How to Increase Incremental Revenue and Build Profitability

The health care industry is experiencing significant change along with an extreme increase in complexity. The pressure to contain costs and expand services while successfully managing an ever-changing and oppressive regulatory environment creates even more challenges to maintaining profitability.

With this in mind, here are three key strategies that we have found to be highly effective in building incremental revenues and thus, contributing to the overall financial viability of community hospitals. Some may seem obvious while others are very often overlooked. But when all are included within a broad financial management strategy and then successfully implemented, the profitability of community hospitals can improve markedly.

Cost-based reimbursement as found within Critical Access Hospitals has certainly helped improve the financial performance of these organizations; however, it is not a panacea. Cost reimbursement, by its very definition, does not provide a profit. Therefore, hospital leadership must aggressively pursue a broad range of revenue enhancement measures.

1. Third-party Commercial Payor Negotiations

It’s not unusual to find hospitals that avoid rate negotiations with third-party payors. And no wonder! It can be tedious and altogether unpleasant. But it is an essential component of hospital profitability and the first building block in successfully implementing an overall strategy geared toward profitability.

Because many CEOs and CFOs do not possess a background in this type of third-party contracting, expert help is available. An experienced firm will understand the revenue requirements of the hospital, the local market and the cultures of the various third-party payors — all essential for successful rate negotiations. We often recommend individuals or firms that specialize in this type of negotiation and without question, the return on investment can be significant!

2. Chargemaster Review…Elusive but Significant Revenue

Once new third-party payor commercial contracts are in place, the next step is to implement a regular process of reviewing (updating) the hospital’s Chargemaster because this, too, can create significant new revenues for the hospital. This can be especially true where the hospital has negotiated third-party payor contracts that reimburse the hospital a reasonable percentage of charges. We have seen the results firsthand — and they can be dramatic.

Because it is essential to be vigilant, we recommend a full Chargemaster review (update) every other year with a desk review (minor) performed during intervening years. Hospitals that ignore this task can leave significant amounts of reimbursement on the table — funds they are entitled to receive per their commercial payor contracts. We often recommend firms that specialize in this type of revenue cycle activity and again, the return on investment can be significant.

3. Charge Audit…More Elusive Revenue

Charge capture processes also can lack focus and emphasis in many community hospitals. As a result, the hospital may not be capturing patient charges it is entitled to collect per its commercial payor contracts. This can be especially true in those hospitals that may lack an order-entry system or other more sophisticated IT system.

We often recommend the establishment of a Charge Audit Committee that meets without fail on a regular basis. Membership should include representatives from all revenue-producing departments (preferably the department manager). Representatives from Information Management, IT, Fiscal Services and Nursing Services should also be included. Contingent upon the hospital and situation, membership may be expanded or modified. Committee review of hospital billing statements against patient medical records provides an opportunity to:

  • Identify lost charges by department and develop modifications to charge capture processes that can increase incremental revenue
  • Draw lines of accountability to those departments where modifications to charge capture processes are needed and have been implemented
  • Identify overcharges or mistaken charges and correct problems that could evolve into corporate compliance issues for the hospital
  • Enhance the activities associated with RAC’s readiness


Put into place an ongoing and highly effective Process Improvement activity that fosters communication, teamwork and problem solving across departmental lines; in essence, an activity that is oriented to improving the financial performance of the organization, reducing unnecessary risks, and improving patient satisfaction and quality.

Obviously, other areas of the revenue cycle can and often do need improvement and require a high degree of vigilance. However, the three strategies discussed here are most significant. For many hospitals, they may offer a dramatic opportunity to enhance incremental revenue, overall profitability and long term viability.