Automating and outsourcing medical practice revenue cycle management: Building partnerships for financial success

Medical practices are facing increasing financial uncertainty, making them increasingly reliant than ever on revenue cycle management (RCM) vendors to maintain smooth cash flows, compliance and, ultimately, the ability to deliver quality care. 

A Nov. 19, 2024, MGMA Stat poll found that more than one third (36%) of medical practice leaders say their organizations will outsource or automate part of their revenue cycle management in 2025, whereas half (50%) said “no” and another 14% were unsure. The poll had 352 applicable responses.

Among practice leaders who signaled some form of outsourcing or automation in the year ahead, the most common areas were collections, billing and medical coding. Additionally, there were significant numbers of these respondents who expressed a desire to outsource or automate multiple areas, underscoring a trend toward comprehensive RCM solutions. 

Indeed, many respondents expressed a desire to fully outsource all aspects of RCM, with some specifically mentioning automation for tasks such as denials management or using bots for claims submissions. This echoes previous MGMA polls that pointed to a growing reliance on external expertise or technology to streamline RCM operations, reflecting industry-wide pressures to improve efficiency and reduce administrative burdens.

While half of all respondents indicated that they have no specific plans in the year ahead, many of them noted they do currently have some element of RCM outsourced, especially in billing and medical coding.

Despite this trend, some practice leaders made it clear that they have gone in the opposite direction in the past year, especially following the disruption from the Change Healthcare ransomware attack that caused claims processing delays, inability to verify patient eligibility and other operational challenges that led to considerable revenue losses. Impromptu shifts in RCM teams to go back to manual processes during the outage led these practices to go back to in-house RCM teams.

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MGMA Consultant Kem Tolliver, FACMPE, CPC, CMOM, president of Medical Revenue Cycle Specialists, emphasized the importance of building effective partnerships with RCM vendors to ensure that practices meet their financial goals while optimizing patient and staff experiences during her recent presentation in the MGMA seminar, “Automating the Revenue Cycle.”

Why revenue cycle partnerships matter

RCM partnerships are fundamental to financial success, directly impacting workflows, compliance and overall operational efficiency. “The relationships that we have with our RCM vendors are the ones that either make or break our financial performance,” Tolliver said. Vendors can cover a broad spectrum of services, from billing and collections to patient financial services and eligibility checks.

An effective RCM partnership can enhance workflow efficiency, reduce administrative burdens and streamline compliance with regulatory requirements. “By identifying and relying on partners who can make our lives easier, we improve the healthcare team experience,” Tolliver explained, which is essential to maintaining a high standard of care.

Key considerations for selecting RCM vendors

Selecting the right RCM vendor is crucial for the success of a medical practice’s revenue cycle. Tolliver stressed that the choice should align with the organization’s strategic goals and capacity. “Vendor selection means that we need to vet vendors who strategically align with us and uphold industry best practices,” she advised.

Some practices prefer smaller vendors for personalized support, while others choose larger RCM firms with robust resources. The decision hinges on organizational needs, such as the level of support, technological capabilities and the ability to integrate with existing systems. 

“Do they bring in technology that can enhance our workflows, or do they provide skill sets that we lack in-house?” Tolliver asked, highlighting the need for vendors to add value beyond what the organization already possesses.

Establishing mutual expectations

Tolliver emphasized establishing mutual expectations at the onset of the partnership, stating that “clear expectations should be mutual.” Both parties should outline measurable goals to track success, such as key performance indicators (KPIs) on clean claims rates or compliance standards. These expectations should encompass both the vendor’s deliverables and the medical practice’s responsibilities, such as ensuring the timely and accurate transfer of information.

A high clean claims rate is a key metric for evaluating RCM vendor performance. While some practitioners aim for a perfect 100%, Tolliver points out that a 90% rate is generally considered an industry best practice. “We want achievable KPIs for our RCM vendors,” she explains, noting that unrealistic targets can strain relationships and hinder performance.

Communication and accountability

Frequent communication and clear accountability are fundamental to a productive RCM vendor relationship. Tolliver recommends scheduling regular meetings to review performance, address issues and strategize improvements. 

“It’s critical to filter the information that we receive from our teams accurately to get a true sense of the vendor relationship,” she said.

Moreover, Tolliver underscored the importance of data-driven performance assessments, suggesting the use of KPIs and audits to track vendor performance. In cases where discrepancies arise, Tolliver encourages transparency and trust-building. 

“The worst outcome is to have an RCM vendor hide information due to fear of reprisal,” she warned, advocating for open communication that encourages vendors to report issues proactively.

Types of RCM vendors and their roles

Different RCM vendors provide distinct services, each with unique contributions to the revenue cycle:

1. Billing companies 

Responsible for billing and collections, these vendors help ensure timely payments and reduce administrative burdens by managing claims submission, denial prevention and payment posting. “Billing companies are the fix-it people,” Tolliver explained. “They identify and correct problems to improve cash flow.”

2. Clearinghouses

Acting as intermediaries between providers and payers, clearinghouses handle claims scrubbing and adjudication, reducing denials and ensuring smooth claim processing. A high clean claims rate from a clearinghouse minimizes rework and optimizes revenue.

3. EHR and practice management (PM) software providers

These vendors are central to documentation and billing processes, integrating with other RCM components to support patient scheduling, compliance and overall revenue management. Tolliver described the decision to go with an EHR vendor as “one of the most important relationships you enter into in revenue cycle.”

4. Bad debt agencies

Focusing on collections for outstanding balances, bad debt agencies must walk a fine line between persistence and patient dignity. “We want our bad debt agencies to be ethical and protect the dignity of our patients,” said Tolliver, stressing the importance of a patient-friendly approach to debt collection.

5. Analytics and business intelligence (BI) vendors

Advanced analytics, dashboards and predictive tools help practices identify revenue trends, benchmark performance and detect inefficiencies in the revenue cycle.

6. Patient payment platforms

These offerings include tools for online bill pay, payment plans and cost estimations to increase collections while enhancing the patient experience.

7. Eligibility and benefits verification services

These specialize in real-time verification of insurance coverage and benefits to reduce claim rejections.

8. Coding and auditing services

These vendors provide medical coding and compliance audits to ensure claims are accurately coded.

Ensuring RCM vendor compliance

Compliance is a non-negotiable aspect of RCM vendor partnerships, requiring strict adherence to HIPAA and other regulatory guidelines. Tolliver stressed the need for vendors to regularly update their workflows to reflect regulatory changes, ensuring that patient data remains secure and practices avoid costly fines.

Clear compliance expectations extend to all vendor roles, including bad debt agencies, which must adhere to fair debt collection laws to protect the practice’s reputation. For instance, Tolliver suggests providing guardrails for debt negotiations to ensure that arrangements reflect the practice’s values and financial objectives.

Fostering innovation and automation

Tolliver emphasized the importance of prioritizing innovation when selecting a vendor. “If you have an RCM vendor who is behind your organization in technology, that pulls us all back,” she cautioned. Practices should seek vendors committed to adopting cutting-edge technology, such as AI-powered analytics and real-time data reporting, to streamline workflows and enhance the patient financial experience.

For example, Tolliver highlighted that effective partnerships with clearinghouses can lead to real-time data sharing for eligibility verification, a key factor in reducing claim denials. Additionally, automation in claims processing can significantly improve clean claims rates, reduce rejections and enhance cash flow.

Evaluating vendor performance

To assess vendor performance effectively, Tolliver suggested using specific KPIs tailored to each vendor type. Examples include:

• Clean claims rate: Percentage of claims that pass without errors
• Denial rate: Frequency and types of denials received
• Billing accuracy rate: Frequency of billing errors
• Timeliness of claim submission: Time taken to submit claims post-service
• Recovery rate for bad debt agencies: Percentage of outstanding balances collected.

Practices should periodically review these metrics with vendors to ensure they align with contractual obligations and organizational goals. Tolliver also recommends scheduling reviews to provide vendors with timely feedback and involving the workforce responsible for these essential tasks to support process improvements.

Moving toward a win-win partnership

Ultimately, the goal is to build mutually beneficial partnerships — the proverbial “win-win.” Vendors should find value in working with the practice, just as practices should benefit from their services. A collaborative, trust-based approach fosters goodwill, motivates vendors to prioritize the practice and leads to sustainable success.

Strong RCM partnerships are vital to the financial health of medical practices. By establishing clear expectations, maintaining regular communication and leveraging data-driven evaluations, healthcare leaders can harness the full potential of their RCM partnerships, positioning their practices for growth and improved patient outcomes.

Additional resources

• Advanced Strategy for Medical Practice Leaders: Financial Management Edition (book)
• MGMA Focus | Financial Conference (April 13-15, 2025, in Washington, D.C.)
• ACMPE Certificate: Revenue Cycle Managment (Certificate program)
• "2025 Medicare Outlook” (Member-exclusive webinar, Dec. 10)