The Unmeasured Cost of Measuring Everything, Part 1

How Revenue Cycle Management Shapes Care

Medical school taught me how to act, not how the play gets funded.

I was trained to listen carefully, reason under uncertainty, and make decisions with incomplete information. I learned to weigh probabilities, to sit with ambiguity, and to construct narratives that made sense of a patient’s symptoms over time. What I did not learn, and what very few clinicians are ever taught, is how that care is translated into something legible to the systems that pay for it.

In medical school, healthcare appears almost frictionless. Care happens. Decisions are made. Outcomes unfold. The economic machinery that sustains this process remains largely offstage. Billing, reimbursement, and revenue are treated as administrative details, important perhaps, but fundamentally downstream of care itself.

That illusion does not survive first contact with real clinical systems.

In practice, economic realities surface everywhere, even if they are rarely named as such. Prior authorizations shape which tests are ordered and when. Patients delay appointments, ration medications, or frame their symptoms differently based on what they believe insurance will cover. Clinicians learn, often informally, which decisions will trigger scrutiny and which will pass unnoticed. None of this is explicitly taught, yet all of it exerts pressure on how care is delivered.

The first time I encountered ICD codes, it was not in a lecture hall or ethics seminar. It was in front of an electronic medical record, being asked to render a complex, uncertain clinical encounter into standardized categories. The care had not changed, but the way it needed to be represented had. Suddenly, medicine required a second language.

For years, I treated that translation as administrative friction. An inconvenience. A cost of doing business. It was only when I stepped back and studied the U.S. healthcare system more deliberately that I began to see the full shape of the play.

Seeing the Whole Stage

From a systems vantage point, clinical care is only the opening act in a much longer chain. What follows is a structured sequence of financial and administrative steps: patient access and eligibility checks, clinical documentation, coding, claims submission, adjudication, denial management, and patient billing. Together, these processes form what we call Revenue Cycle Management, or RCM.

RCM is often described as a back office function. Seen end to end, it is anything but. It is the mechanism by which healthcare is made measurable, auditable, and ultimately payable at scale. Without it, modern healthcare systems would not function.

The structure itself is revealing.

The front end of RCM establishes whether care will be paid for before it is delivered. Eligibility verification and prior authorization manage financial risk upstream. The mid cycle translates narrative medicine into structured claims. Clinical encounters become documentation. Documentation becomes codes. Codes become billable representations. The back end absorbs friction: adjudication, denials, appeals, and patient billing, often long after the clinical moment has passed.

At every stage, different stakeholders define success differently.

Clinicians aim to deliver appropriate care under uncertainty. Coders and clinical documentation improvement specialists aim to produce representations that are compliant and defensible. Revenue cycle leaders monitor denial rates, cash flow predictability, and days in accounts receivable. Payers enforce coverage rules across millions of claims. Patients, increasingly responsible for cost sharing, experience the system through explanations of benefits and surprise bills.

Conflict here is not accidental. It is structural.

Administrative costs account for roughly one quarter to one third of total U.S. healthcare expenditure, according to analyses by Cutler and Ly (2011) and more recent CMS national expenditure data. Industry reports, including Change Healthcare’s Revenue Cycle Denials Index, routinely place initial denial rates between eight and fifteen percent. Many denials are never appealed because the administrative cost of reconstruction outweighs expected recovery. For some systems, revenue cycle inefficiencies account for one to five percent of net patient revenue.

This is not peripheral infrastructure. It is a central organizing force.

At the center of this machinery sit medical codes. ICD, CPT, HCPCS, and Evaluation and Management codes are not merely administrative artifacts. They are representations. They are structured abstractions of clinical reality designed to travel across institutions. A diagnosis code allows a patient’s story to move from bedside to clearinghouse, from payer adjudication engine to regulatory audit. Without shared representations, the system fragments. Claims fail. Payments stall.

Standardization is not an indulgence. It is what makes coordination possible.

Measurement Is Not Neutral

The necessity of measurement does not make it neutral.At scale, healthcare cannot rely on shared intuition. It must rely on abstraction. But abstraction changes behavior.

Economist Charles Goodhart famously observed that when a measure becomes a target, it ceases to be a good measure (Goodhart, 1975). In organizational research, the Hawthorne effect demonstrated that the mere act of observation alters performance (Roethlisberger & Dickson, 1939). Healthcare is no exception.

Consider hospital readmission rates. Once publicly reported and tied to reimbursement penalties, they became objects of intense optimization. Care coordination improved in many settings, yet so did risk coding intensity and documentation practices designed to ensure appropriate attribution. Quality metrics drove real improvement, but also new forms of gaming and defensive documentation.

The same dynamic operates within RCM. When Evaluation and Management coding levels are audited, documentation expands to explicitly enumerate decision making elements. When medical necessity thresholds are tightened, clinicians adapt language to meet them. When denial rates are tracked at the department level, documentation patterns shift accordingly.

Revenue Cycle Management does not merely record care. It participates in shaping it.

This does not imply bad faith. It reflects system design. When payment depends on representation, representation becomes behaviorally significant.

Measurement enables scale and oversight. It also creates incentives that influence what is emphasized, documented, and defended.

Incentives, Not Villains

It is tempting to interpret resulting friction as moral failure.

Patients feel confused. Clinicians feel burdened. Health systems feel squeezed. Payers face pressure to control cost growth in a system that now represents nearly one fifth of U.S. GDP (CMS, 2023).

From the outside, it is easy to imagine clear winners. From the inside, the picture is more complicated.

Payers are incentivized to ensure consistency and prevent inappropriate spending across millions of claims. Providers are incentivized to capture the full complexity of care delivered to remain financially viable. Revenue cycle leaders must balance compliance risk, cash flow, and operational efficiency. Each stakeholder is accountable to different oversight bodies, financial constraints, and performance metrics.

These incentives can collide.

A payer tightening medical necessity criteria to control cost exposure may increase denial rates. A provider responding by intensifying documentation may increase clinician administrative burden. A revenue cycle team pushing for complete coding specificity may inadvertently extend documentation time. Patients, caught downstream, experience delayed bills and opaque explanations.

Inefficiency and dissatisfaction emerge not from villainy, but from misaligned optimization

There is a moment in Akira Kurosawa’s film Rashomon where a single event gives rise to multiple accounts, each shaped by perspective and constraint. Revenue Cycle Management can feel similar. One clinical encounter produces multiple representations, each optimized for a different audience, each with their own values, priorities, metrics and need for self-preservation. The problem is not deceit. It is translation.

This is why RCM so often feels adversarial, even when no one intends it to be.

Why Standardization Still Matters

It would be easy, at this point, to conclude that standardization is the enemy. It is not.

Standardization allows care to scale. It enables fraud detection, regulatory oversight, actuarial modeling, and value based reimbursement. It supports population level analytics and comparative effectiveness research. Without shared representations, coordination across institutions would collapse.

The issue is not that representation exists. It is that representation inevitably compresses.

Codes are abstractions. Claims are summaries. Quality metrics are proxies. They are maps, not territories. They allow millions of encounters to be coordinated across a system that spends nearly five trillion dollars annually (CMS, 2023). That coordination is an achievement.

But when representations become the dominant interface between stakeholders, compression becomes consequential.

In Part 2, we will examine that compression more closely. We will explore how narrative care is translated into structured classifications, why that semantic gap creates fragility across the revenue cycle, and what it means for designing systems that respect both clinical nuance and operational scale.

References

Centers for Medicare & Medicaid Services. (2023). National Health Expenditure Data. https://www.cms.gov (https://www.cms.gov)

Cutler, D. M., & Ly, D. P. (2011). The paper work of medicine: Understanding international medical costs. Journal of Economic Perspectives, 25(2), 3–25.

Goodhart, C. A. E. (1975). Problems of monetary management: The U.K. experience. In Papers in Monetary Economics (Reserve Bank of Australia).

Roethlisberger, F. J., & Dickson, W. J. (1939). Management and the Worker. Harvard University Press.

Change Healthcare. (2022). Revenue Cycle Denials Index.

Sinsky, C., et al. (2016). Allocation of physician time in ambulatory practice. Annals of Internal Medicine, 165(11), 753–760.