The Evolution of Billing into Revenue Cycle Management (RCM)
During the 1970s, insurance plans (payers) started shifting from indemnity plans (where the patient pays the bill, and the insurance reimburses the patient) to direct payment plans (where the insurance company pays the provider directly). As this occurred, we also saw a continued transition to for-profit insurance plans such as Aetna or Cigna. Even Blue Cross/Blue Shield shifted from a non-profit to a for-profit company. 14
As payers created more and more complex payment plans (PPOs, EPOs, IPAs, etc.), all having different payment rules, it became far more crucial to collect accurate insurance information before a bill was sent. It’s estimated that nearly 40% of rejected claims are rejected because of incorrect insurance information. 15
Thus, the revenue cycle shifted from starting after the patient had been seen to starting at the time the patient made their appointment, and the first step became getting accurate demographic and insurance information. Specialties at particular risk of inaccurate information include the hospital-based groups (anesthesiology, emergency medicine, hospitalists, pathology, radiology) who bill independently, as they rely on the hospital to collect the information for them.
The current steps in both inpatient and outpatient
RCM now generally include:
- Claims preparation:
- patient registration
- patient eligibility
- Claims submission:
- charge entry (“superbill”)
- claims transmission
- Claims management:
- payment posting
- denial management
- A/R management:
- patient collections
- A/R follow-up
- analytics overall
- MU/registry reporting
Solo and small physician groups struggled to keep up with ever changing rules, as did smaller and independent hospitals, and an ever-increasing amount of time was required for billing. The need for timely follow-up and attention to denials became critical for most practices. In 2014, Becker’s reported that 90% of solo/small physician practices had plans to outsource most or all of their medical billing services by 2016. 18 There is an expected growth of $27B in RCM software sales between 2021 and 2025. 19
Professional billing teams, whether a part of the organization or a separate organization, became necessary to have enough expertise to accurately and efficiently code, justify the needed investment in training and in software, and develop enough economy of scale to offset the cost of doing business. Professional billing software became necessary for electronic claim submission as well as tracking and reminder functions to ensure timely processing by both the provider and the payer.
Organizations undergo lifecycle changes, just as products do. Failure to adapt to current billing procedures are consistent with an organization in decline, and without attention, the organization will fail.
Documentation, Upcoding and DRG Creep
Coding relies on documentation. Billing relies on coding. Both are now considered big business. According to Dr. Prem Reddy, CEO of Prime Healthcare, “It’s a game, and you can’t play if you don’t know the rules.” 20
The 1995 revision of the CMS guidelines created extremely concrete items that are more easily documented than before. 21 DRGs continue to require specific documentation for adequate assignment. Items on the problem list may count towards the number of clinical systems assessed to meet E&M documentation requirements, which are in turn used to document a Comorbidity/Complication (CC) or Major Comorbidity/Complication (MCC) for the hospital DRG.
An electronic health record may facilitate documentation and coding. Rules may be built into the notes to ensure that specific information is required before a chart may be closed. Phrases may be programmed in as macros that meet the requirements for coding. Pop-ups or drop-down lists may ask you to provide additional detail for a problem or diagnosis.
Modern charts usually include a Problem List, which has all of the current and historical issues (co-morbidities) that a patient may have. Items on the problem list identify one or more comorbidities, which may lead to use of different billing codes. For example, the DRGs for chest pain/angina and for acute coronary syndrome pay the same amount – unless there is an MCC, in which case the payment nearly doubles. 22
“Documentation and coding of visits affects medical practices in many ways. If improperly done, they can be a dangerously weak link in medical practice. If aggressively and proactively managed, however, they reduce audit risk, reduce the risk of malpractice suits, and enable effective management of revenue and expenses.” [emphasis added] 23
Accuracy in coding is important for multiple reasons, not just for billing and revenue. It impacts statistical databases, clinical preparedness, budgeting, and overall planning. 24
Errors in coding and billing may occur, with wide ranges reported. 15,25-27 Professional coders will list every possible condition that is documented in the chart. This may lead to error in several ways. A “rule-out” item may be classified as a diagnosis when in fact the disease was ruled out. A pre-existing infection or contaminated wound with anticipated infection may be coded as a hospital acquired infection. A planned post-op ICU stay may be coded as a complication. Not only may this have an impact on billing accuracy, but it may also needlessly flag a chart for quality review, or may lead to detailed changes in workflow and policy that were based on erroneous information.
The concept of upcoding and DRG creep are not new. The first article about upcoding was a letter to the editor of the New England Journal of Medicine from Simborg in 1981. In this letter, Simborg points out that the order in which the diagnoses are listed makes a difference in the reimbursement, and that changing the order to increase the reimbursement is unethical. He goes on to say:
“It would certainly be profitable for a hospital to invest in more sophisticated data-processing and discharge-abstracting systems. In the ensuing technologic arms race between the regulators and the regulated, it may be difficult to distinguish the disease from the cure.” 28
Hospitals are not the only ones who may try to game the system. Medicare claimed the difference between what they would have paid under the old system vs what they actually paid with the new DRG system as a budget savings under the Balanced Budget Act of 1985, even though DRGs were fully implemented by that time. 6
Most physicians have no education in billing or coding. When we were in training, for the most part, which diagnosis we marked on a superbill was not considered to really make a difference. But it does. Hospital claims are generally coded by professional staff, and outpatient claims may be coded by the physician or professional staff.
In the nearly 40 years since DRGs were first implemented, our patients have changed. We now have a “pandemic of cumulative chronic diseases” 29 that constitute the leading cause of death worldwide. Sometimes termed “polypathology,” it changes the nature of disease and certainly the nature of coding. The most common chronic condition is multimorbidity. 30 There is currently no code in ICD-10 for this situation, which means that it cannot be easily tracked or studied. 29,31 Existing comorbidity indices have been limited in scope, and are focused on mortality risk. More recent review of administrative data has evaluated 81 different ICD-9 codes to provide a better picture of health-related quality of life and use this for broader research on the burden of multimorbidity. 31
Studies have found that most of the increase in case mix reflects both more complex cases (about 2/3), and more accurate narrative descriptions and coding. 6,32,33 In addition, many fail to realize or acknowledge that admission patterns have changed significantly over the past 30 years. Hospitalized patients truly are sicker than they used to be — because those who are not as sick are being cared for in outpatient settings. Those changes have a larger impact on case mix index than documentation and coding practices. 34
Sjoding et al evaluated coding for pneumonia or coding for sepsis and/or respiratory failure and/or acute organ dysfunction. They found that including sepsis/respiratory failure/acute organ dysfunction improved the actual vs expected mortality rate, and the readmission rate. 35 However, at the same time, quality initiatives, such as the Surviving Sepsis campaign, were initiated, leading to increased recognition of sepsis and severe sepsis, and thus coding for the diagnosis. 36,37 Similarly confounding issues arise because the criteria for diagnosing hypertension or diabetes (two of the most common chronic diagnoses) have changed during many of these study windows. The 2017 Hypertension Clinical Practice Guidelines, for example notes that it leads to “a substantial increase in the prevalence of hypertension.” 38,39
By the mid-2000s, nearly 80% of all patients had a CC which goes along with the prevalence of polypathology as noted above. In part because of this, for fiscal year 2008, CMS changed the code set to “MS-DRG” which revised the allowable CC list and dropped the number of patients with a CC/MCC by half, to 40%. 34 There is some potential for inaccuracies related to the conversion from ICD-9 to ICD-10, where some ICD-9 diagnoses may map to one or more ICD-10 codes.40
15. Lundeen JM, Souba WW, Hollenbeak CS. Sources of Error in Delayed Payment of Physician Claims. Family Medicine. 2003 May;35(5):355–9.
19. Technavio. $ 27.43 Billion Growth in Global Healthcare Revenue Cycle Management (RCM) Software Market 2021-2025 | Featuring 3M Co., Allscripts Healthcare Solutions Inc., and Change Healthcare Inc. among others | Technavio [Internet]. [cited 2021 Jul 28]. Available from:
20. Reddy P. Special General Medical Staff Meeting. 2014 Dec 2; O’Connor Hospital, San Jose, CA.
24. Russo R. Documentation and Data Improvement Fundamentals. Documentation and Data Improvement Fundamentals / AHIMA, American Health Information Management Association [Internet]. 2004 Oct 15 [cited 2021 Aug 15]; Available from:
26. OIG. Improper Payments for Evaluation and Management Services Cost Medicare Billions in 2010 (OEI-04-10-00181; 05/14). 2014 May;(OEI-04-10-00181):44.
28. Simborg D. DRG Creep: a new hospital-acquired disease. New England Journal of Medicine. 1981 Jun 25; 304(26):1602-1604.
29. Román P, Ruiz-Cantero A. Polypathology, an emerging phenomenon and a challenge for healthcare systems. Revista Clínica Española (English Edition). 2017 May;217(4):229–37.
30. Tinetti ME, Fried TR, Boyd CM. Designing Health Care for the Most Common Chronic Condition—Multimorbidity. JAMA. 2012 Jun 20;307(23):2493–4.
31. Wei MY, Luster JE, Chan C-L, Min L. Comprehensive review of ICD-9 code accuracies to measure multimorbidity in administrative data. BMC Health Services Research. 2020 Jun 1;20(1):489.
33. Steinwald B, Dummit LA. Hospital Case-Mix Change: Sicker Patients Or Drg Creep? Health Affairs. 1989 Jan 1;8(2):35–47.
35. Sjoding MW, Iwashyna TJ, Dimick JB, Cooke CR. Gaming Hospital-Level Pneumonia 30-Day Mortality and Readmission Measures by Legitimate Changes to Diagnostic Coding*. Critical Care Medicine. 2015 May;43(5):989–95.
37. Slade E, Tamber PS, Vincent J-L. The Surviving Sepsis Campaign: raising awareness to reduce mortality. Crit Care. 2003 Jan 8;7(1):1.
38. Blood Pressure Toolkit | American Heart Association [Internet]. [cited 2021 Aug 31]. Available from:
40. Liang F-W, Wang L-Y, Liu L-Y, Li CY, Lu T-H. Physician code creep after the initiation of outpatient volume control program and implications for appropriate ICD-10-CM coding. BMC Health Services Research. 2020 Feb 19;20(1):127.