What Makes the Clinical Revenue Cycle Hum?

Medlearn Media NPOS Non-patient outcome spending

Gaining an understanding of why it’s important to familiarize yourself with the clinical revenue cycle is vital in healthcare.

Clinical revenue cycle: what is it?

I get asked this question many times, and sometimes, even by a person working in the revenue cycle. Let’s start first with a definition of the revenue cycle for healthcare. It essentially is the life cycle of a typical patient encounter, from admission or registration to final payment or adjustment off of account receivables. That includes a plethora of bits of data and information, and it can be hard to wrap one’s head around how complex it can be, even for a simple encounter.

But what is clinical revenue cycle (CRC)? CRC is the variable component of revenue cycle management (RCM) that can make a significant difference in the charges that are involved in an episode of care. This is dependent on the components of CRC, which are:

  • Utilization review (UR);
  • Case management;
  • Physician advisor;
  • Clinical documentation integrity (CDI); and
  • Coding.

These five components typically have disparate platforms, with staff who don’t talk to each other, making it hard sometimes to bring it all together. Why is it important to understand CRC? Because of the significant influence it has on charges – and the rationale that leads to them. This can also be a significant source of process denials that we see from the payors, aside from the technical denials that occur with RCM. It is also important to understand that there are direct and indirect costs that come into play. In healthcare, direct costs are attributable to the products and services that are provided, simplified as “overhead,” such as bed and board, housekeeping, dietary, etc. Indirect costs are the variable costs that are based on that product or service, such as inpatient versus observation. 

Just to give some real-life examples:

  1. If the physician documentation provided does not support the acuity for an inpatient level of care, CDI will not get involved. This can have an effect on accurate documentation for services provided.
  2. Using Medicare fee for service (FFS) as the example, the difference between reimbursement for an inpatient versus an observation stay may be $3,000 to $3,500. If a mistake or lack of a review occurs and a patient is kept in observation, despite being qualified for inpatient status, for whatever reason, that is a loss of that amount of revenue to the hospital, not to include the potential financial challenges to the Medicare beneficiary for being in observation. If that mistake is made once a day, 365 days a year, that is a loss of $1.4-1.6 million in revenue. Make that mistake more than once a day, and you can do the math. In addition, this can lead to process denials.

The conclusion to be made from this information, although summarized briefly, is that an understanding of clinical revenue cycle in the RCM realm can have significant financial consequences for a hospital. Processes must be compliant and correct for hospitals to gain the sustainable revenue they truly deserve for the care they provide.


John Zelem, MD, FACS

John Zelem, MD, is principal owner and chief executive officer of Streamline Solutions Consulting, Inc. providing technology-enabled, expert physician advisor services. A board-certified general surgeon with more than 26 years of clinical experience, Dr. Zelem managed quality assessment and improvement as a former executive medical director in the past. He developed expertise in compliance, contracts and regulations, utilization review, case management, client relations, physician advisor programs, and physician education. Dr. Zelem is a member of the RACmonitor editorial board.

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