Straight talk: Outsourcing in the business office increases cash

Want more cash? Rather than simply sending old patient balances to collection agencies in knee-jerk fashion, sophisticated business offices are scrutinizing their days in accounts receivable, determining what types of accounts and dollar balances to outsource for collection and when to outsource them.

In this installment of Straight Talk, we look at the outsourcing strategies in the business offices of three healthcare systems: 266-bed Tuomey Healthcare System, Sumter, S.C.; 3-hospital,1,062-bed Montefiore Medical Center, New York; and 14,200- bed,30-hospital New York Presbyterian Health System, New York.

Modern Healthcare and PricewaterhouseCoopers present Straight talk. The session on outsourcing of business office functions was held on September 23, 2004 at Modern Healthcare's Chicago headquarters. Charles S. Lauer, publisher of Modern Healthcare, was the moderator.


Lauer: Why outsource? What are the drivers that led you to outsource?

Kurz: When we evaluate outsourcing possibilities, we consider two primary criteria: core competency and efficiency. We strive to answer the questions: Can we perform the function in question best? And if not, can another entity do it better and less expensively? For example, we outsource self-pay accounts to our own collection agency because it has the ability to handle large volumes of accounts and specializes in collecting bills from patients. We felt that it would be beneficial to give this population of accounts to people whose core competency is collecting self-pay accounts. They can do it faster and they are trained to talk to people and get their cooperation.

Johnson: We turned to outsourcing in 2004 as a result of HIPAA (Health Insurance Portability and Accountability Act of 1996). We saw our accounts receivable go from 45 days to slightly more than 60 days. We were submitting claims and getting confirmations from our clearinghouse, but we weren't receiving payment. When we contacted payers, they said they didn't have a record of the claim. That's when we talked to PricewaterhouseCoopers' (PwC)Virtual Business Office about working some of our older, third party accounts. We couldn't hire and train enough people quickly enough to work the volume of accounts that we had. We turned over a variety of accounts to PwC: Medicare,Medicaid, commercial insurance and Blue Cross.

Lauer: When you outsource, does it bother you that you have to do that? Do you feel that it shows a weakness in your organization?

Swiss: We are not going to allow the receivable to get out of control. We have a saying, "Care takes cash". If we see a spike in the receivable, which we monitor very closely, we act quickly. Outsourcing collections is expedient because it ensures that wearer going to get the cash quickly.

Johnson: My primary job is to make sure the hospital generates enough cash to pay all the bills and do everything else we need to do. I want to use any tool that is available to me to get the job done.

Harris: If you can do it right the first time, your reliance on outsourcing will go down. That is the notion. If we can improve the front end of the revenue cycle -- making fewer errors that produce denials -- then Steve, Paul and Drew will not have to outsource their accounts at 90 days because those accounts will be paid in 30 days. The key is to fix it on the front end.



Lauer: What types of accounts do you outsource for collection? Do you see new trends?

Lutfy: I've seen two changes. It used to be that clients would outsource all receivables at certain date ranges and certain balance levels. For instance, they'd outsource all receivables greater than 90 days and all balances under $10,000. Clients now tell me, "I will give you Medicare at 60 days, Blue Cross at 42,and commercial at 68. I want this balance range to be under $500 and this one to be over $2,000". Clients also ask us to fill in for hospital employees on maternity or family medical leave. Since we are connected electronically to our clients and do our work directly on their systems, this is easy to do. At the Virtual Business Office, we focus on collecting money from third-party payers. We don't collect self pay balances.

Johnson: We've made changes recently in our outsourcing strategy. We want our folks -- our patient account reps -- to focus on the large dollar value accounts. We are now developing a strategy to place accounts greater than 46 days from bill date,with balances under $15,000, with PwC. We think we can churn more cash by taking that kind of approach to it. We expect PwC to be successful with these smaller accounts while we concentrate on the larger accounts.

Kurz: During a recent revenue-cycle initiative, we learned that our billing representatives generally collect from insurance companies better than most of the outside vendors that we had employed. Two years ago, we went back to our agencies and said,"Give us back any accounts that are over $2,000". As our people became more efficient -- by using web sites for follow up instead of telephone contacts, for example -- we were able to drop that level to $1,500. On our Cornell University campus, the level is now down to $650 for some payers. That leaves the self-pay population, which we outsource to our own agency, and balances under the $650 threshold on non-self pay accounts, which we outsource to outside agencies.

Lauer: What risks are involved in outsourcing? How do you mitigate those risks?

Swiss: We worked with a local collection agency that took its eye off the ball. As a result, we lost $1.5 million. That's why we contract for collections based on performance. You make millions on performance, but you save pennies by trying to get the lowest fee. I look for the best track record.

Johnson: You take a risk any time you hire an outside company. You never know how they are going to perform. We have outsourced to vendors in the past who have not done as good a job as we would have liked for them to do. Even if you check references,the vendor may not do as good a job for you as it has done for somebody else.

Kurz: Another risk is that you now have to manage the outsourced company -- at least indirectly -- as well as your own organization. The breadth of management tasks goes out over a larger area.

Lutfy: We've found that each client's process for handling accounts receivable is unique. We put together what we call a playbook -- a document that outlines each client's procedures. The whole trick is to be virtual and invisible -- just like you are an extension of the business office, operating as a collector on their patient accounting system.

Harris: I think it is important that providers train their outsourcers on their policies and procedures. Because if there is a problem downstream, patients will not focus on the outsourcer-- they are going to focus on the hospital.

Lauer: Do you also outsource the collection of self-pay accounts?

Swiss: Sure. It is like the triage process in healthcare in which doctors and nurses treat the sickest patients first. We identify quickly which patients need to be outsourced. What we try to do is triage the patients, based on the age of the account and their ability to pay us. If it is not collected within 90 days, we get the account out to an agency. We are constantly screening the patient to get whatever coverage we can get. Medicaid or any other type of coverage.

Lauer: When you outsource self-pay accounts, what controls do you put in place to make sure the outsourcer won't do something to embarrass your hospital?

Harris: What sometimes happens is that a hospital places aged,self pay accounts with a local agency and never recalls them. Several years later, a national collection company buys the local agency and reworks all of their paper. So three years after you turned over an account to the local agency, a new collections representative says, "Let's send dunning (collection) notices and perform asset verification on these accounts". And low and behold, there is a problem. The hospital administration says, "We wrote those accounts off, and we don't want you to attempt to collect them". There is a communication that needs to exist between the provider and the agency that says, "We want to take that account back after x number of days".

Kurz: This issue has become particularly sensitive in the past year as a result of hearings conducted by the House Energy and Commerce Committee's Subcommittee on Oversight and Investigations, which has scrutinized hospitals' charges for self-pay patients. This is not an issue the hospital industry is going to win in the press -- even if our collection processes are perfect. As a result, our partnership with our outsourcing companies has become much tighter. We want greater control over their processes. We want to know what is happening with our cases. We want to make sure that before a patient gets a bill from the outsourcer, every avenue has been taken to ensure that the patient is not entitled to insurance coverage, government entitlement, or financial aid from the hospital.

Swiss: I think patient cooperation is important. That's where our new financial aid policy has helped us. First, we determine if the patients qualify for coverage. Medicaid, a grant or other government program. If they aren't eligible for outside help, we determine if they qualify for our financial aid. We use a scale based on the federal poverty level. But if patients want the aid,they need to cooperate and provide us with financial information. We make sure our outside collection agencies have our policies. We direct them not to put liens on houses. We also make sure the agencies understand what our financial aid policies are so they also can screen patients, offering aid from us based on our guidelines.

Lauer: Let's switch gears a bit and talk about compliance. How do you ensure that your outsourcing arrangements or business office extensions are in compliance with the various regulatory bodies that you have to deal with every day?

Harris: The amended False Claim Act of 1986 has produced over$3.0 billion in damages. It was enacted by President Lincoln in 1863 to protect the U.S. government from fraud and abuse in the defense industry. Over the last couple decades, healthcare has been added to the watch list of industries, starting with durable medical equipment suppliers and moving on to healthcare providers. The revenue cycle is prone to fraud and abuse because that is where the billing and collections takes place. The 72-hour rule, advance beneficiary notification, and Medicare bad-debt audits are examples of programs CMS has put in place to protect Medicare from reimbursing providers incorrectly. Providers must be careful when they involve outside companies in the revenue cycle -- no matter if it's in patient access, medical records or the business office.

Swiss: When we formed our billing compliance program it initially reported to me, which, was a very good thing because this way I have both my revenue cycle and compliance antennas up at all times. Now, it reports to a legal counsel and I have a dotted line relationship with billing compliance. I always ask the question: Are we compliant? We not only set up processes but we audit those processes as well.

Johnson: We encourage our employees to report anything they see that is not right. Report it to a supervisor, vice president or the compliance officer. Let someone take a look at it and see whether it meets the legal test. We make sure our employees know that they won't suffer retribution for reporting something.

Lutfy: From an outside agency's perspective, we also make sure we are compliant. In addition to documenting clients' policies and procedures in our playbook, we send bills to insurance companies through the client's financial information systems, using the client's clean claim edits and maintaining the patient accounting system as the system- of-truth in case the provider is audited.

Kurz: That's important. When Medicare comes and audits you and they are holding a bill, your home system had better show what is on that bill. I think more and more people are concerned about making sure invoices that go out from an outsourcer are identical to what is produced on in-house systems.

Harris: This is a great point. The audit ability now of CMS is so powerful because there are common systems throughout the intermediaries. CMS has the ability to look at a physician's claims and say, "For this procedure, this is what we should see on the hospital bill". For the very same visit, they can compare the UB92 from the hospital to the HCFA 1500 for the physician. If something is not in sync, they will select a couple more accounts, and if they see a trend, they will do an audit. I am sure most providers have received a letter from Medicare, saying CMS wants to review some claims for potential fraud and abuse --arising from either lack of knowledge or intent to defraud the government.

Kurz: Through our audit and compliance group, we've developed mandatory training for all of our employees. We do online training specifically focused on Medicare compliance. When the HIPAA regulations came out, we did the same thing with online programs. We have set up our own internal audit group within the patient accounting division. We now have written contracts with our outsourcing companies, specifying the level of service we want.

Lutfy: In fact, HIPAA requires that hospitals sign business associate agreements with all vendors who have access to confidential patient information.

Lauer: Let's talk some more about HIPAA. What impact has HIPAA's rules for transaction code sets had on the collection process?

Johnson: With HIPAA pushing standardized processes, I hope most claims will be paid automatically. The human intervention part of accounts receivable management is going to greatly decrease. The result will be less outsourcing because the need to outsource this work will decrease, thanks to technology.

Swiss: We're not there yet. Right now HIPAA is failing the original objective -- making processes more efficient -- I think the payers have not standardized. They each have their own companion guides that detail how to bill them. There was a significant issue where certain payers were compressing the rejection codes and making them less understandable, going from more to less specific and requiring more manual intervention.

Harris: The issue is disparate technology. With providers, we have a choice of maybe four or five vendors of patient accounting systems. Payers have ten or more different claim adjudication systems that support their various insurance products. Each one of these systems has its own rejection and reason codes for reimbursement. I would say we are still in our infancy with respect to HIPAA. It may take a few more years, but we'll eventually get there. HIPAA's standardized transaction code sets are designed to give us a common transaction environment. That's why I think you will see more banks involved in healthcare down the road -- acting as an intermediary between the patient, payer and provider.

Lauer: We've talked primarily about outsourcing the collection process. Are there other functions that could be outsourced?

Johnson: Clinical coding is an area that is being experimented with right now. India provides dictation services for many U.S. companies. Now they are looking at other high volume services such as outpatient coding. I don't think the inpatient coding will be outsourced soon.

Swiss: We are in the midst of implementing an imaging product in medical records so we won't have a barrier to outsourcing our coding. If you have an image, you can code anywhere. We've had a chronic problem with turnover in coders. I think contract coders code 30% of our medical records and the quality is not as good as our employed coders.

Kurz: Collection agencies address the back end of the revenue cycle. We are beginning to see the entry of an increasing number of companies that provide solutions for the front end of the cycle.

Harris: Patient access is a good example. Steve and I checked into the airport yesterday without any manual intervention. We swiped our credit cards, received our boarding passes and went directly to the gate. The banking community figured it out long ago with ATM machines and then the airline industry joined the bandwagon. The technology exists to do it in healthcare, we just haven't figured out how to string the various systems together in a cohesive network. But I can really see it in our future. You will go to the hospital for an outpatient procedure and walk up to a kiosk, swipe your healthcare card --or even your VISA -- to identify yourself because the visit was pre-registered. After you swipe your card, the kiosk produces a checkin slip along with a color-coded map directing you to the department. If we do this right, we'll also collect deductibles when patients swipe the credit card or Health Saving Account (HSA) card - eliminating the need for a patient statement.

I like to say that the revenue cycle is comprised of three things: People, process and technology. In the future, there will be more reliance on technology, replacing people and process. Technology is going to continue to grow. The result:Instead of outsourcing to a person, you'll outsource to a machine.

How to outsource successfully:

• Evaluate your core competencies to decide if someone else can do the job better;
• Evaluate outsourcers based on performance -- not just price;
• Determine the best mix of accounts to outsource to maximize cash flow;
• Develop procedures to monitor the quality of the outsourcer's work;
• Monitor outsourcers for compliance with governmental regulations.

Want to learn more about outsourcing business office functions?
Contact: David Harris, National Revenue Cycle Partner, at (646) 471-1241, or click here to send him an email or visit PricewaterhouseCoopers on the web at pwc.com/healthcare.

Participants:

	Dave Harris National Revenue Cycle Partner PricewaterhouseCoopers New York, NY
	Paul Johnson CFO Tuomey Healthcare System Sumter, SC
	Steven Kurz Vice President Patient Financial Services New York-Presbyterian Hospital New York, NY
	Steve Lutfy Director Virtual Business Office PricewaterhouseCoopers Columbia, SC
	Drew Swiss Vice President Finance Montefiore Medical Center New York, NY
	Charles S. Lauer Publisher Modern Healthcare Chicago, IL

The views expressed by Straight Talk participants are not necessarily the views of Modern Healthcare, Crain Communications Inc. or PricewaterhouseCoopers.