The Cost of Getting Paid... Doctor Billing and Collections on Healthcare Uncovered Episode 9

This video provides an in-depth exploration of the financial burden placed on physician practices due to the complexity and inefficiency of the healthcare billing and collections process, known in the industry as Revenue Cycle Management (RCM). Dr. Eric Bricker, a physician and healthcare finance expert, establishes the central thesis that simply getting paid by insurance companies is prohibitively expensive, consuming vast amounts of administrative resources and resulting in significant lost revenue. The presentation aims to educate doctors on the true cost of RCM and introduce alternative payment models designed to streamline revenue collection and maximize profitability.

The core of the analysis focuses on quantifying the costs associated with RCM, which are divided into two major categories: direct billing and collections expenses, and write-offs. Citing a study from the Journal of the American Medical Association (JAMA), the video notes that one academic physician practice spent $99,000 per primary care doctor annually on billing and collections, representing 14% of their total revenue—the equivalent of two months of work. For some specialties, this direct cost can soar to nearly 25% of total revenue. The second major cost, write-offs (payments that are uncollected and deemed unrecoverable), adds an additional 5% to 10% of lost revenue. When combined, the total cost of simply getting paid can exceed one-third of a practice’s total revenue, equating to four months of work for which the practice receives no compensation.

The video attributes this massive administrative waste to the inherent complexity and error-prone nature of the traditional RCM system. The speaker, drawing on his experience as a former RCM consultant, describes the process as a "Quagmire" filled with errors, including incorrect information collected from the patient, wrong data entered into billing software, and information placed in the wrong fields. A specific example highlights the administrative burden: one practice used a drop-down list containing 45 different insurance plans, leading employees to constantly select the wrong plan. This complexity creates an "endless game of non-payment whack-a-mole," where fixing one error immediately leads to the emergence of multiple new issues, preventing practices from achieving efficient revenue capture.

As an alternative to the broken traditional health insurance system, the video promotes the concept of direct contracting relationships. These arrangements, made directly with employers or government entities, bypass the complexities and high administrative costs of traditional insurance billing. While acknowledging that practices cannot transition all revenue overnight, the speaker suggests joining direct contract networks, such as the Nomi Health open network, as a viable starting point to reduce RCM friction, get paid faster, and recover revenue lost to administrative overhead.

Detailed Key Takeaways

• Exorbitant Cost of RCM: The administrative cost of billing and collections is substantial, ranging from 14% of total revenue for primary care practices (based on a JAMA study) up to 25% for certain specialties.
• Write-Offs as Hidden Costs: Beyond direct billing fees, uncollected payments, known as write-offs, constitute an additional major financial drain, often costing practices an extra 5% to 10% of their revenue.
• Total Financial Waste: When combining direct RCM costs and write-offs, the total cost of getting paid can easily exceed one-third (33%) of a physician practice’s total revenue, representing four months of work performed without compensation.
• Time Value of Money Ignored: This calculation of RCM cost does not even account for the time value of money lost while practices carry receivables on their books, further increasing the true financial burden.
• Complexity Drives Errors: The RCM process is fundamentally complex, leading to a high frequency of errors, including collecting incorrect patient information, inputting wrong data into billing software, and selecting incorrect codes or plans.
• Data Entry Friction: A specific example of administrative friction cited is a practice using a drop-down list containing 45 different insurance plans, which employees constantly misselect, resulting in billing denials and delays.
• "Non-Payment Whack-a-Mole": The process of fixing billing errors is described as an "endless game of non-payment whack-a-mole," where the resolution of one issue immediately triggers the appearance of multiple new errors, preventing systemic efficiency.
• Revenue Cycle Management (RCM) Definition: RCM is the industry term encompassing the entire process of billing and collecting payments from insurance companies and patients, a process the speaker identifies as a financial "Quagmire."
• Strategic Alternative: Direct Contracting: Doctors should explore new direct contracting relationships with employers and government entities as a means to bypass the traditional, high-cost health insurance system.
• Incremental Transition Strategy: While switching all revenue streams overnight is impractical, practices can begin the transition by joining existing direct contract networks to incrementally reduce their reliance on traditional insurance billing.

Key Concepts

• Revenue Cycle Management (RCM): The administrative and clinical processes that track revenue from the time a patient appointment is scheduled or service is rendered to the final payment of the balance. In the context of the video, it is highlighted as a source of massive inefficiency and financial loss.
• Write-offs: Uncollected payments from insurance companies or patients that the practice determines are unrecoverable and removes from its accounts receivable, representing pure revenue loss.
• Direct Contracting: A payment model where healthcare providers contract directly with payers (often large employers or government agencies) to provide services, bypassing traditional third-party insurance intermediaries and aiming for simpler, faster payment terms.

Examples/Case Studies

• JAMA Study Data: A study of one academic physician practice found that billing and collections cost $99,000 per primary care doctor per year, equating to 14% of their total revenue.
• 45-Plan Dropdown List: A medical biller reported that one practice utilized a billing software dropdown list containing 45 different insurance plans, resulting in constant employee errors due to the sheer complexity of choice.