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Even the most experienced physicians and practice managers face a daunting dilemma on the financial front: Should they handle billing and collections internally or hand over these tasks to an external vendor? There are strategies that physicians can use to evaluate potential vendors and make the best decision for their practice.
In these challenging times for physician practices, the business side of medicine requires navigating reimbursement declines and rising costs while conforming to the Affordable Care Act and transitioning to the International Classification of Diseases-10th revision (ICD-10) code set. And while delivering high-quality care remains physicians’ top priority, sound revenue cycle management nonetheless dovetails closely with the success of their practices.
About 35% of respondents-mainly acute care hospitals and clinics/physician practices-to a 2014 survey by the American Health Information Management Association/eHealth Initiative believe ICD-10 will have a negative effect on their revenue; 18% are uncertain of its impact; and 27% haven’t conducted financial impact assessments.
Many physicians ponder whether to seek outside expertise for revenue cycle management. An estimated 95% of independent physicians perceive outsourcing these services and technology processes as the most sensible solution, according to the Black Book Report 2015, a healthcare market research entity. Of those practices, 64% are contemplating a combination of new software and outsourcing help to improve their revenue cycle management systems.
Before making these decisions, a practice must weigh the pros and cons carefully. There are multiple aspects to consider, such as the size of the practice and the capabilities of its staff.
“Physicians really need to approach the question of insourcing or outsourcing collections from a scale and internal capability perspective,” says Jim Lazarus, managing director of strategy and innovation in revenue cycle solutions at The Advisory Board Company, a healthcare consulting firm in Washington, D.C.
For a practice with 15 or fewer physicians, internal billing is usually a more cost-effective approach. It may be prudent to hire a capable person to focus on billing, but to serve also as a “jack of all trades,” overseeing medical records and providing other office support, Lazarus says.
If a practice consists of 15 to 30 physicians, the decision to outsource depends on the market and the staff’s experience with billing and collections. The existence of multiple office sites doesn’t necessarily tip the scales in favor of external billing, according to Lazarus. Once a practice exceeds 30 physicians, however, the number of locations factors into the decision, along with the billing staff’s expertise.
“Vendors bring advantages,” Lazarus says. “They have the ability to field operations that leverage technology and dedication of functions.” For example, one employee may answer billing inquiries from patients, while another could be tasked with entering data from insurance companies.
Selecting a reputable vendor is critical. A company with state-of-the-art technology offers greater assurance for protecting patient information in compliance with the Health Insurance Portability and Accountability Act (HIPAA).
The vendor should offer a business associate agreement-a formal arrangement in the healthcare industry for anyone dealing with highly sensitive patient data. “If the vendor doesn’t insist on a business associate agreement, you should walk away immediately,” Lazarus says.
While it’s important for a billing company’s coders to safeguard personal health information, they should also feel comfortable reading medical terminology in patients’ charts. There may be additional security concerns if a company uses coders in a different country, where HIPAA rules don’t apply, says Margo J. Williams, MHA, CMPE, a senior associate in practice management for the American College of Physicians.
Employee turnover is another consideration, with a billing company missing out on some of its revenue collections as balls are dropped between employees departing and new employees coming on board. Questions to ask: “What kind of turnover does the billing company have? Are they doing your specialty, or do they know other specialties better?” Williams says.
In her experience, a practice maintains greater control over internal billing. From knowing the nuances of different insurance carriers to being familiar with the region and patients’ records, “all steps of the billing process are there in your office,” she says. “Collection rates will be better. You’re on top of it, and you have more at stake.” However, Williams acknowledges that “not everybody has the ability or knowledge to do it themselves.”
It’s possible to outsource all or only part of revenue cycle management. Many physician practices decide to use the influence of the third party’s name in outsourcing bad debt collections.
“The question becomes, when does the physician practice send the patient account to a third-party collection outsourcer? That depends on when they want to use the outsourcer’s services,” says Tom Gavinski, a member of the board of directors at ACA International, the Association of Credit and Collection Professionals and vice president of healthcare market and industry initiatives at I.C. System Inc. in St. Paul, Minnesota, a debt collection agency.
Those services can be tailored to begin anywhere between one and 150 days after a payment is past due. For payments up to 90 days past due, the services can be outsourced to collections as a self-pay account in the name of the physician practice. Accounts that are 90 or more days past due are usually sent to an outsourcer as a third-party bad debt account, says Gavinski.
A cost analysis is essential to determining whether to outsource. The practice may choose to enlist the advice of an independent consultant to evaluate the pros and cons of each scenario and to assist in the decision-making process, he says.
Any in-depth analysis should include a future forecast that accounts for increases in employee wages and benefit packages. This would compare the current costs of billing internally with the costs of employing an outside vendor.
In addition to staffing, the tally should quantify the current costs that would be eliminated with an outside vendor, identifying them as a percentage of total expenses and comparing that to the costs of using the vendor, says Jeff Akers, CPA, vice president of financial management at McKesson Business Performance Services.
For example, current expenses may amount to 10% of the total cost, whereas outsourcing expenditures typically run in the 5% to 8% range. “While the immediate cost seems to be reduced, the real key is the five-year impact, as the 10% likely will creep up over time due to raises, benefits and increased expenses,” Akers says. Even with sound management, operational oversight also takes away from a physician’s focus on direct patient care.
Physician groups that choose an in-house solution should anticipate future costs to maintain their systems of practice management and electronic health records. Akers estimates that in general, a practice can expect a 6% to 10% improvement in its revenues from outsourcing its billing.
As changes take place in billing and coding, “the need for a vendor who has its finger on the pulse of healthcare reform is critical to ensure there are no missed opportunities,” he says. “The risk of compliance issues can be devastating to a practice. Having an outside vendor with extremely high compliance policies and protocols in place will help mitigate risks to your practice.”
Keep the following points in mind when evaluating your practice’s revenue cycle and accounts receivable (A/R) processes:
Some payers take longer to pay claims than the average number of days in A/R. For example, if your practice’s average number of days in A/R is 49.94, but Medicaid claims average 75 days, this should be addressed.
Accounts sent to a collection agency are written off of current receivables, and the revenue may not be accounted for in the calculation of days in A/R. Be sure to calculate days in A/R with and without the inclusion of collection revenue.
Payment plans that extend the time patients have to pay accounts can result in an increase in days in A/R. Consider creating a separate account that includes all patients on payment plans and determine whether your practice should or should not include this “payer” in the calculation of days in A/R.
Good overall days in A/R can also mask elevated amounts in older receivables, so it is important to use the “A/R greater than 120 days” benchmark.