Hospital Financial Management: What Is the Link Between Revenue Cycle Management, Profitability, and Not‐for‐Profit Hospitals' Ability to Grow Equity?

EXECUTIVE SUMMARY Effective revenue cycle management—from appointment scheduling and patient registration at the front end of the revenue cycle to billing and cash collections at the back end—plays a crucial role in hospitals' efforts to improve their financial performance. Using data for 1,397 bond‐issuing, not‐for‐profit US hospitals for 2000 to 2007, this study analyzed the relationship between hospitals' performance at managing the revenue cycle and their profitability and ability to build equity capital. Hospital‐level fixed effects regression analysis was used to model four different measures of profitability and equity capital as functions of two key financial indicators of revenue cycle management—amount of patient revenue and speed of revenue collection. The results indicated that higher amounts of patient revenue in relation to a hospital's assets were associated with statistically significant increases in operating and total profit margins, free cash flow, and equity capital (p < 0.01 for all four models); that is, hospitals that generated more patient revenue per dollar of assets invested reported improved financial performance. Likewise, a statistically significant link existed between lower revenue collection periods and all four indicators of hospital financial performance (p < 0.01 for three models; p < 0.05 for one model). Hospitals that collected faster on their patient revenue reported higher profit margins and larger equity values. For revenue cycle managers, these findings represent good news: Streamlining a hospital's management of the patient revenue cycle can advance the organization's financial viability by improving profitability and enabling equity growth.