Healthcare Revenue Leakage: Why It’s Happening and How to Stop the Leakage

Revenue leakage is defined as the loss of income resulting from undetected errors and inefficiencies within a company. It’s like cracks in a ship that lead to gradual water leakage. Drip by drip, the ship can be flooded with water and ultimately sink. For businesses, these gaps can be hidden in day-to-day operations, so they might not realize they have significant revenue loss until it’s too late.

To paint you a picture, these revenue leaks can impact any practice greatly: A $20 million practice can lose about $800,000–$1 million in missed income. In addition to unpaid collections and denied claims, the financial damage could worsen. In fact, the national cost of uncompensated medical care in 2020 was estimated to be $42.67 billion, according to the American Medical Association.

Ideally, when you perform a service to a patient, what must follow is proper documentation, claims submission, and payment. But we’re experiencing the opposite. Most clinics’ revenue cycle is interrupted and every disruption risks revenue leakage.

Here’s why leaky revenue is happening in healthcare:

1. Inaccurate coding: Incorrect clinical codes result in substantial financial ramifications. A study found that the percentage of inaccurate medical codes in the principal diagnosis was 57 (26.8%), and the percentage of inaccurate medical codes in the secondary diagnosis was 21 (9.9%).

These coding errors can be categorized as “fraud” or “abuse” according to the AMA. An intentional misrepresentation is a fraud coding error, while an “innocent mistake, but nonetheless representative” is an abuse coding error.

Miscoding can occur due to a skill gap among primary care professionals, their level of motivation, organizational priorities, the time-consuming nature of structured data reporting and recording during consultations, and limitations in available technologies and coding systems (Karhade et al., 2018).

2. Insurance eligibility errors: Improper verification is a sure way to get your claims rejected. This occurs in multiple ways, such as healthcare providers assuming a patient’s insurance is valid and active when it’s not, or recording inaccurate or incomplete insurance information.

Your front-end staff can slip up due to an oversight of policy details or missing pre-authorization, which can lead to outright claim denials. If so, you need to go through the arduous task of navigating appeals processes, engaging in retrospective authorization requests, or undertaking other time-consuming measures to secure reimbursement.

3. Poor follow-up on denied claims: It’s not enough that you resubmitted or appealed a claim. You need a robust claims management system to ensure that every claim is not left unmonitored. Within 48 hours of notification, you should be able to implement a standard follow-up procedure to remove aging claims and recover them.

There are many other hidden culprits of revenue leakage, but the ones mentioned above are the primary contributors. While it may be hard to spot a single cause of revenue leakage, there’s a way for you to assess if it’s happening to your practice.

Ask yourself the following questions:

• Are your denial rates nearing 10% even if you rework?
• Do you have bad debt piling up?
• Is it difficult for you to check performance KPIs?
• Is your billing team experiencing burnout?
• Is follow-up happening late — or not at all — because you’re just trying to stay afloat?

If you answered “yes” to some statements, that’s a sign of financial bleeding. Band-aid solutions won’t cut it, so listen closely to these actionable strategies for revenue leakage.

Closing the financial gaps doesn’t have to be complicated. You can simplify the process by following these steps and involving your accounting and finance team.

• Look at the top accounts where the leaks might be originating, but don’t stop estimating there.
  For a better understanding, check those closest to the revenue generation process.
• Consolidate your insights and rank the leaks by economic value (including time and other resources spent).
• Conduct a thorough audit to scrutinize data, processes, and retrace steps related to key revenue moments.

You may find, for instance, that you have seven minor leaks that add up to $1,000 and a substantial leak costs $5,000 per month. Intuitively, you may want to fix the substantial cost first, but upon audit, it’s the repetitive minor leaks that hit you the most.

Synapse Accounting and Bookkeeping has been a leading expert in reversing negative cash flow for over two decades. We plug the financial leaks by embodying our values of accuracy, efficiency, and transparency. The result? Happy and loyal clients like this Gastro clinic, which achieved a significant reduction in prior authorization procedure denials, from 86% to 14%.