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Practice Pointers: Outsource billing? Here's how


Outsourcing can increase collections and reduce overhead, but it also can burn you. So do your homework.



Outsource billing? Here's how

Jump to:
Choose article section... The basic services: What they are; what they cost Don't let the billing firm do everything Pick a service that measures up Bottom line: Does outsourcing make sense? How to check out a billing company

Outsourcing can increase collections and reduce overhead, but it also can burn you. So do your homework.

By Robert Lowes
Senior Editor

Last issue we showed you how to organize your billing department to increase collections, but sometimes you'd be better off farming out the back-office work altogether. That's what solo cardiologist David Schaefer of Rochester Hills, MI, discovered.

A few years ago he advertised for a replacement billing clerk, but couldn't find any qualified candidates. So he contracted with a home-based billing company that sharpened his coding, boosted net collections by 5 percent, and cost half of a billing clerk's salary. "I'm very happy with results," says Schaefer.

His story is the sort that tantalizes doctors who feel buried alive in the rigmarole of getting paid. But not all outsourcing stories end happily. Solo FP Debbie Heck in Muncie, IN, took billing back in-house a year after losing $20,000. "The company never submitted claims to secondary payers after billing Medicare," says Heck, who eventually recovered $3,000 via rebilling. "They were grossly understaffed and grossly ignorant about coding."

For every story like Schaefer's, there are two or three like Heck's, according to practice management consultants. "Part of the problem is cutthroat pricing," says Bay Shore, NY, consultant Michael Wiley. "Rates have gone down so low that it's hard to provide the services that doctors demand." The industry also is tainted by scandal, ranging from scams that entice novices to do medical billing in their homes to government prosecution of some of the largest companies over fraudulent claims.

Despite the risks, you can find an honest, competent billing company if you know the right questions to ask. In some situations, hiring one may be the smartest move you can make.

The basic services: What they are; what they cost

In their simplest form, billing companies take the paperwork off your hands. Let's say you see 20 patients today. You complete 20 encounter forms, circling ICD-9-CM and CPT codes. You turn those over to the billing company, along with insurance cards and registration forms for any new patients (some companies want all the paperwork for existing patients, too). The billing service is usually responsible for picking everything up on a daily or weekly basis.

The company then enters the charges in its billing software—often the same type of practice management program found in doctors' offices—and submits the claims to payers. It will generally use a clearinghouse to bill Medicare and other large insurers electronically.

Insurance checks go to you—ideally, to a bank account or lockbox in your name—while explanation-of-benefit statements go to the company, which posts payments. The company is supposed to chase down delayed payments and challenge denials and underpayments, too. Unfortunately, some companies don't, says Sarah Wiskerchen, a consultant with KarenZupko & Associates in Chicago. "They don't fight for your money."

There are hi-tech variations on the doctor-billing company relationship. Some companies arrange for doctors to scan encounter forms and transmit them electronically. Or, more commonly, a firm may provide the practice with its billing software and network the practice's computers with its own. This allows doctors to view billing and collection data, such as accounts receivable. It also allows staffers to perform some of the charge entry, depending on the nature of the contract.

Most billing companies charge doctors a percentage of what they collect, with the rate dependent on the doctor's specialty and the level of service. The going rate for primary care doctors ranges from 8 to 13 percent. Billing companies can afford to charge specialists less—anywhere from 3 to 8 percent—because they're processing fewer claims for larger dollar amounts. Wiskerchen notes that physicians should negotiate a discounted rate for cash that their staff collects over the counter.

Billing service rates based on collections create an incentive to haul in the dough. However, they also can tempt billing companies to favor highly paid specialist clients. Solo FP Steve Kamajian in Montrose, CA, knows that all too well. Kamajian outsourced his billing in 2001 only to lose an estimated $100,000 before bailing out less than a year later. One low-level billing company employee was honest enough to explain what happened—her outfit gave first priority to claims from surgeons. "She said they made more money billing for a hip replacement than a sore throat," say Kamajian.

A smattering of companies such as The River Firm in Davisburg, MI, which handles cardiologist David Schaefer's bills, avoid favoritism by charging doctors per claim. "The fee is the same whether the claim is for $1,000 or $5," says company president Cheryl Dillenbeck.

Don't let the billing firm do everything

Some companies offer to code claims, and hospital-based physicians such as anesthesiologists and radiologists often outsource this task. However, consultants who work with office-based physicians recommend that coding be kept in-house. "It's almost impossible for a billing company to code all specialties accurately," says consultant Karen Zupko. "The doctor's the one who knows what he did. Besides, he's the one who's ultimately responsible for coding mistakes and misdeeds."

Likewise, your contract with a billing company should prohibit it from changing a code without your permission. "You run the risk that they'll upcode, which could get you in trouble," notes Michael Wiley.

A good billing company, on the other hand, actively educates doctors about accurate coding. Thanks to Cheryl Dillenbeck, cardiologist David Schaefer now uses modifiers to justify payment for evaluation and management services rendered in conjunction with a procedure. Say he sees a patient for a pacemaker check, and then deals with complaints about an unrelated elevation in blood pressure. He can submit two CPT codes—93731 for the pacemaker check, and 99213 with modifier –25 for the elevated BP. "Many doctors don't know about modifiers," says Dillenbeck.

Another office function that shouldn't leave your grasp entirely is collecting from patients. You should ensure that the company's standard collection letter for delinquent accounts doesn't intimidate the patient, but instead gives him a chance to work out a payment plan, says Sarah Wiskerchen. And before the billing company turns the account over to an outside collection agency, it should get your approval. You may decide to write-off some charges for financially-strapped patients.

You also need to aggressively collect copays, coinsurance, and outstanding balances when patients are in the office. To do so, you need to retain access to up-to-date patient account data. That's a strong reason to connect electronically to your billing company.

Pick a service that measures up

Start your search for a billing company by asking colleagues and professional advisers for recommendations. Another way to narrow the field is by visiting the Web site of the Healthcare Billing & Management Association ( www.hbma.com ) in Laguna Beach, CA. A typical member firm serves more than 50 physicians and has been in business for more than a decade—signs of stability, says HBMA President Robert Burleigh, a practice management consultant in West Chester, PA. The association's Web site allows you to locate a member company in your area.

When you shop around, remember the following criteria:

Specialization. You want a company that caters to your branch of medicine, or at least can assign you experts in your specialty. At all costs, avoid getting stuck with billers who handle orthopedic claims one minute and dermatology claims the next. Although you're not expecting the company to code, you want them to be knowledgeable enough to decipher EOBs, initiate proper appeals, catch your mistakes, and teach you to code correctly.

Staffing. The billing industry is notorious for understaffing. A tell-tale sign of a company that runs too lean is a slow turnaround time in submitting claims once charge data is received, says Keith Borglum, a practice management consultant in Santa Rosa, CA. "Twenty-four hours is excellent, 48 hours is tolerable, and 72 hours is questionable," he says.

Also inquire about the education and credentials of billers. When was the last time they attended a coding seminar, for example?

Collection benchmarks. Whether you outsource billing or do it yourself, a few rules of thumb apply. Aim to collect between 95 and 100 percent of your adjusted charges (gross charges minus insurance discounts and other legitimate adjustments like charity care). Aim to get paid within 60 days on average. And limit accounts receivable older than 90 days to no more than 20 percent of the total.

Reports. The billing company should provide all the same reports that you'd generate if you handled billing in-house. One basic report should list daily charges and receipts. Another, often supplied monthly, should age A/R in increments of 0 to 30 days, 31 to 60 days, and so on. A third should age A/R by payer.

You won't know whether a company is settling for easy money unless you receive a report detailing adjustments on individual patient accounts. When an insurer denies a $50 claim as improperly coded and a billing company writes it off as an adjustment instead of appealing it, that's $50 less to collect—and the company's A/R stats get better in the process. An adjustment report will help you detect patterns that suggest laziness on the company's part. Then drill down to explanation-of-benefit statements to find out why the company wrote off the claims in question (make sure the company gives you ready access to these EOBs; you'll also need them to conduct regular spot checks of how claims were handled).

Computer technology. Find out if the company is using the most current version of its billing software. "If the software is on version 8.0, and the billing service is still on version 6.0, I'd want to know why," says Borglum.

Insurance payments. The lockbox method is the best way to ensure a tight grip on your money, but an acceptable alternative is letting the billing company receive checks and then deposit them in your bank account. Avoid companies that require the checks be deposited in an escrow account that they control. This arrangement lets them take their cut before turning the money over to you. Medicare prohibits billing services that operate this way from charging fees based on a percentage of collections, notes Robert Burleigh.

HIPAA. By now you should know that physicians, health plans, and clearinghouses are "covered entities" under the Health Insurance Portability and Accountability Act. A billing service may be considered a clearinghouse depending on how it processes claims data for physicians, according to the Centers for Medicare & Medicaid Services. The Feds say they will soon spell out their criteria for assigning covered-entity status.

In the meantime, it appears likely that billing services won't be obliged to format electronic claims in accordance with HIPAA as long as they submit them to a clearinghouse that does, says Burleigh. But if a billing service transmits claims directly to a payer, as some do, it must use a HIPAA-compliant format or else have an extension good through Oct. 16. So find out how the billing companies you're considering operate.

Even if they're not deemed covered entities, billing services will still qualify as so-called business associates of physicians. As such, they must safeguard patient information in keeping with the HIPAA standards on privacy and computer security.* So ask prospective billing services what they've done to run a tight HIPAA ship. Are they backing up data and storing a copy off-site? Do they use a firewall to fend off hackers?

Bottom line: Does outsourcing make sense?

A billing company—assuming it's chosen carefully—can be a sensible option, especially for a physician who would otherwise have to build an in-house equivalent from scratch, says Karen Zupko.

"A doctor fresh out of residency or starting over after a practice break-up may find it overwhelming to set up a billing department," she says. "He may lack the time and know-how to do it right, and start-up costs may be too steep. However, cost is less a reason to outsource than it used to be because we have Web-based software now, and it's cheaper."

Growing usage of electronic medical record software also weakens the case for outsourced billing, says New York consultant Michael Wiley. Practices that switch to paperless charts can't avoid heavily investing in hardware, and EMR and practice management software increasingly are sold as an integrated package. "With an EMR, office staffers enter patient registration information, and doctors enter CPT codes," says Wiley. "You're already close to generating a bill. Why not go all the way?"

So, are you a candidate for a billing service? Outsourcing can reduce your front-end investment in a computer system, but it may cost as much or more than doing it yourself over the long haul, consultants say. And switching from an in-house operation to an outside company won't necessarily shrink your staff. If yours is a small practice, a billing company won't enable you to lay off a biller who also answers the phone, pulls charts, and works the front desk sometimes. In other words, not every doctor who outsources has a glowing testimonial like cardiologist David Schaefer's.

If nothing else, outsourced billing can be a stopgap until you have enough savvy and resources to bring the task in-house. Anticipating this switch, pick a company that uses a practice management software program that you can eventually buy for yourself, says Keith Borglum. "When you take over billing, all the data can seamlessly be transferred from the billing company's computer to yours."


How to check out a billing company

A billing company can make a good sales pitch, but don't play ball with anybody until you conduct your own research.

As usual, ask for references and actually call them. Consultant Sarah Wiskerchen of KarenZupko & Associates in Chicago recommends that you focus on these key points:

Collection results: Look at benchmarks such as net collection rate and days in accounts receivable.

Meetings: Ask references if the company made itself available for face-to-face meetings. You ought to get together at least once a month.

Reports: Find out if the company provided customers with detailed reports on a regular basis. Or was getting a report like pulling teeth?

Staffing: Did customers get a lot of phone calls from their billing specialists asking for more information about claims? If not, it may be a sign the billers were simply writing off denied or downcoded claims without any follow-up.

Wiskerchen also recommends that you visit a billing company's office before signing a contract. "Stacks and stacks of paper on the floor and file drawers stuffed to the point of not closing give you a good idea of the company's work style," she says.

When consultant Keith Borglum from Santa Rosa, CA, visits a billing-service office for a client, he notes whether its ICD-9 and CPT coding manuals are up to date and well used. "I like seeing dog-eared books," he says.

Finally, gauge worker morale. "Are people talking to each other? Are they smiling?" asks Joseph White, a CPA with LarsonAllen, a Minneapolis-based accounting and consulting firm. "I'd look for team spirit and a strong sense of pride in what they do."


*See "The key to a HIPAA-safe computer system," April 11, 2003.


Robert Lowes. Practice Pointers: Outsource billing? Medical Economics May 23, 2003;80:30.

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