Buried within the optimistic projections and positive metrics of Encompass Health's Q1 2024 earnings call lies a subtle, yet potentially groundbreaking development: the company's strategic move towards internalizing their revenue cycle management (RCM) capabilities. While analysts buzz about volume growth and labor trends, this under-the-radar shift, spurred by the Change Healthcare cyberattack, could signal a major strategic change with rippling effects across the healthcare landscape.

On the surface, Encompass Health's Q1 call echoes the company's consistent narrative of growth and efficiency. Double-digit revenue increases, robust discharge growth, and a commendable handle on premium labor costs paint a picture of a well-oiled machine navigating a complex healthcare environment. But beneath the surface, the aftershocks of the Change Healthcare cyberattack reveal a more nuanced story.

Recall that Change Healthcare, a major player in healthcare IT and revenue cycle management, suffered a significant cyberattack that disrupted services for countless providers. Encompass Health, heavily reliant on Change for claims processing, found itself facing a major operational hurdle.

However, instead of succumbing to the disruption, Encompass Health displayed remarkable agility. The company's centralized business office and IT teams, in a display of operational prowess, swiftly implemented workarounds. They didn't simply find alternative third-party vendors; they also invested in enhancing their own internal claims processing capabilities.

This move, a seemingly reactive measure to an unforeseen crisis, could be the canary in the coal mine, signaling a broader strategic shift towards internalizing RCM. The call's transcript reveals that Encompass Health doesn't intend to simply revert back to their previous dependence on Change Healthcare. They are actively evaluating the optimal balance between leveraging Change, utilizing new third-party vendors, and expanding their internal capabilities.

Why is this significant? Because Encompass Health's potential shift towards internalizing RCM challenges the status quo of healthcare administration. Traditionally, providers have outsourced significant portions of their RCM to third-party vendors, accepting the associated costs and potential vulnerabilities. By investing in internal capabilities, Encompass Health could be charting a new course, one that prioritizes control, efficiency, and perhaps even greater cost savings in the long run.

Potential Advantages of Internalizing RCM

Greater Control: Reduced vulnerability to disruptions and increased control over claims processing. Cost Savings: Potential for long-term cost savings by reducing reliance on expensive third-party vendors. Data Ownership: Deeper understanding of their revenue cycle, enabling further optimization and efficiency gains.

"Consider this: if Encompass Health could internalize even 25% of its current claims processing volume, assuming a conservative cost savings of $10 per claim (based on the dialysis internalization cost savings), it could translate to millions in annual savings."

Discharge Growth by Payer Type

The following chart shows the breakdown of discharge growth by payer type during the Q1 2024 earnings call, illustrating the strong performance across both Medicare Fee-for-Service and Medicare Advantage.

This potential strategic shift, however subtle, aligns with Encompass Health's overall commitment to continuous improvement and operational efficiency. Their impressive track record of adapting to regulatory changes and implementing cost-saving initiatives like the Tablo dialysis rollout suggests they're not afraid to challenge conventional wisdom in pursuit of operational excellence.

The question remains: Will this 'secret weapon' truly be a game-changer? Only time will tell. But one thing is clear: Encompass Health's subtle move towards internalizing RCM could be a harbinger of a more profound shift in the healthcare landscape, a shift where providers reclaim control over their revenue cycle and leverage technology to achieve unprecedented levels of efficiency and cost savings.

"Fun Fact: Did you know that Encompass Health treats more stroke patients than any other provider in the United States? This underscores their deep expertise in neurological rehabilitation and their potential to become a leader in value-based care for this critically underserved patient population. This 'secret weapon' of RCM internalization could further empower them to deliver exceptional care while optimizing their financial performance, setting a new standard for the future of healthcare."