Claims Theory: Applying the 80/20 Rule to Revenue Cycle Management
7
The 80/20 Rule, or Pareto’s Principle, is a simple yet profound observation: 80% of outcomes often stem from 20% of inputs. While originally an economic theory, this principle applies to nearly every industry, including healthcare revenue cycle management (RCM). In a field as complex and multifaceted as RCM, focusing on the few tasks that yield the most significant results can drive substantial improvement in both operational efficiency and financial performance.
The 80/20 Rule in Revenue Cycle Management
RCM involves a wide range of activities, from patient registration to claims processing and collections. Yet not all efforts within this cycle produce equal results. In fact:
• A small percentage of claims often generate the majority of revenue.
• A few recurring errors are responsible for most claim denials.
• A limited number of inefficiencies account for the bulk of delays in collections.
These patterns reflect the core insight of the 80/20 Rule: a disproportionate amount of value comes from a relatively small set of activities. The challenge for healthcare organizations is identifying these high-impact areas and aligning their resources to optimize them.
Translating the 80/20 Rule into Action
Applying Pareto’s Principle to RCM requires careful analysis and strategic focus. Some ways organizations can achieve this include:
1. Focusing on High-Value Claims
Identify the claims that account for the majority of your revenue and ensure they are prioritized for efficient processing and timely reimbursement.
2. Addressing Denial Root Causes
Review denial trends to pinpoint common errors or bottlenecks, then focus on resolving these specific issues to reduce the overall denial rate.
3. Streamlining Processes
Evaluate workflows to identify unnecessary steps or inefficiencies. Automating repetitive tasks can free up resources for more complex and impactful work.
4. Allocating Resources Wisely
Direct your most skilled staff and advanced tools to areas with the highest potential financial return, rather than spreading resources thin across all tasks.
The Claims Theory Connection
The name Claims Theory reflects a belief that financial success in RCM isn’t about attempting to manage every single task with equal intensity—it’s about uncovering and prioritizing the factors that matter most. The “theory” lies in exploring the underlying dynamics of the revenue cycle and finding the leverage points where small adjustments can lead to transformative outcomes.
This perspective is rooted in the idea that healthcare organizations operate within a complex system, one that requires both precision and adaptability. Success depends on understanding where to focus effort and how to balance competing demands, particularly in an environment of constrained resources.
A Strategic Approach to Resources
Maximizing the potential of the 80/20 Rule requires more than just identifying high-value activities; it also demands the right tools and expertise. Advanced analytics, automation, and skilled teams are all essential to focus efforts where they will have the greatest impact. By aligning resources with priorities, organizations can reduce inefficiencies, improve cash flow, and better navigate the challenges of modern healthcare.
Reflections on the 80/20 Rule and the Name Claims Theory
Pareto’s Principle is not just a practical tool—it’s a lens through which we can view the broader workings of systems and effort. In healthcare, as in life, there is power in simplicity: understanding that a few vital inputs can drive disproportionate results helps us cut through complexity and focus on what truly matters.
The name Claims Theory embodies this idea, urging us to think critically and strategically about the systems we manage. It invites us to consider how the smallest actions can ripple outward, influencing not just financial outcomes but the integrity and sustainability of the system itself. Ultimately, the 80/20 Rule is less about efficiency and more about intentionality—reminding us to pursue depth over breadth, and impact over effort.
