Due Diligence. Types of Medical Billing Service Companies.

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2 Are you looking for ways to improve the efficiency of your billing and increase your bottom line? A medical billing service could be the answer. Many physicians already look to medical billing companies for assistance with their billing and collection functions. Most billing companies offer billing and collection services, plus a wide range of other services. 1

3 Due Diligence If you are considering hiring a billing service, you should weigh your options. The following self-assessment will help you determine whether in-house or outsourced billing is better for you: Do you have someone in your practice who understands the nuances of the billing process and who could monitor billing performance? Do you have the ability to hire and retain a qualified biller? Do you have a contingency plan or the ability to cross-train another staff member to cover the biller as needed? What is the cost of your in-house billing? Consider the following and compare the cost of outsourcing: Staff salaries Benefits e.g., medical, sick-leave, vacation leave, etc. Payroll taxes Worker s Compensation insurance Practice management and coding software Postage Clearinghouse fees Training System hosting, support and maintenance Also, see the table titled, Cost Comparison of Medical Billing: In- House vs. Outsource? to see an example of a cost comparison for a single biller for one primary care provider. Types of Medical Billing Service Companies When you determine that having an outside billing service is more cost effective for your practice, you should then determine 2

4 what type of service you need. Billing services come in different forms and can be divided into four main types: Type of Medical Billing Company Types of Services 1. Clearinghouses Typically provide electronic claim submission only, but also provide an option to enter claims for a dollar amount per claim. 2. Billing-only Services Claims processing, telephone followup with plans, re-submission of claims when needed and patient collection calls. Additional services may include claims appeal for reduced or denied claims and comprehensive monthly reports. While some billing-only services charge a flat fee per claim, most charge a percentage of receipts. 3. Accounts Receivable Management Firms 4. Management Services Organizations (MSOs) All the services above, plus tracking of copayments, deductibles, and withholds. These companies can also consult with you to improve billing efficiency. They typically charge a percentage of receipts. Provide contract management and review, administrative services and may also include help with staffing, facilities and equipment. Important Note: The Privacy Rules under the Health Insurance Portability and Accountability Act (HIPAA) of 1996 requires physicians who use a billing service to enter into a HIPAA-compliant Business Associate Agreement (BAA) with that billing service. 3

5 Why Hire a Medical Billing Service Company? The main reason for hiring a billing service is centered on saving money. You should see a net positive impact on your bottom line. In short, your reduced costs and increased collections should more than compensate for the fees you pay the company. In addition to saving money, you and your staff should have more time to dedicate to your patients. When looking into your costs, make sure that you consider some of the intangibles such as training your staff, unexpected staff absence or sudden staffing changes. These may add up to a significant amount of time and money. On the other hand, compare your tangible costs to that of the cost of outsourcing. The table below compares the cost of in-house billing versus the cost of outsourcing based on a single biller for one primary care provider: 4

6 In-House Billing (Based on a 1 provider per biller) In-House Cost Outsource Cost Employee Salary (Annual) $16.00 per hour at 22 work days per month= Gross Pay Benefits Medical Average PPO health insurance at $160 per month Sick Leave Based on ½ day per month=6 days per year Vacation Leave Based on a 1 week paid vacation per year Retirement Plan Based on 20% employer contribution per month Deferred Compensation/401K Employee matched contribution Worker s Compensation Based on $2.00 per $ payroll Payroll Taxes Based on 26 pay periods per year Payroll Fees Monthly fees may vary Electronic Claims 346 claims at $0.35 per claim Based on 80% of total monthly claims with an average patient volume of 20 patients per day per provider Total Cost * Average of $35,000 net receivables monthly deposit at 7.5% $33, $31,500.00* $1, $0.00 $ $0.00 $ $0.00 Varies $0.00 Varies $0.00 $ $0.00 $1, $0.00 $ $0.00 $1, $0.00 $39, per biller $31, $8, The savings per year if billing is outsourced 5

7 Finding the Right Fit for Your Practice Choosing the right billing company is going to be a critical component of your practice s success. In some ways the billing company will become an extension of your own office. Therefore, you should take time and do your due diligence. It is prudent to request a background check on the billing company. You should be able to review the company s financial statements, current number of clients and years of experience. Your findings should reveal the company s track record and financial viability. Find out what type of training and experience the staff has. Also, ask if the supervisor of the billing company has an education and training in medical coding and if they are a member of a billing association. More specifically, verify that they are familiar with your specialty and if they are familiar with the insurance companies you work with most. Regardless of what type of company you decide to hire, you should always check references on your candidates. Ask the billing company for references to practices similar to yours in size and specialty. Most likely you will be referred to very satisfied customers; nevertheless, the following questions can help you determine how good a match the service is for your practice: How long have you been working with this billing company? What duties are they handling for you? Overall, how satisfied are you with them? Have they complied with HIPAA requirements to your satisfaction? How have your collections changed since you started working with them? What percentage of your claims is accepted on the first submission? How effective are they at pursuing unpaid claims? 6

8 What is the best thing about working with them? How do you get information to them? Is the process intuitive and efficient? Do your patients notice any difference in billing and collections? Does your staff feel like they can count on them to resolve problems? What was the biggest challenge about working with them? Do you intend to stay with them, and for how long? After narrowing your search for the most suitable candidates, you should make sure that the services offered to you match your practice needs. Consequently, you have to ensure that all the services that you have in mind are written into an agreement. Responsibilities of a Medical Billing Service Company Generally, some of the functions performed by a billing company include the following: Register patients, confirm insurance eligibility and coverage information (we recommend the practice to perform the eligibility and coverage information before seeing patients); Code the procedures; Prepare, scrub and submit claims to the appropriate payers and patients within a certain number of days from the date of service; Enter all applicable information into an appropriate computer system using electronic claim submission where possible; Respond to telephone and written inquiries from third-party payers and patients concerning their bills; Assist in audits, if necessary; Provide postage and necessary computer billing forms; 7

9 Pursue collection of unpaid or inadequately paid claims for a specified number of months, e.g., 2-3 months after the initial billing, and appeal unpaid or unfairly paid claims; Deposit all payments received into the physician s account at a specified bank, or into a specified segregated account from which the billing service may subtract its payment and make payment to the physician within a certain number of days, e.g., seven (7) days; and Provide the physician with monthly, year-to-date and annual reports. The report could be broken down by individual patients or payers. It is recommended that physicians request to see examples of reports before signing with the company to make sure they are complete and understandable. Sample of management reports includes: o o o o o o o Accounts Receivable (A/R) with aging of balances in the columns marked as Current, 0-30 Days, Days, Days and Over 91 Days. In addition, the aged report should break out patient accounts by payers and should have a percentage of the total outstanding per aging category. Patient responsibility report (separate from the A/R); Charges billed; Collection/revenue; Denied claims; Credit balance; and Contractual and other write-offs. 8

10 Provide feedback on the financial performance of the practice. If possible, provide comparative data based on national averages and peers in the same specialty and geographic area. Important Note: While some physicians rely on billing services to perform Current Procedural Terminology (CPT) coding, medical claims are made in the name of the physician. Thus, the physician is responsible for the propriety of the claim. Remember that the physician is the expert on what service was provided and is the one who will be penalized if the codes are incorrect. Moreover, third-party payers often track physician efficiency and clinical outcomes based on CPT codes from claims, so coding errors could cost the physician contracts in the future or can be the cause of a bad or unfavorable profile, report card or an audit. Hiring a billing company and delegating your billing and collection functions to the new company does not warrant a hands-off approach on your part. You should audit the performance of the billing company. One of the best strategies to audit is to review the Explanation of Benefits (EOBs) periodically to determine whether claims are being submitted correctly, and to check for denials and underpayments. Then, you should compare your monthly reports against the EOBs. Make sure the company posts the payments or denials by CPT codes. You will need this information to respond to a managed care plan s utilization inquiry and for determining acceptable capitation amounts. Any practice will need to know what it is making on its capitation accounts and how this compares to fee-for-service revenue. Reports should track the 9

11 frequency of procedures and services and average receipts, by CPT code. Responsibilities of the Practice Although most of the labor is delegated to the billing company, you still play a critical role in the success of your practice. The key to a successful relationship is to have an open line of communication. For example, if you do not provide good data to start with, the subsequent tasks will become more difficult to perform, and the whole process will collapse. As the source of the data, you need to supply: Billing provider numbers including the NPI(s); List of contracted payers, along with the portions of the contracts related to the reimbursement guidelines and the fee schedules; Accurate patient information; Timely and accurate charges; and Authorizations and Advanced Beneficiary Notices (ABN). Whichever direction you decide to go keeping your billing inhouse or outsourcing you would need the above data to be upto-date, accurate, and available for your claims processor. Evaluate Your Candidates Once you decide to hire a billing company and after checking the references of your candidates, but before you sign an agreement, you should meet with your candidates. The face-to-face meeting is important because you can take away a lot when you see people in person. You could also use the following questionnaire to evaluate your candidates that you have in mind so far. 10

12 Use the questionnaire, or a similar one, to enhance your research about the billing company. Make sure to use the questionnaire related to your practice s situation. 11

13 QUESTIONNAIRE What is your average client size? e.g., number of physicians, total charges per month How does your organization inform staff of current state and federal rules, regulations and guidelines What billing compliance policies and procedures do you use? Have you ever had a claims review by a local or regional carrier? How many clients do you serve? How many full-timeemployees (FTE) support them? Which employees will be assigned to my account? How many years of experience do they have in my specialty? Are your employees credentialed? Please explain. Outline the specific tasks a collector performs. Do you measure employee productivity? Do you perform quality reviews of your employees work? How? Do you provide management reports on a monthly basis? If yes, what kinds? Do you have standard performance benchmarks? If so, what are they? Do you have record retention and storage policies? If yes, please describe. Do you provide electronic imaging? Which paperwork? Do you process credit balance and refunds? If yes, how frequently? Do you follow state escheat laws for returning unclaimed payments? What information technology system do you use? Is it proprietary? Will you demonstrate your billing system and process? Does your IT staff incorporate the most current required industry changes? How often do you make updates? 12

14 Do you conduct background checks on new and current employees? What is your employee turnover rate? Do you have customer service guidelines? Can we review them? Can you address current health care issues that affect our practice, e.g., can you report diagnoses specified in Medicare s quality reporting programs? Describe your firm s financial health. Please provide current and past client references. 13

15 Pricing Guideline One key point in deciding the best fit is to ensure that you are going to save money and also increase your revenue. At this stage of your due diligence you should inquire about the billing company s pricing. Most often medical billing companies bill a percentage of the collections they bring into your practice. This means that the amount they take in is completely dependent on their success. So the more they collect, the more they earn. In the natural, it may be lucrative to try to get the lowest percentage you can. However, the real bottom line number for your business is your net income after you account for the billing service fees. This may be true even though a better service might demand a higher percentage of your collections. Their total collections can make up for that difference and still result in more income for your practice. Keep in mind that one of the biggest differentiator between billing companies is how good they are at resolving denied claims and collecting on your outstanding accounts. This is the most time consuming part of their workflow. Simply choosing the lowest cost option is unlikely to get you the best provider. The percentage billing companies charge depends on a couple of factors. The most significant is the average volume and size of your claims. The more claims you bring in and the larger dollar amount per claim, the lower the percentage you will have to pay. Surgeons, whose average claims run into the thousands of dollars, get charged less per claim than therapists who only get $25 to $40 per claim. The total volume of claims is also important. A single psychologist who treats 20 or 30 patients a week will pay a much higher rate than a five doctor practice that sees 150 patients or more. You will have to work with the billing 14

16 company to estimate the total volume and average amount of claims you process to help determine your exact pricing. The other major pricing component is which services you add onto the basic billing responsibilities. For example, accounts receivable collections from patients instead of just claims handling can increase the percentage you will pay. Faster turnaround of your claims or 24 x 7 support will also command a higher percentage. Given those factors, the fees for medical billing services typically range from 5% to 8%, with most types of practices paying 5% to 7%. You may also wind up paying additional set fees for patient statements, delinquency notices, data exports, and other activities. Make sure you get a full breakdown of all the costs associated with your account before you sign a contract. Adding Practice Management (PM) software or Electronic Medical Records (EMR) packages can change how you are billed, in addition to how much you pay. Typically, these services are priced either with an upfront licensing fee or a per user monthly charge, independent of your collection activities. Contract Terms to Look For in Your Written Agreement Once the pricing is agreed on, it is highly recommended to formalize your relationship with a written contract and along with the required Business Associate Agreement (BAA) as mandated by HIPAA. The written agreement should include terms that are mutually agreeable. The contract should clearly define the responsibilities of each party. Some important terms to look out for listed below: 15

17 Termination The term of the agreement should be set forth (e.g., one (1) year), along with the starting and ending dates. However, a physician may wish the agreement to be evergreen automatically renew from year to year unless terminated, to avoid having to reenter into the agreement every year. Nevertheless, either party may terminate the contract at any time with or without cause upon a certain number of days (e.g.,thirty (30) days) prior written notice. However, upon the expiration or termination of the agreement the billing service could be required to diligently continue to work the remaining accounts with outstanding balances for a set amount of time, e.g. 90 days. The contract should state that any of the physician s confidential business records must be returned upon termination/expiration. Also, upon termination or expiration of the agreement the billing service should provide the physician with the original or copies of all information concerning the practice s billings and collections which have not already been provided to the physician, including any computer disks containing such information, at no extra fee. Make sure, in advance, that such data will be transferable to your in-house computer system. To achieve the best level of integration, make sure the systems use industry-standard HL7 protocol. Software Compatibility The billing agreement should indicate that the billing company is using a practice management software that can handle multiple fee schedules (at least, up to 100) and capitation. Furthermore, the software should also have the capability to allow data to be transferred to another system, in case the practice terminates its agreement. 16

18 Confidentiality The billing service should be required to maintain the confidentiality of all data and information concerning the practice, its patients as well as its billings and collections. Any disclosure of such information should only be to the extent authorized by the physician and necessary to carry out the purposes of the written agreement. The contract should specifically require the billing agent to agree to comply with and observe all laws relating to the confidentiality of patient records and information. Liability of Errors The billing service should agree to be liable for any loss or damage that the practice suffers as a result of any error, delay or failure of the service in connection with its billing and collection obligations under the agreement. The billing service should also agree to indemnify and hold the practice harmless against any and all claims from any third parties arising out of the billing service s erroneous handling of any claim on behalf of the practice, its unauthorized use or disclosure of any medical information received by the practice, or its breach of or failure to perform any provision of this agreement. The billing agent may also wish the practice to agree to hold it harmless against any and all claims of damages or liabilities from any third parties or state or federal agencies arising out of false or misleading warranties or misrepresentations made by the practice to the billing service. Protection There are a number of clauses that a practice can include in their contracts with billing services for protection. For example, some billing companies provide in their contracts that they may charge the practice each time a statement is sent to beneficiaries for 17

19 copayments, etc. If several statements are sent out on a delinquent account, the practice could end up spending large sums of money to collect a relatively small bill. Thus, it is important that the contract limits the billing company to sending no more than three (3) statements for small accounts. In addition, a practice may want to ensure that their billing company does not repeatedly rebill Medicare for approved or denied claims. Medicare may view this activity as abuse, and may scrutinize claims activities of repeat billers. Thus, a practice would be wise to include wording that requires the billing company to rebill claims only when reasonably necessary. Practices are also well advised to require in the contract that the billing company notify the practice of any official correspondence. For example, the billing companies may receive warnings from Medicare or other third-party payers about improper claims, but not inform the practice. Practices need to know about these warnings in order to correct any improper billing practices and avoid fraud and abuse allegations by the Office of the Inspector General (OIG). Independent Status The contract should provide that the parties are at all times acting as independent contractors and that neither are employees or agents of the other. Accordingly, the contract should state that the billing service and its employees and agents shall have no claim against the practice for workers compensation, unemployment insurance, pension or profit sharing, or any other employee benefits, all of which should be the sole responsibility of the billing company. Further, the billing company should agree to indemnify and hold each party harmless against any claims, penalties, damages or lawsuits that either party suffer as a result 18

20 of the service s failure to make withholdings and contributions as required by federal and state law. Subcontracting In order to prevent the billing company from assigning its obligations to a completely different billing entity and thereby obligating the practice to have a contract with an unknown entity, the contract should state that neither party may assign nor delegate any rights or obligations under the agreement without first obtaining the written consent of the other party. Deposit of Practice Funds To comply with Medicare rules, ensure that the agreement specifies that all checks and payments for health care services rendered by the practice is only to be made out to the name of the provider and deposited into a bank account owned by the practice. Integration Clause To avoid assertions by either party that prior oral or written agreements, whether formal or informal, are part of the contractual arrangement, the contract should provide that it constitutes the entire agreement between the parties and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, except as specifically set forth within the contract. Errors and Omission (E&O) Insurance To protect the practice, the billing company should agree to acquire and maintain sufficient insurance coverage against theft, dishonesty or infidelity of the billing company, its officers and employees. 19

21 Benchmarks Consider including specific and mutually agreed upon standards, such as: Maximum average number of days in Accounts Receivable Maximum number of charge lag days Maximum number of payment posting lag days Important Note: The tips in this article are not intended to be all-inclusive with respect to that which should be included in an agreement between a practice and a billing company, nor does this discussion constitutes legal advice. For legal advice regarding billing and other arrangements between a practice and any third party, an experienced healthcare attorney should be consulted. To protect the practice, the billing company should agree to acquire and maintain sufficient insurance coverage against theft, dishonesty or infidelity of the billing company, its officers and employees. Does the Billing Company Have a Compliance Plan? One of the most important components of doing your due diligence in hiring a billing company is to ensure that they have an active compliance plan. In fact, having a compliance plan should be a hiring requirement. Having a compliance plan is imperative and, at the least, shows the billing company s commitment to follow all federal and state rules. The Office of Inspector General (OIG) has reiterated that physicians remain 20

22 responsible to the Medicare program for bills sent in the physician s name or containing the physician s signature, even if the physician had no actual knowledge of any billing impropriety. In addition, OIG has a long-standing concern that arrangements between a billing company and providers based on a percentage of collections may increase the risk of intentional upcoding and similar abuse of practices. Although, these agreements are not outlawed, OIG is keeping a watchful eye on any irregular billing patterns. In the meantime, the OIG stated that, to the extent a billing company contracts on a percentage basis, the billing service must not receive Medicare payments on behalf of the physician into a bank account that it solely controls. A billing agent cannot bill claims under its own name or tax identification number, nor could a billing service have the Medicare payments sent directly into a bank account over which the billing service maintains sole control. Rather, the billing company must bill claims under the physician s name and tax identification number, and the payments should instead be deposited into a bank account over which the physician has control. In order to ensure compliance with the law, the Centers for Medicare and Medicaid Services (CMS) has instructed carriers to obtain documentation concerning the billing arrangement where there is evidence that the rules are not being followed. OIG recommends that billing companies have a fraud and abuse compliance plan in place. On November 30, 1998, OIG released its guidelines to help third-party medical billing companies detect and fight Medicare and Medicaid fraud and abuse. In the OIG s guide, it recommends a bilateral reporting system. Thus, if a billing company discovers credible evidence of misconduct of its client s activities, the OIG recommends the billing company report such conduct immediately to the appropriate government authorities. In such cases, the billing company should refrain 21

23 from submission of questionable claims and notify the provider in writing within thirty (30) days of such determination. Where the misconduct is continued or fraudulent, the billing company is advised to: 1. Refrain from submitting any false or inappropriate claims; 2. Terminate the contract; and/or 3. Report the misconduct to the appropriate federal and state authorities within a reasonable time, but no more than sixty (60) days after determining there is credible evidence of a violation. The OIG does not believe that misconduct includes inadvertent errors or mistakes. Continued misconduct includes patterns of misconduct, particularly with respect to conduct that previously had been identified by the billing company or carrier as suspect. The OIG guidance directs billing companies to focus on the following seventeen (17) risk areas, both in their own and their clients operations: 1. Billing for items or services not actually documented; 2. Unbundling; 3. Upcoding, such as for example, billing for a higher level of visit code when a lower level has been done; 4. Inappropriate balance billing; 5. Inadequate resolution of overpayments; 6. Lack of integrity in computer systems; 7. Computer software programs that encourage billing personnel to enter data in the fields indicating services were rendered that were not actually performed or documented; 8. Failure to maintain the confidentiality of information/records; 9. Knowing misuse of provider identification numbers, which result in improper billings; 10. Outpatient services rendered in connection with inpatient stays; 22

24 11. Duplicate billing in an attempt to gain duplicate payment; 12. Billing for discharge in lieu of transfer; 13. Failure to properly use modifiers; 14. Billing company incentives that violate the anti-kickback statute or other similar federal or state statute or regulation; 15. Joint ventures; 16. Routine waiver of copayments and billing third-party insurance only; and 17. Discounts and professional courtesy. The Compliance Program Guidance for Third-Party Medical Billing Companies is posted on the OIG s website. (Access at pdf) Overall, you should select a billing company that complements your needs and matches your practice culture. In addition, you should see significant savings in money and time. Furthermore, you should have enough assurance that you are dealing with an ethical and reliable company. A good match will ensure your business success, however, a bad choice will have a drastic negative outcome. Connect with us: info@practicons.com 23