenue per encounter. Eligibility errors, inaccurate coordination of benefits, incomplete referrals, and missed prior authorizations are all leading denial drivers. Nationally, front-end related denials can represent 25 to 40 percent of all denials in some organizations, and many are avoidable with better process and accountability.
Operational priorities for a high-reliability access function
- Standardize registration and eligibility workflows: Use scripts, required fields, and system edits in your EHR/PM system so staff cannot proceed without capturing payer plan, policy numbers, COB, and correct coverage dates. For high-dollar scheduled services (imaging, surgery, infusion), embed pre-service review steps that must be completed 48 to 72 hours beforehand.
- Build a dedicated prior authorization unit: Centralize complex authorization work in a team that has payer-specific playbooks, escalation paths, and tracking dashboards. This group can handle high-cost imaging, surgeries, infusion therapies, and complex chronic treatments where payer rules change frequently.
- Measure what matters: Track authorization-related denial rate, eligibility-related denial rate, registration accuracy, and percentage of scheduled cases fully cleared before day of service. These KPIs should be reported at the service line and location level, not just in aggregate.
- Use technology selectively: Eligibility and authorization automation tools can reduce manual touches, but only when configured against your actual payer mix and service portfolio. Start with high-volume, high-dollar payers and services instead of trying to automate everything at once.
Cash-flow impact: Reducing front-end avoidable denials by even 2 to 3 percentage points can translate into millions in recovered revenue annually for a mid-size health system. It also improves the predictability of cash, which matters to lenders and bond rating agencies in a tight capital market.
Upgrading Mid-Cycle Controls: Documentation, Coding, and Charge Capture
The mid-cycle is often treated as a technical domain, owned by HIM and coding. In reality, it is a high-leverage point for both revenue yield and compliance risk. Under-coded encounters leave money on the table. Over-coded encounters increase RAC and commercial audit exposure. Incomplete or delayed documentation causes late charges and costly rework.
With value based reimbursement and more complex payment methodologies, hospitals need tighter clinical and financial integration in the mid-cycle.
Building a disciplined mid-cycle operating model
- Clinical documentation integrity (CDI) as a joint responsibility: Physicians, advanced practice providers, CDI specialists, and coders should share responsibility for accurate capture of severity, comorbidities, and complications. Use concurrent reviews for high-impact DRGs and complex outpatient procedures. Track metrics such as case-mix index by service line, query response times, and documentation-related denials.
- Modernize coding operations: Invest in continuous training around ICD-10-CM/PCS and CPT/HCPCS changes, payer-specific rules, and NCD/LCD updates. Consider computer assisted coding in specialties where documentation is structured and volumes are high. However, maintain human oversight and robust audit programs to mitigate compliance risk.
- Tight charge capture and late charge governance: Every charge that relies on manual entry or paper forms is a risk. Implement charge reconciliation routines between clinical systems and billing systems. Monitor late charge percentage by unit and modality, and hold local leaders accountable for chronic outliers.
- Connect mid-cycle to denial analytics: For example, if medical necessity denials are increasing in imaging, analyze documentation patterns, coding choices, and ordering practices by physician. Use that data to design targeted education and system-based edits.
Revenue impact: Well run CDI and coding programs can increase net patient revenue by 2 to 5 percent without changing volume, simply through better reflection of clinical reality and elimination of undercharges. At the same time, strong internal audits protect against payer recoupments, which can be material in an era of aggressive post-payment review.
Industrializing Back-End Collections With Global Delivery and Automation
Legacy follow-up models that rely on local staff manually touching every claim are becoming economically unviable, especially in markets with wage inflation and persistent vacancy rates. Hospitals need to rethink how they structure back-end operations: claim follow up, denials management, underpayment recovery, and patient collections.
Two levers stand out: global delivery models and technology enabled workflows that prioritize work based on value at risk, not just aging buckets.
Key design elements for a modern back-end operating model
- Segment work by complexity and value: Not all accounts receivable are created equal. Use algorithms or rules to prioritize accounts by collectable balance, payer behavior, and denial risk. High-value complex accounts may warrant experienced domestic staff, while lower-complexity, protocol driven work (status checks, simple appeals, payment posting) can be handled by global teams at lower unit cost.
- Standardize denial handling into playbooks: For each major payer and denial category (authorization, medical necessity, COB, DRG downgrade, no response), develop standard appeal packages, escalation paths, and time-to-first-action expectations. Embed these into your workflow tools so staff are not improvising case by case.
- Automate everything that is rules-based: Use RPA or workflow engines to automate status checks, repetitive payer portal interactions, low-dollar zero balance reviews, and routine correspondence. This frees human staff to focus on negotiation, clinical appeal narratives, and pattern detection.
- Leverage global delivery for scale and resilience: Establish or partner for offshore/nearshore teams where labor markets are deeper and more stable. Properly governed, global teams can handle large volumes of standardized work at 30 to 50 percent lower cost to collect while still operating under your quality and compliance frameworks.
Operational example: A 300 bed regional hospital might move payment posting, basic insurance follow up, and initial denial triage to a global partner while retaining in-house teams for complex appeals and payer strategy. Combined with automation, this model often reduces cost to collect by 20 to 40 percent and compresses AR days by 3 to 5 days, which materially improves cash flow.
Using Analytics to Turn Denials and Underpayments Into Strategic Intelligence
Most hospitals measure denial rates, but relatively few treat denials and underpayments as a strategic dataset that can reshape contracting, clinical practice, and RCM design. Today, payers are increasingly using denials and downcoding as a margin management tool. Health systems must respond in kind with disciplined analytics and targeted countermeasures.
A denial and underpayment intelligence program
- Standardize denial taxonomy: Consolidate payer reason codes into a consistent internal categorization (for example: authorization, eligibility, medical necessity, coding, timely filing, COB, documentation). This enables meaningful trend analysis across payers.
- Drill down by payer, service line, and location: A single system wide denial rate does not help a cardiovascular service line leader understand why their TAVR claims are being delayed. Use dashboards that allow finance and operations leaders to see where and why revenue is being blocked at a granular level.
- Integrate underpayment detection: Contract modeling and variance tools can automatically flag claims where allowed amounts are below contracted rates. Prioritize follow up on these claims and feed patterns into contract negotiations and payer performance reviews.
- Close the loop with operations and clinicians: If orthopedic surgeries at a particular facility have a spike in medical necessity denials, share case level insights with surgeons, case management, and scheduling. Jointly adjust documentation templates, pre-service checks, or clinical pathways to meet payer requirements without compromising care.
Revenue impact: Organizations that systematically analyze denials and underpayments often discover 1 to 3 percent of net revenue that can be recovered or protected through operational fixes, provider education, or assertive payer management. In a low-margin environment, that delta can be the difference between a positive and negative operating margin.
Choosing When to Build, When to Buy, and When to Partner in RCM
With constrained capital and staffing, hospitals cannot afford to build everything internally. At the same time, handing over the entire revenue cycle to a third party without clear accountability and performance guarantees can create new risks. Leaders need a disciplined framework to decide where to invest, where to buy technology, and where to engage outsourcing or managed services partners.
A decision framework for RCM operating model design
- Retain strategic control of enterprise levers: Contracting strategy, pricing, charity care policy, and high level RCM governance should remain in house. These functions directly shape your market position and risk profile.
- Invest internally in high impact differentiators: For example, clinically integrated CDI programs, service-line specific scheduling excellence, or advanced analytics capabilities that link finance and quality. These can differentiate your organization in both payer negotiations and physician recruitment.
- Buy or partner for scale-based capabilities: Highly standardized, volume driven functions such as payment posting, basic follow up, or batch eligibility may be better delivered by external partners that invest heavily in shared workflow platforms and global labor models. One of our trusted partners, Quest National Services, specializes in full service medical billing and RCM support for organizations that want expert execution without the overhead of building large internal teams.
- Use modular, performance-based contracts: Instead of a monolithic “all or nothing” RCM outsourcing deal, consider modular arrangements. For instance: outsource denials management and underpayment recovery only, with clear SLAs for overturn rates, recovery timelines, and cash acceleration. This limits risk and lets you scale successful components over time.
Decision-makers should continuously revisit this build buy partner mix as market conditions, payer tactics, and internal capabilities evolve. The right mix in 2025 may not be right in 2028, especially as automation and AI tools mature.
Leading the Transformation: Governance, Talent, and Change Management
Even the best designed RCM strategies fail without strong governance and deliberate change management. Hospital cultures are complex, and revenue cycle touches every clinical department. Leaders must balance urgency with realism and create structures that align stakeholders around shared financial and operational outcomes.
Practical ingredients of sustainable RCM transformation
- Create a cross-functional RCM steering council: Include finance, revenue integrity, HIM, IT, nursing, physician leadership, and patient access. Meet regularly to review enterprise metrics, approve priority initiatives, and resolve interdepartmental issues.
- Stage initiatives in 90 to 180 day waves: Break large goals into achievable phases, such as “reduce authorization denials by 25 percent over six months in imaging and surgery” or “consolidate all payment posting into a shared service center with standardized workflows.” Each wave should have an owner, a business case, and defined success metrics.
- Invest in RCM talent development: With chronic staffing shortages, retaining and upskilling existing staff is critical. Provide clear career paths in coding, denials, analytics, and operations leadership. Use structured training and certification programs to improve both quality and engagement.
- Communicate the “why” in terms clinicians understand: When physicians hear “denial reduction,” they often think only of administrative burden. Translate initiatives into clinical and patient terms: reduced rework, fewer rescheduled procedures, faster authorizations, and more sustainable service lines.
If leaders treat RCM transformation as a one time project or as purely a finance initiative, the organization will inevitably revert to old habits. Sustainable change comes from embedding financial literacy and process discipline into how the hospital delivers care every day.
Putting It All Together: From Crisis Response to Long-Term Resilience
Hospitals cannot control macro forces such as inflation, labor markets, or payer consolidation. They can, however, control how effectively they convert delivered care into predictable cash. The strategies outlined above pivot RCM from a reactive, task based function into a proactive, margin protecting system.
By stabilizing patient access, tightening mid-cycle controls, industrializing back-end operations, leveraging analytics for payer intelligence, and making deliberate build buy partner decisions, health systems can move from constant crisis management to a more resilient financial footing. That resilience gives leadership more room to invest in growth, quality, and innovation instead of spending every budget cycle fighting to stay solvent.
If your organization is looking to improve billing accuracy, reduce denials, and strengthen overall revenue cycle performance, working with experienced RCM professionals can make a measurable difference. One of our trusted partners, Quest National Services, specializes in full-service medical billing and revenue cycle support for healthcare organizations navigating complex payer environments.
For hospitals and health systems that want to explore what a more resilient revenue cycle could look like in their specific market, the next step is a candid assessment of current performance and options. To discuss your organization’s revenue cycle priorities and learn what changes would have the greatest impact on cash flow and margin, contact us.
