Why revenue cycle is the first ‘smash hit’ application for AI

I recently attended a dinner of about 25 people who did not work in healthcare. As a talking point, I brought up the Change Healthcare ransomware attack (yes, I know, not the most casual conversation starter). That hack had impacted tens of millions of patients and cost UnitedHealth Group - Change’s owner since 2021 - close to $3 billion. It was big news, but perhaps not the front page news it deserved to be. 

And crickets. 

So few of the attendees of the dinner, including several clinicians, had heard of Change Healthcare - let alone the broader category of revenue cycle management or RCM. Change is the largest clearinghouse and medical claims processor - and it sits within an industry that’s worth more than $300 billion, conservatively. If clinical care is the brains, arms and legs of healthcare - think of the revenue cycle as its guts…  invisible to most people, until there’s a problem. And even then, the vast majority of people don’t understand what it is. But RCM deeply matters, because it's the set of processes that determine if, how and when our providers get paid, as well as whether or not medical procedures or treatments can even happen. 

Special thanks to our friends at Smarter Technologies, the automation and insights platform for healthcare efficiency, is a leading AI-powered revenue management platform that combines proprietary clinical agents, human-in-the-loop AI agents, clinical ontology, and global financial and administrative services. The company enables healthcare organizations to automate the entirety of their administrative and financial workflows—helping optimize operational outcomes, reduce costs, and improve patient experiences. For more information, visit www.smartertech.com.        

“Let’s use an analogy of a McDonalds,” said Michael Gao, president of Smarter Technologies and a physician, on a phone call with me. “Imagine if the receipts on the number of burgers sold were inaccurate, then it would be hard to operationally run the store.” That observation led Gao to start his company SmarterDx, which later merged with two other companies (Access Healthcare and Thoughtful.ai) to form New Mountain Capital-backed Smarter Technologies. SmarterDx was formed to help hospitals and provider groups better analyze the care delivered, and make sure they’re capturing all the value from it. 

Smarter Technologies just announced the acquisition of Pieces Technologies to launch SmarterNotes, which connects clinical notes to quality and reimbursement. That’s another big trend in the space that we’ll get into - ambient documentation technologies are more tightly integrating with the revenue cycle. 

Per Gao and a dozen other experts I spoke to, RCM is also going through a massive transformation at this very moment, fueled by AI. New companies are forming in the space, incumbents are facing real threats for the first time in decades, and there’s an unmistakable feeling in the industry that disruption could be coming. What this could result in, according to Gao, is far fewer companies that have their own administrative cost and potentially even dollars flowing back to health systems. 

How did RCM get so big?

RCM is so fascinating because it’s a uniquely American industry. Per Mike Desjadon, CEO of Anomaly Insights, a company that works with health systems to manage payers, it exists because of the complexity of getting to the answer only it can facilitate: “Will this care get paid for?” 

With more than one million providers billing more than 1,000 insurance companies and government agencies across an average of 5 billion claims per year, about 850M (17%) of them get initially denied. It can cost anywhere from 3 to 6 percent of a hospital’s net revenue to manage RCM - which is essentially the cost of collecting. Most major waves of innovation in RCM over the years have focused on reducing that cost to bolster margins. But per Desjadon, RCM is entering the 4th of the major phases of change focused on addressing its own massive costs and inefficiencies.  

As he outlined them…

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