The revenue cycle outsourcing decision: finding a responsible partner that improves your finances without burning bridges

As we've discussed in the previous three parts of this series, healthcare providers face challenges on all fronts. They are having to improve care quality and patient satisfaction, lower readmissions and achieve Meaningful Use of electronic health records to meet the requirements of health reform.

Editor's note: This is the fourth and final article of a series exploring revenue cycle challenges affecting community and safety net providers. Part 1 provided an overview of the issue. Part 2 explored the implications of ICD-10 readiness. Part 3 examined strategies for solving the patient self-pay challenge.

They also must manage costs, often through painful cutbacks on labor. Amid this frenetic activity, many providers – particularly smaller community hospitals and urban safety net systems – are missing an opportunity to improve financial results by tackling revenue complexity head-on.

Community and safety net hospitals often don't have the depth and breadth of knowledge, people and technology to keep up with and transform their revenue cycle practices. Some really struggle with making the revenue cycle operation patient-friendly; patient satisfaction scores can plummet if the registration, billing and collections processes are inefficient or harsh.

As a result, many provider organizations are turning to outsourcing, seeking a revenue cycle partner that understands more than just billing and collections. The revenue cycle management market is expected to grow at a compound annual growth rate of 7.2% from 2014 to 2019, and it is one of the functions healthcare providers outsource the most, according to a January 2015 report from research firm MicroMarket Monitor.

Eighty-three percent of hospitals now outsource some accounts receivable and collections, according to a recent survey by Black Book, a firm that produces comparative analyses of technology vendors. More than two thirds (68%) of physician groups with more than 10 practitioners now outsource some combination of collections and claims management.

This strategy is paying off: Eighty-three percent of hospitals over 200 beds that moved to outsource all or most of their revenue cycle operations attributed revenue increases of 5.3% in 2014 to a turnaround in post-outsourcing management proficiencies, Black Book found.. Meanwhile, 78% of hospitals under 200 beds that were new to outsourcing revenue cycle operations reported average revenue increases of 6.2% in 2014.

When making the outsourcing decision, perhaps the most important question is, "Are you leaving money on the table?" To start, validate that the chargemaster is up to date and charges are being captured. Then look at indicators of cash collections, such as HFMA's MAP keys. Several of these statistics will provide insight into forgone revenue:

  • Cash collections as a percent of adjusted net patient service revenue: a trending indicator of revenue cycle to convert net patient services revenue to cash.
  • Denials as a percent of net revenue: a trending indicator of final disposition of lost reimbursement, where all efforts of appeal have been exhausted or provider chooses to write off expected payment amount.
  • Bad debt as a percent of net revenue: a trending indicator of the effectiveness of self-pay collection efforts and financial counseling.

A corollary to lost revenue is current need for cash. A huge issue for safety net hospitals today is days' cash on hand; these essential institutions are so fragile because days' cash on hand are measured in single digits, compared with a moderately successful community hospital, which might have 120 days' cash on hand.

The next question to ask yourself is, "Where is the best return on investment for improving our bottom line?" It is hard to argue that it is ever a bad decision to focus on quality. Some organizations have invested heavily in Lean and/or Six Sigma to eliminate waste in processes. Some have curtailed spending and/or reduced costs at least each year as part of their budget cycle. In fact, we have seen organizations that have cut so much, it seems easier to find a dollar of revenue cycle opportunity than it is to cut another dollar of expense. It is also less emotionally taxing on the decision makers as well as the rest of the organization.

Is your time best spent on improving customer service, increasing quality, reducing costs or collecting more for the services you provide? A focused review of your revenue cycle may reveal opportunities that span all these areas.

Finally, providers should honestly evaluate whether they have the time and resources to manage the complexity of the revenue cycle.

If the answer to the outsourcing question is yes, the problem of finding the right partner follows closely. We believe a good partner:

  • Wants to seamlessly integrate into your operation, having an onsite presence to improve communication and enable easier decision-making
  • Is committed to your vision, mission and values.
  • Won't treat you as a maintenance account, but is devoted to assuring you get paid for the care you provide.
  • Deals with the community in a way that makes the client proud, particularly important when you're talking about collections (think HCAHPS).
  • Handles data through your systems, so when the engagement ends, the health system retains the data.

The value proposition for revenue cycle outsourcing includes service, management of the process, costs and collections.

You must be sure that the partner you select will represent you well with patients, physicians, administrators and the community. If not, you may find that your revenue falls as patients and/or their physicians choose competitors that treat them better.

If you believe that collections will not increase by changing vendors, you can focus on the cost and process equation. You can search for lower cost vendors, such as those that utilize technology to augment efficiency. Or, you can seek improvements in your own processes, using techniques such as Lean/Six Sigma. You will likely find that the revenue cycle offers seemingly endless, often wasteful, processes that beg for attention.

Perhaps the best return on investment will come from increases in cash collections. A good partner can boost collections by working aged accounts receivable, thus reducing days in AR. Other strong partners can identify revenue leakage, such as missing charges, and reduce denial and bad debt write-offs, which will improve your net revenue.

When considering alternatives, be comprehensive and rigorous in analyzing your model. What revenue improvement do you expect to realize in the first year? Will this grow in future years? Do you expect the vendor to bring addition resources, such as personnel or technology? We recommend that you carefully review the scope of the contract deliverables and consider building your own expense model to compare to the vendor's price. Your base model should incorporate additional investments you are contemplating – people and/or technology.

Having compiled your financial analyses, be careful to consider whether the vendor will be able to deliver the services and revenue improvement you expect for the price it offers. A contract with incentives that align with your organization's goals will promote the partnership you expect with a new and valuable member of your team.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.​

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