First, I want to be clear that I am not talking about selective outsourcing of specific components of your revenue cycle, like Worker’s Comp, bad debt collections, and even self pay early-out arrangements.
I’m talking about the wholesale outsourcing of your entire revenue cycle operations. I have seen an increase in the interest in this in recent years, as consolidation in the healthcare industry has resulted in large, multi-dimensional organizations with massive revenue streams that need to be effectively managed to protect and produce cash flow.
It’s somewhat understandable that healthcare executives entertain outsourcing of their revenue cycle as a viable option for dealing with the sub-optimal performance of their operations. In reality, outsourcing your revenue cycle is the epitome of “kicking the can down the road” when it comes to ignoring the problems that you will eventually be forced to face and address. There’s no avoiding this fact, and you can’t transfer that responsibility to an outside vendor. What you can do is decide whether you are going to step up and own it now or later. I prefer the “now” approach. That said, here is my “Top 10” list (not necessarily in order of priority) of why you should not outsource your revenue cycle:
1. The financial benefit/ROI just isn’t there. Looking objectively at this, it becomes clear that outsourcing is just a cost-shift from your books to the vendor’s. Actually, it remains on your books, but is now just reflected as a “vendor expense”. You’re simply inserting a middle-man into the equation that has their own profit margin to satisfy. Plus, you will still have a significant portion, if not the majority, of the costs associated with components you did not outsource, like IT, HIM, Managed Care, physical space, and the like, depending on your specific outsourcing contract. The bottom-line is this is rarely, if ever, a positive ROI proposition in the long-term.
2. You already have everything you need. I hate to “assume” but I’m going to go out on a limb here and assume that you currently have all the components and resources that you need to manage your own revenue cycle. This would include all the relevant departments (CBO, Patient Access, HIM, IT, Managed Care, Credentialing, Compliance, etc.), the technology applications (Patient Accounting, EMR, Clinical feeder applications, peripheral tools, etc.), and last, but certainly not least, your staff. So, what is your outsourcing vendor really bringing to the table that you don’t already have, or at least have access to?
3. It’s cheaper to fix it than it is to outsource it. While outsourcing may be the “easier” option, it just isn’t the cheaper one. Building off the previous two points, you’ll be giving up at least the profit margin to your vendor. Just as importantly, you already have all the component parts that you need to fix it yourself. Add to that the point made further down in this list that you will most likely end up bringing it back in-house at some point down the road, it becomes clear that investing in efforts to address the existing issues impacting performance will, in the long-run, be less expensive than outsourcing. Yes, it’s hard work but you’re going to have to fix these issues whether you outsource it or keep it in-house, so you may as well keep it and maintain full control. And remember, when we’re talking about costs, we’re talking about both financial costs and cultural impacts.
4. It’s a core competency of being in business in the first place. A common argument I hear is that outsourcing the revenue cycle allows healthcare organizations to focus on their core competencies, or what they do best, i.e. “providing patient care”. Since when did collecting money for products delivered or services provided become considered not a core competency in any industry, let alone healthcare? I get that the cash flow mechanism in healthcare does, on average, involve more moving parts when compared to other industries. But in all honesty, if you’ve signed up to build and run an organization that produces $XM in annual net healthcare services, then you’ve also signed up to be able to collect that $XM in net revenue. And yes, it’s true that other departments are commonly outsourced such as maintenance, housekeeping, food service, and the like. But these are not in the same conversation as your cash flow. This one you have to own outright.
5. The cultural impacts just aren’t worth it. As much as everyone wants to downplay it, outsourcing your employees (which is really what you’re doing) creates a significant level of speculation, angst and confusion among your already-stressed and hard-working staff. Not everyone will be absorbed by the outsource vendor (read: “for-profit cost cutting”), and those that are will find themselves working for a new company with a new management team, culture, pay & benefit structure, etc. On top of that, some of these people will still be working on-site, side-by-side with your own staff. Like it’s said about going to the bank ATM at 3:00 AM, “there’s nothing good that’s going to come from that”.
6. Outsourcing doesn’t “fix” anything. You’ve heard the saying that, “If you pack up everything and move in order to get away from your problems, they’ll be right there with you when you unpack”. Well, the same is true in this scenario. Whatever challenges you have today that are impacting your revenue cycle performance are going to be present upon outsourcing. Issues such as ineffective IT system design, poor communication between core departments, lack of enforced accountability, and inconsistent direction and support from management won’t be magically fixed by outsourcing. These are common problems and are culturally driven and, therefore, culturally addressed. If there’s one thing I’ve learned in my 30 years in business it’s that you can’t outsource culture, you just can’t.
7. You will lose a certain level of control over your cash flow. This one is self-evident, so I won’t spend a lot of time on it. Suffice it to say that once you insert an outside vendor into any scenario you’ve added an extra layer into the operations and have ceded a certain level of control that you used to have. Addressing performance issues, staffing concerns, obtaining reports and information, needing involvement in new, critical projects, etc. now must include discussions / negotiations with the vendor and consideration of contract obligations and/or limitations. Enough said.
8. You’re in it for the long-term; are they? If you’re operating a healthcare system, a hospital, a physician group, or some other healthcare facility or service, then it’s probably safe to say that you aren’t going to wake up some day and decide that you’re going to change things up and transition to some other industry, like artificial intelligence development, or car manufacturing or whatever. No, healthcare institutions pretty much remain in the healthcare industry. They may merge or get acquired, but they remain in healthcare. And while revenue cycle outsourcing companies are certainly dedicated to their cause, they are also very susceptible to the ebbs and flows that create or diminish the level of demand for their services. Unless they have a critical mass of client business, they can be vulnerable to the loss of just one or two significant clients. Simply put, if the profit margins aren’t there, neither will they be. But you will still have your revenue cycle and cash flow to be concerned about.
9. You will eventually bring it back in-house. Maybe this one should be higher on the list. Wholesale outsourcing does not lend itself to being a viable long-term strategy. It is highly likely, and almost inevitable, that you will end up bringing it back in-house at some point. This means that you will experience two extremely time consuming, resource intensive and financially draining transitions of a major piece of your operations. Not to mention the impact on culture and staff morale, as well as the unwinding of your vendor contract. The time and money spent on outsourcing and subsequent in-sourcing would be much better spent keeping it internal in the first place and fixing it yourself.
10. OK, there is no #10. If the first nine points aren’t enough to convince you, then you are likely to still consider outsourcing as an option for dealing with your revenue cycle issues.
By Kevin Sharlow, Managing Director, Avid Consulting Group, LLC