Three ways to ease the pressure on health system revenue cycles

McKinsey September 10, 2024
Michael Peterson, Sanjiv Baxi, Sarah Calkins Holloway

Leaders could overcome revenue cycle challenges by establishing effective partnerships, improving cross-functional collaboration, and harnessing their diverse data sources for insights.

The mounting strain on health systems’ financial performance is forcing revenue cycle leaders to make difficult decisions. For example, declining median operating margins and heightened risk of credit downgrades have increased pressure on not-for-profit health systems to enhance cash collections while minimizing costs.

This financial strain is compounded by a growing administrative burden across the revenue cycle. By the end of 2023, 15 percent of initial claims were denied for payment, up from 9 percent in 2016. Additionally, administrative tasks such as prior authorizations—at an average rate of approximately 45 per physician per week—now have an average cost of...

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