Laboratory Administration & Management of Pathology Practices


Revenue cycle management

Deputy Editor-in-Chief: Patricia Tsang, M.D., M.B.A.
Brian H. Le, M.D., M.B.A.
Suzanne Dintzis, M.D., Ph.D.

Last author update: 26 April 2021
Last staff update: 26 April 2021

Copyright: 2021,, Inc.

PubMed Search: Revenue cycle management [TI]

Brian H. Le, M.D., M.B.A.
Suzanne Dintzis, M.D., Ph.D.
Page views in 2024 to date: 111
Cite this page: Larsen MP, Le BH, Dintzis S. Revenue cycle management. website. Accessed July 14th, 2024.
Definition / general
  • Describes the mechanics of the payment process:
    • Administrative activities involved in the documentation of patient care
    • Collection of revenue associated with patient care
    • Complete charge reconciliation
  • Applicable to any medical specialty and practice environment, with some unique attributes specific to pathology and laboratory medicine
  • Compliance with regulatory standards, payer requirements and generally accepted accounting principles (GAAP) are critical
  • Revenue cycle management (RCM) assures sufficient cash flow to maintain the practice, physicians and staff, building and supplies
Essential features
  • Basic elements are critical for all pathologists to know regardless of employment situation, as there are key compliance issues, such as accurate coding, billing and documentation, that are the direct responsibilities of the pathologist
  • Begins with patient data collection from a specimen requisition and ends when payments and adjustments from all collectible sources have been received, posted and reconciled
  • Accurate diagnostic coding (with ICD codes) and procedural coding (with CPT codes) in compliance with rules and regulations
  • Clean claims, without errors, are key to achieving timely payments
  • Continual evaluation and optimization of RCM processes
  • Pathologists play critical roles in RCM
    • Ensuring accurate diagnostic and procedural coding
    • Management of denials
    • Justifications for billing resubmissions
Importance of sound RCM practices
  • Ensure maximum, timely cash flow into the practice group, department or institution
  • Permit financial projections critical to sustainability, including:
    • Pathologist and staff recruitment and retention
    • Evaluation of the scope and menu testing offered
    • Need for process improvement and investments in future personnel and technology
Diagrams / tables

Contributed by Brian H. Le, M.D., M.B.A.
Key steps for pathology / laboratory RCM

Key steps in pathology / laboratory RCM

Essential steps in laboratory RCM
Accessioning (data capture and entry)
  • Entry point to RCM; preanalytic phase of laboratory testing includes:
    • Capture of all patient demographic and insurance data
    • Capture of referring physician information
    • Capture of relevant medical history and current illness
    • Verification of patient's insurance or payer information
    • Case accessioning: entry of the above information to generate a unique record for the specimen received

Documentation, diagnostic and procedural coding
  • To ensure appropriate payment for rendered patient services, care charge codes for subsequent billing must be generated with attention to the following:
    • Verification of why a patient came for care (history of current illness) provided by the appropriate ICD-10 code(s)
      • ICD-10 codes document medical necessity and justify the reason the laboratory tests were performed
    • Documentation of a final diagnosis in the pathology report
    • Entry and verification of the appropriate procedural (CPT) code(s) for the service(s) performed
      • Common procedural terminology (CPT) codes communicate what services were provided to the patient
      • In laboratory medicine, the CPT code reflects the specimen source, specimen type and complexity and the number of specimens
      • Front end coding refers to the assignment of CPT codes during initial case accessioning
      • Back end coding refers to the assignment of CPT codes after diagnostic work is complete, ensuring coding accuracy
      • Final diagnosis must include justification for every CPT code that is assigned
        • Basic CPT code must match the specimen type, i.e. 88305 for breast excision without margin assessment versus 88307 for breast excision with margin assessment
        • CPT code for special stains, infection or other, used only when the specific stain is needed for diagnosis AND mentioned in the final diagnosis
      • Coding verification is a critical compliance step as it prevents upcoding (overcharging) or undercoding (undercharging)
    • Pathologist of record is ultimately responsible for ensuring coding accuracy and compliance, regardless of who assigned the billing codes

Charge assessment
  • To ensure that payment received for services rendered is correct and complete, standard terminology is used as follows:
    • Gross charge
      • Amount charged for a service, determined by the practice's fee schedule
      • Gross charge should exceed the maximum amount that private insurers pay, to ensure maximum allowable collection from any payer source
      • Example: gross charge for CPT 88305 = $175.00
    • Contractual amount
      • Dollar amount (discount) a provider has agreed to accept from a payer for a service, as defined by contract
      • Contractual amount should not be less than the cost to provide the test
      • Example: payer and provider have agreed by contract that CPT 88305 will be paid $100.00
    • Adjustment or contractual adjustment
      • Difference between gross charge and the contractual amount
      • May be expressed as a percent of gross charge
      • Effectively reflects a contracted discount off of the gross charge
      • Example: $175.00 (gross charge) - $100.00 (contractual amount) = $75.00 (adjustment), which is 43% of gross charge
    • Net charge
      • Total amount to be collected from the payer after adjustments
      • Typically equals the contractual amount
      • Example: $175.00 (gross charge) - $75.00 (adjustment) = $100.00 (net charge)
    • Payment amount (from payer)
      • Percentage of the contracted amount to be paid directly by insurance (the remaining amount will be paid by the patient, see copayment below)
      • Example: payer A's contract agrees to pay 80% of contractual amount; $100.00 (net charge) x 0.80 = $80.00 (amount insurance will pay)
    • Copayment
      • Difference between contractual amount and payment insurance covers
      • Copayment will be paid by the patient
      • Example: $100.00 (contractual amount) - $80.00 (insurance pays) = $20.00 (patient pays)

Claim preparation and submission
  • Clean claims, without missing information or error, are critical for quick payment; a clean claim has the following:
    • Identifies health care provider(s) and entities providing service with any affiliations and identifying numbers (i.e. national provider identifier)
    • Identifies patient and individual holding the health insurance
    • Lists correct date and place of service
    • Bills for a covered service
    • Identifies service provided using appropriate codes (CPT)
    • Establishes medical necessity for service using appropriate codes (ICD-10)
    • If necessary, includes preauthorization codes
  • Submission of claims is usually electronic
  • Time allowed between rendering service and issuing a bill for service may be stipulated in payer contracts

Payment posting, balance billing and management of denials
  • Payment posting involves logging payment received for services into the practice management or billing software; once all insurance payments have been received and account adjustment made, the remaining patient responsibility can be billed
  • Payment posting must include:
    • Electronic remittance advice (ERA) payments; insurance payers often pay the practice electronically with a lump payment for multiple claims in one check, which is explained on the ERA
    • Any direct payments from patients (checks, credit, cash) to the patient accounts
    • Data from the explanation of benefits (EOB) from the insurance company to the patient accounts
  • Information received from the EOB must also be assessed for:
    • Denials of payment - review the reasons for denial
    • Copays (difference between payment amount and allowed contractual amount) that should be billed to the patient
    • Amounts for write offs, the difference between the claim submitted and the claim defined in the EOB
  • Coinsurance / copay billing
    • This is the billing of patients for the difference between the contractually allowed charges and the amount paid by insurance
    • A copay is a permissible form of balance billing, representing the dollar amount the insurance company expects the patient to contribute to care, thus reflecting the patient's financial responsibility
    • For special circumstances where the pathologist or laboratory performing diagnostic services are not within the insurance's provider network, specific jurisdictional laws should indicate if additional balance billing is legal
  • Management of denials
    • Insurance companies will indicate reasons for payment denials
    • Common reasons for denials include:
      • Demographic errors
      • Wrong day of service
      • Uncovered service
      • Lack of medical necessity
    • Claims can be reworked and resubmitted with corrected information within time limit specified by the payer
      • With Medicare, for example, a practice has 120 days from the date of receipt of the initial claim determination to file an appeal (redetermination) request
      • There is a cost to the practice associated with resubmission, estimated by some to be up to $35.00 per reworked claim
      • It is important to explore reasons for denials and adjust internal processes to reduce denials (i.e. producing an initial clean claim)
Optimizing RCM
  • Continuous evaluation and optimization of practice inefficiency can improve both practice effectiveness and revenue
  • Personnel: the largest practice expense is employee salary
    • Maximize staffing efficiency by:
      • Understanding peak and minimum workflows and coordinating the scheduling of personnel accordingly
      • Matching employee expertise to tasks; avoid having highly trained staff performing entry level work
      • Instituting robust succession planning: internal training programs may avoid rapid employee turnover by institutionalizing upward mobility; recruiting and training new staff is costly
  • Workflow and technology
    • Most efficient way to manage your revenue cycle is through electronic billing and claims submission
    • Continuously review and assess for performance improvement opportunities
      • Streamline the RCM process
      • Establish checks and balances to assure claims are clean and payment posting is efficient
      • Evaluate reasons for claims denials and implement procedures to reduce such denials
      • Use appropriate financial reports and metrics to assess performance
        • Examples of metrics to consider include:
          • Net collection rate: total payment received divided by total net charges
          • Bad debt rate: total uncollectable charges divided by total net charges
          • Denial rate: total denied charges divided by total gross charges
    • Review payer contracts on a regular basis in order to optimize the following:
      • Assure time requirements for claims submission and payment posting
      • Assure contractual, agreed upon payment rates are being met and do not fall below the cost of production
      • Catch any changes to contractual terms or need for renewal
Key roles of pathologists in RCM
  • Verifying clinical information / history on pathology and laboratory orders
    • Critical step that establishes medical necessity, justifying the procedure
    • Example: Flow cytometry is ordered on a peripheral blood specimen without any history provided. The pathologist must investigate the clinical indication for this laboratory order.
  • Verifying appropriate diagnostic ICD-10 codes to justify the laboratory procedure performed, based on local coverage determination (LCD)
    • Example: Flow cytometry is ordered on a peripheral blood specimen. Following chart review, the pathologist concludes that the appropriate clinical diagnostic indication is lymphocytosis (ICD-10 code D72.820). Under certain local coverage determination, this ICD-10 code would justify the flow cytometry ordered. A clinical history of chronic lymphocytic leukemia (ICD-10 code C91) would not justify the test ordered and would likely result in claim denial.
  • Entering and verifying correct procedural (CPT) codes to reflect appropriate and permissible units of service rendered
    • Example: A pathologist performed pancytokeratin immunohistochemistry to look for metastasis on 2 blocks originating from the same lymph node. The laboratory system automatically codes for 2 units of CPT 88342. The pathologist is obligated to adjust the changes to reflect only 1 unit of CPT 88342, as pancytokeratin can only be charged once per specimen.
    • Technical and professional coding modifier:
      • Charges for the technical component of testing only would be appended by modifier "TC"
        • Example: A laboratory performing only tissue processing for a colon biopsy would bill 88305-TC.
      • Charges solely for the profession component of testing would be appended by modifier "26"
        • Example: A pathology practice interpreting cytokeratin immunohistochemistry from a slide that was prepared by an outside reference laboratory would bill 88342-26.
      • Global charges that encompass both technical and professional components are NOT appended by a technical or professional modifier
        • Example: A laboratory that performs the technical component of immunohistochemistry and where its pathologist also interprets the resultant slide would globally bill 88342.
  • Review of claim denials and providing justification to substantiate charge submission and resubmission
    • Example: An insurance payer denies payments for acid fast bacillus and GMS stains performed on a gastric biopsy, claiming that medical necessity was not established. The pathologist, in review of the slides and pathology report, confirms the finding of granulomatous inflammation. A written appeal can be compiled by the pathologist, with explanation that granulomatous inflammation justifies special stains to evaluate for possible AFB and fungus before entertaining the possibilities of inflammatory bowel disease or sarcoidosis.
Board review style question #1
Which of the following represents the maximum amount of money that can be collected from all sources (insurance and patient) for a laboratory procedure?

  1. Contractual adjustment
  2. Contractual amount
  3. Fee schedule charge
  4. Gross charge
  5. Payment received from insurance payer
Board review style answer #1
B. The contractual amount is the amount that the provider, based on contracted agreement, has agreed to accept for the service provided. It includes the amount that the insurance company will pay and the amount that is to be collected as a copay from the patient.

The gross charge, which is also the fee schedule charge, is typically set high to ensure maximum collection from any payer and does not reflect what will ultimately be received. Payment from the insurance payer may reflect a significant portion of the contractual amount; however, the patient must be billed for the difference. Contractual adjustment is the difference between the gross charge and the contractual amount, reflecting effectively a discount off of the gross charge.

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Reference: Revenue cycle management

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