Lightening the Load

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Careful maintenance of the revenue cycle is the lifeblood of both hospitals and physician group practices. But it can be a real pain in the neck. Billing and collecting is largely a thankless and low-paying job. Medical billing and collecting have drawn negative scrutiny from local, state and federal government groups, especially among hospitals. Bad practices in this area have even cost some hospitals their nonprofit status, at least for a time.

Many vendors encourage healthcare businesses to outsource revenue-cycle functions, either entirely or piecemeal. While such vendors can help take away many headaches, they also take a considerable percentage of the collections. Outsourcing arrangements can create a public relations nightmare, as well, if collections are done hyper-aggressively. But even as questions about billing and collecting tactics have caused large, high-profile organizations to take a second look at what they outsource and to whom, smaller organizations are finding that outsourcing this non-core function can take advantage of powerful economies of scale while delivering a highly qualified, highly motivated team of billers and collectors that’s largely responsible for the fiscal health of the practice.

Waxing and waning

Revenue-cycle outsourcing’s popularity comes and goes cyclically, says Ken Carr, vice president of consulting in physician practice operations with Per-Se Technologies in Alpharetta, Ga. (acquired by Mckesson Corp. on November). Carr maintains that small physician practices with perhaps five or fewer physicians per office are more likely to take the outsourcing track these days than are larger practices. Full outsourcing of the business office, which includes all billing and collecting activities, usually with back-office employees hired and fired directly by the vendor, is less common among larger groups these days, says Carr. “Nowadays, the larger the group, the more self-sufficient they are,” he says.

One reason is because outsourcing these functions can be expensive. Prices for having an outside firm provide collections, for example, can range from a fixed-fee schedule, to taking a percentage of the collection amount per account, to a combination of the two. Medicare frowns on contingency payments to discourage upcoding, so there might be a fixed rate for Medicare collections and a percentage for all others. Physician groups give up an average of nearly 10 percent per bill by outsourcing the entire revenue cycle, he says.

“If groups are looking to outsource, they’ve usually had high turnover, are using antiquated systems, or they experience a major drop-off in receivables,” he says. “Strategically it might make sense to reassign the employees and do full outsourcing of the business office,” Carr adds, although larger groups usually hire out bits and pieces of the revenue cycle.

Keeping up while staying small

William R. Wilson, a partner at Radiology Associates of Murray (Ky.), counts himself among the full outsourcing group, although the three employees he “reassigned” when the practice fully outsourced the revenue cycle still sit in the same chairs they sat in before he made the move two years ago. They’re just not his employees anymore—they’re Per-Se’s.

“It was a big change mentally to both give up the decision-making and to give up control of the business office,” he says, “but that was at the time of a lot of Medicare changes and other insurance changes in the marketplace. It’s hard for a small practice to keep up with all that stuff.”

At the time, Wilson’s group was also at a point where holding on to internal billing and collecting would have required heavy technology spending, adding to outsourcing’s value proposition.

“We had spent $100,000 in computers and software several years ago, and we were getting to the point where we were having to replace those,” he says. The group, which pays Per-Se between 7 percent and 12 percent on collections, also benefits from the outsourcing company’s expertise on negotiating contracts and new business ventures. With several hundred other radiologists on their plan, the company keeps Wilson’s group updated on new laws, regulations and liability issues that can be a challenge for a small shop to follow, says Wilson.

Limited outsourcing works

Larger groups sometimes go the full outsourcing route, but “that’s not very common,” says Carr. Core Physician Services, whose billing office serves 90 physicians and other providers near Exeter, N.H., wanted an outsourcing solution to get it through a major new IT upgrade. The group needed to off-load existing work while its employees learned a new billing system and increased staff from 18 to 25 employees, says Diane Alburn, director of revenue development for the 27-location multispecialty practice owned by Exeter Health Resources. When Alburn came aboard four years ago in a transition, “one big question was whether to outsource to a billing company,” she says of a practice whose bills averaged more than 70 days in accounts receivable. “We were going to turn it around then or have to outsource.”

But the physicians at Core were reluctant to relinquish that much responsibility for their reputation to a company that might not be as careful about collecting practices, so a full business office outsourcing deal was out of the question.

“The primary reason we didn’t do that is our physicians want some control over what’s being done with their patients,” she says. “They feel like there are incentives in a lot of these outsourcing companies that don’t work for us.”

All of Core’s billing office staff is on straight salary.

Alburn was able to devise a plan that combined what she says is the best of both worlds—it would help Core keep its billing and collections office in-house while getting some breathing room to adjust to a new system. To allow her staff to become familiar with the new billing system that was transitioned from IDX Systems Corp. to NextGen Healthcare Information Systems, Alburn decided to outsource about $4 million in accounts receivable under the IDX system to a group of collection companies.

“It was either double our staff to have them working in two different systems or find another way to do it,” she says. “We didn’t have the staff to work the old bills because the volume was so big.”

She considers the experiment a success, because from the time the new system was implemented in June 2003, Core has been able to cut its AR days down from 70 to 29. “Our costs are pretty much in line too,” she says. Alburn attributes that success largely to the hybrid outsourcing arrangement, which has now been discontinued, except for the few accounts that have been classified as bad debt.

Alburn says the successful conversion allowed the office to maintain good morale at a time when pressures to collect quickly are growing. “We’ve had to get creative with collecting,” she says. “People have more out-of-pocket costs these days,” which creates a potential trap for timely collections. “We’re tight on expecting that balance up-front.”

Philip Betbeze is finance editor with HealthLeaders. He can be reached at




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