Outsourcing Your Billing - Are revenue cycle firms a godsend or added expense?

By Bruce Kleaveland | Physicians Practice

Do you enjoy the daily business of medicine? Not the world of patients and symptoms, but the domain of claims, collections, receipts, and reports, for which there is woefully little training in the medical school curriculum.

If you don’t, you are not alone. Thousands of practices have effectively delegated their entire financial operations to third parties. Should you? Let’s take a look at the pros and cons.

First a quick description. The in-vogue name for these financial third parties is 'revenue cycle outsourcers', also known as billing services. Instead of hiring staff to do your billing, you delegate it to the revenue cycle outsourcing firm who manages the entire operation, including coding and review, electronic claims submissions, collections, and financial reporting. The revenue cycle outsourcer’s fees are based on a percent of collected receipts. The more you make, the more they make.

The pros of outsourcing

What’s the case for revenue cycle outsourcing? Here is what the outsourcers would say:

• Medical billing is complex and best handled by experts. Most offices have to deal with multiple plans and therefore multiple payment schedules, different benefits, and variable rules. Medical billing is also a moving target - plan rules change frequently and even CPT codes are updated annually. It’s hard to keep up. The implications of doing this job poorly are significant. Over-coding (or coding at a higher level than the documentation supports) is a polite term for fraud. Under-coding (or what some docs will call defensive coding) can cost practices millions of dollars in lost reimbursements that they have legitimately earned. There is also the time consuming rework required for claims that are denied because your billing clerk made a mistake on the original claim. A core benefit to outsourcing is that you are dealing with a bank of professionally managed experts who are focused solely on billing. Because billing services are paid on a percentage of collections, they are strongly incentivized to perform well.

• In-house billing is time consuming for physicians and clinical staff. Dealing with insurance companies takes both physician and other clinical staff time. According to a study by Lawrence P. Casalino, MD, PhD, of Weill Cornell Medical College, physicians spend three hours a week or nearly three weeks per year on these activities, while nursing staff spend more than 23 weeks per physician per year. There also appears to be a disproportionate burden of these tasks on the smaller practice. The same study noted physicians in solo or two-physician practices (particularly primary care) spent "significantly more hours interacting with health plans than physicians in practices with 10 or more physicians." Moving to a billing service won’t eliminate practice interaction with health plans - but it should significantly reduce physician time spent on haggling over unpaid claims.

• Managing internal billing operations is a pain in the neck. The care and feeding of an in-house billing staff is not trivial. In addition to salary and benefits, a billing staff requires oversight to insure that they are performing optimally. They will also be prone to any of the normal unspoken overhead of employees - illness, variable job satisfaction, hiring and firing, and ability to mesh with other staff members.

Now for the cons

So what are the downsides of outsourcing your billing?

• It’s not free. As noted above, revenue cycle outsourcers - quite cleverly - typically bill as a percentage of receipts collected. For high reimbursement specialties such as cardiology, billing services will typically charge in the 4 percent to 5 percent range; for primary care, percentages may bump up to the 8 percent to 10 percent level. The billing service’s fees typically are inclusive and incorporate any claims-clearinghouse fees that you might pay if you were doing it yourself.

• You don’t have total control. Transferring your billing operation to a third party may be uncomfortable for some physicians who revel in the smell of superbills. Some physicians simply prefer to have tighter control over their finances. And while a large number of billing services are local mom and pop operations that allow you to connect in person, increasingly the service is being offered by large corporations serving a nationwide clientele - which makes face time less likely. Do you feel comfortable with delegating your daily financial operations to someone you are likely never to meet in person? If the answer is no, outsourcing may not be a good fit.

Weigh the options

We’ve established the pros and cons. Now, how do you decide? Here are some guidelines:

• Compare hard costs. This is a pretty straightforward exercise; calculate the expense of doing it yourself (salary and overhead of your billing staff, amount of time you are spending on billing, third party fees for claims clearinghouses, billing related supplies such as claim forms) versus the revenue cycle fees. According to the recent survey of the American Academy of Professional Coders, the average salary in 2009 for certified coders was $44,750, which varied depending on location and experience level. Add 20 percent for benefits and overhead and you have a cost of $53,700.

• Compare soft costs and intangibles. This represents elements such as the hassle factor of hiring and managing staff to do your billing versus the loss of daily oversight. You should also assess your overall comfort level and expertise with medical billing. It is hard to be an effective manager of an in-house billing operation if you don’t understand what you are managing. There is also a labor pool issue. Is it difficult to find competent billing staff in your location? You may have a brilliant financial manager now, but if she decided to move on, would you be able to easily replace her?

• Compare effectiveness. This is a little trickier, because it involves making a judgment call regarding your own operation, as well assessing the potential effectiveness of a third party with whom you have not used. In terms of assessing your own operation, here’s simple question: Are you receiving reports on a regular basis? Along with having reports on gross charges, write-offs, bad debt, and refunds, you should know the relative age of your accounts receivable, the average time it takes from patient visit to filed claim, your denial rate for claims, plus checks and balance reports that reconcile payments received with payment entry and daily receipts.

All of these will give some indication of the effectiveness of your billing staff. Armed with this data, you can benchmark your practice against the revenue cycle firm of your choice. They should be able to provide some their performance data on practices like yours. This will allow to you compare effectiveness - and help you make the final decision.

Bruce Kleaveland is President of Kleaveland Consulting, a management consulting firm focused on healthcare IT. He can be reached via physicianspractice@cmpmedica.com.

This article originally appeared in the February 2010 issue of Physicians Practice.

Dealing with a Difficult Provider – Part 1

February 16, 2010 — solutionsmedicalbilling

One of the things you don’t realize yet when you first start your medical billing business is how different each provider will be from the next. You will need to learn the differences and how to deal with the difficult ones.

Some providers are very easy to work with and some can be very difficult. When you don’t yet have any experience it can be difficult to decide how to handle the problems that arise.

One of the problems medical billing services run into is the doctor’s office that doesn’t send over enough information. It may be that the initial claims lack info or that they fail to send you all the payments. We have experienced providers who fail to tell us about patient payments that have been made and we send a bill for services that have already been paid.

Each of these individual issues is a problem for both the biller and the provider. When the provider’s office sends over claims to be submitted with dates of birth missing or no insurance information, that claim cannot be submitted. This causes a delay in payment for the provider. For the billing service it causes a bunch of problems. First, the biller must notify the provider that they are lacking critical information. Second, the biller must keep this claim available so when they get the necessary information they can complete the claim and submit it. If this is a common problem for an office, you may find that after a few months you have a fat file folder of claims waiting for information that never came. Neither you or the doctor will be paid for these claims until you get the information.

When providers don’t send you notice of all the payments you will find that when you are working your followup reports and checking claims status many of these claims will have been paid. The problem with this is that a biller can’t be wasting their time calling on claims that have been paid. It’s funny that this is usually the same provider who will be calling you demanding to know where all their payments are. It’s difficult for you to tell because you spent 6 hours making phone calls on a 28 page report that should have been a six page report if you could have entered the payments as they actually came in. Now you’ve spent an extra four hours finding out the provider was paid last month. The other problem is that you don’t have the eobs if any of the claims have a secondary payor, you can’t submit them without a copy of that primary eob. Of course there probably were some legitimate problem claims that required attention but you are so frustrated with finding that all these payments were made but not sent to you that you really don’t care at that point. Yes, there were problem claims, but the provider made you look through a mountain of claims instead of the small pile that really had problems. These providers suck up extra time that you may not have allowed for when you originally quoted them a price.

When providers forget to let you know that patients have made a payment and you send them out a bill for that service they already paid for, the patient tends to get mad. This is not good. Not only do you have an angry patient calling you but you wasted money sending out that statement.

So what’s the answer to these problems? Good question. Usually you need to sit down with the provider and explain why this is not a good situation. I must warn you, many do not want to hear about it. Some providers do not want to know what is going on. We explain to our providers that when they don’t send us the eobs it takes us much more work to call to get the information and we have to charge them more. This usually helps the situation. We also explain that we can’t submit the secondary claims without the primary eobs.

Again, you can talk until you are blue in the face and it won’t change things in some offices. That’s when you have to make the decision if this is an acceptable situation to you or if you feel you must cancel your contract with that provider. Sometimes it is just easier to move on and let that client go.

Dealing With a Difficult Provider Part 2

March 18, 2010 — solutionsmedicalbilling

It may come as a surprise to the beginning medical billing service but many providers do not pay their own bills on time. This can be a huge problem. The new medical billing service generally waits several months before they are even able to find, start working for, and bill a new client. You have invested time and money into getting this account started. You anxiously await the first payment to see your efforts come to fruition. Each day you go to the mailbox watching for that illusive check. What should you do when it doesn’t come?

Some doctors are great about paying. Some send the check as soon as they receive their bill. They appreciate the work you do and show it by paying you on time. You will quickly learn that the ones who are not willing to pay on time do not appreciate your work and will give you all sorts of excuses for not paying on time.

As you grow, the problem can grow too. You need to set up policies early to know what to do or you will spend a lot of time worrying about getting paid and how you are going to collect it. We send our bills to our doctors on the first of the month and payment is due by the tenth. We send friendly reminder notices on the twentieth of the month. If the bill is not paid by the first of the next month, we add a finance charge to the next bill.

If a client goes two months without paying, they definitely need a phone call. You need to try to keep your emotions out of the call even if you can’t pay the rent until you get paid. You need to ask if there is a problem with your bill and when can you expect payment. We ask our clients who are slow payers if they are willing to let us put their payments on a credit card. We have many providers who are thrilled to pay this way. They get points on their credit cards and don’t have to remember to write a check. Although it costs us a little, we can depend on getting paid on time.

We also have a policy that if a client goes three months without paying they get a letter from us stating that we have to cancel our contract if we do not receive payment within ten days. It’s a good idea to not let things go this far, but unfortunately it happens. At any rate make sure you decide how you are going to handle this type of problem and put a system in place.