SHOULD MY PRACTICE OUTSOURCE ITS MEDICAL BILLING FUNCTIONS?

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1 SHOULD MY PRACTICE OUTSOURCE ITS MEDICAL BILLING FUNCTIONS? Michael G. Monier, Sr., J.D. Celeste B. Ponvelle, CCS-P SOURCEGROUP CBO, LLC Audubon Ave. Thibodaux, LA, One of the many business questions that physicians face is whether or not to outsource account receivables management to a third-party medical billing service. The alternative, or course, is to manage accounts receivable in-house, leveraging existing practice assets including Human Resources and owned and operated medical billing technologies. Physicians may assume that outsourcing accounts receivable management to a medical billing service makes the most sense. After all, such organizations are experts possessing the resources to effectively navigate the daunting claims resolution process, right? Maybe. On the other hand, proponents of inhouse claims processing and resolution often cite direct control as the driving rationale for choosing to internally manage the revenue cycle. One size does not fit all in the medical billing industry. Physicians need to make informed decisions in that regard. Both methods of revenue cycle management have benefits and drawbacks. It s up to the physician to weigh the pros and cons carefully, and then to decide which approach will work best for the practice. This white paper attempts to break down in-house billing and outsourced billing in terms of cost and qualitative factors. Physicians need to weigh the differences carefully when assessing practice needs and deciding whether or not outsourcing makes sense. Cost Analysis For many practices, the outsourcing decision can be distilled to one salient factor: cost. To help compare the costs associated with in-house versus outsourced billing, we ve created a hypothetical three-physician practice. To arrive at the numerical assumptions, we ve used industry standards. The characteristics of this hypothetical practice are: SOURCEGROUP consistently Three primary care physicians; outperforms nationally reported Two medical billing specialists; benchmark data relevant to the 80 insurance claims filed per day (20,000 per year); $125 billed per claim on average ($2,500,000 per claims submission process. year); and, We assume that the billing service averages a 70% gross collection percentage.

2 The following illustrates the annualized cost of each approach: In-House Outsourced Billing department costs $118,000 $4,000 Software and hardware costs $7,500 $500 Direct claim processing costs $3,600 $122,500 Software and hardware costs $5,500 $2,000 % of billings collected 60% 70% Collections $1,370,900 $1,623,000 Collections costs $129,100 $127,000 Collections, net of costs $1,241,800 $1,496,000 Some background on our cost assumptions follows. Billing Staff Costs IN-HOUSE: This was calculated by adding the estimated (1) median salary of two medical billing employees ($80,000), (2) healthcare costs for two employees ($9,000), (3) federal and state taxes for two ($12,000), and (4) training costs to keep the employees updated on the latest industry developments ($2,000). Finally, we ve included $15,000 in ancillary costs for statement paper, office space, office hardware and other miscellaneous costs. OUTSOURCED: We factored in five hours of time per week required to manage tasks related to billing at approximately $15 per hour. Even the best medical billing service will require assistance from within a practice for resolving particular issues relating to the claims process. That adds up to approximately $4,000 per year in associated administrative cost. Software and Hardware Costs IN-HOUSE: We ve factored in an annual cost of approximately $7,000 for practice management software ($200 per month, per doctor) and an additional $500 for computer hardware costs. This does not include the upfront cost of a software system, which can dramatically increase inhouse costs. OUTSOURCED: This reflects the computer and printer the practice would still need to interact with the billing service and to print documents.

3 Direct Claims Processing Costs IN-HOUSE: Clearing house fees for a provider submitting 20,000 claims per year is approximately $300 per month ($100 per physician), or $3,600 annually. OUTSOURCED: Medical billing services typically charge a percentage of total practice collections. The industry average varies widely by specialty. We ve used seven (7%) percent the amount published by the AMBA for primary care practices nationwide. This rate is certainly negotiable and varies significantly from practice to practice depending on specialty, geography, number of claims, revenue production, etc. Percentage of Billing Amount Collected IN-HOUSE: The percentage of revenue that a practice collects varies widely by specialty as well. Our hypothetical practice collects 60% of what it actually bills a gross collection percentage of 60%. According to industry experts, this illustrates the efforts of a typical in-house billing department. Note that a thorough outside analysis is required to ascertain an accurate practice gross collection percentage, a figure that is easily manipulated and thus eludes most physicians. OUTSOURCED: Typically a practice should expect a 5% to 15% overall increase in the amount they are able to collect when using a billing service. We factored in a 10% increase in the amount of money collected by a billing service as the average of the two amounts. Incidentally, this range is easily in line with the success that SourceGroup has experienced in most cases. Our cost comparison favors outsourced billing based on (1) the probability that a billing service will collect a higher percentage of the billed amount, (2) immediate access to a fully integrated software suite, and (3) cost considerations. Of course, this introduces a BIG IF; that is, outsourcing makes more sense IF the billing service improves collections. There are, however, factors beyond cost that a practice should consider in making this decision. Let s examine the two approaches to compare the advantages and disadvantages. In-House Billing Process The in-house procedure for processing insurance claims involves a number of steps that are universal to every practice. First, employees enter information into the medical billing software program from a superbill, which includes information gathered during a patient s visit. This superbill contains particular diagnosis and treatment codes, among other patient information, which the insurance company uses to determine legitimacy and payment of the claim. Next, utilizing billing software, the practice submits the claim to a medical billing clearing house, which verifies the claim and sends it to the payer for processing. The clearing house scrubs the claim for errors (for a fee paid by the practice) before passing it on to the payer. By not submitting claims directly to a payer, the practice saves time, and money, and lowers rejection rates. The clearing house also has the

4 ability to format and submit claims data en masse in compliance with the various formatting requirements of the individual payers. Once the claim is rejected/accepted by the payer, notification of the claim status is sent to the clearing house, which then updates the practice. If the claim is rejected, the practice billing staff resubmits the claim once additional information has been gathered and attached. The practice will be charged for each claim submission, even if it is a correction. EHR software programs especially those with an integrated practice management system have the potential to make in-house billing cost effective and efficient for a practice. When integrated with a practice management system, EHR software will populate both systems data fields, eliminating duplication of data entry which in turn decreases errors and increases payment efficacy. This tighter integration may weigh in favor of in-house billing. Outsourced Billing Process The process for outsourced billing is significantly more straightforward for the practice staff. Generally, claim information via the superbill is entered at the point of service by practice front office staff. In some cases, the medical billing service provides data entry services on behalf of the practice. In these cases, the superbill is scanned/electronically forwarded and/or mailed to the billing service for processing. The medical billing service takes responsibility for claim submission on behalf of the provider. Most billing services charge a percentage of the practice collections.. The industry average is approximately a 7% charge for processing claims through a medical billing service. The medical billing service takes care of much of the dirty work associated with the billing process. It provides necessary billing software, submits paper and electronic claims, follows up on rejected claims, pursues delinquent accounts, posts payments, sends patient invoices, handles patient financial calls, etc. Convenience, cost and overall effectiveness are factors weighing heavily in favor of outsourced billing services. SOURCEGROUP s outsourced billing services package includes the fully integrated INGENIX CareTracker Software (PM & EMR) Suite. If a practice is using integrated EHR software, then the process approaches foolproof. Information from a patient s superbill is stored in the EHR and electronically transmitted to the billing service. This eliminates the need to send paper records to the billing service. And because the EHR software eliminates duplicitous data entry, accuracy is, predictably, much improved. One potential issue is data integration between the EHR software and the billing service. The type of data being exchanged between the provider and the billing service must match, or else the data will need to be converted to a different format. Depending on the billing service, data conversion may be an option. Obviously, provision of a fully integrated system such as INGENIX CareTracker eliminates this concern.

5 Should You Outsource Your Billing? Besides costs, there are other factors that would spur a provider to consider outsourcing their billing. I want a more efficient billing process. If you ve been watching your collections drop while the time to collect and office overhead increases, you may have issues in your billing department. Outsourcing to a third-party billing service typically decreases the number of rejected claims and decreases the time it takes to receive payment from a payer. I am tired of dealing with staffing issues. Turnover is an issue in any industry. However, turnover in a provider s billing department is especially damaging. Claims processing is the economic lifeblood of a practice and a new addition or replacement in the billing department will inevitably lead to a slowdown in the processing of claims. I am not tech savvy. Keeping your billing in-house will require an investment in practice management software. Add in maintenance, upgrades, and training costs for your staff and the significance of this investment becomes clearer. If you don t want to deal with software installation, maintenance upgrades and technical issues, outsourcing may be the right choice. I am a new provider/newly configured practice. New providers often have plenty to learn and worry about aside from their billing operations. Outsourcing claims management from day one can give them much needed relief from the dayto-day stress of launching a new practice, without a trial-by-fire in hiring, training and managing employees. Additionally they save significantly by not having to make a software investment. I want to practice medicine. Many doctors are not strong on the business side of running a practice. They became doctors to help patients not to worry about the administrative/clerical side of the business. Outsourcing the billing process eliminates the hassle and frees doctors to concentrate on patients. It is important to note that a medical billing service isn t a silver bullet for in-house billing issues. Billing services can vary widely in their efficiency and accuracy when processing claims. If a provider chooses a billing service that is lax and prone to errors, the headaches surrounding process won t improve and could get worse. Which Approach Should I Choose? It is important for a practice to factor in their individual costs and preferences when deciding whether to outsource medical billing. In an apples-to-apples comparison, we found that outsourcing had the

6 higher net return. However, cost isn t the only issue practices should consider. There are plenty of other factors involved in this business decision that may be as if not more important than costs. SOURCEGROUP has a solution no matter which path you choose. As the INGENIX vendor/representative for Louisiana, SOURCEGROUP can provide a comprehensive software product to those practices choosing to maintain or improve an in-house billing department. Additionally, SOURCEGROUP, through its centralized business office (CBO), can provide a complete software/billing service solution for those practices that wish to take advantage of the benefits of outsourced billing. Please contact us if we can be of assistance. Michael G. Monier, Sr. J.D., CEO Michael, founder and CEO of SGCBO, has worked in healthcare administration since Prior to establishing SGCBO he served in various administrative capacities with Nursing Care, Inc. (Houma, LA - Assistant Administrator & Managed Care Director), Hospice Of South Louisiana (Houma, LA - Assistant Administrator & Managed Care Director), Home Health & Hospice Care, Inc. (Goldsboro, NC Business Development / Managed Care Director), and Terrebonne General Medical Center (Houma, LA In House Legal Counsel / Managed Care Director/ Physician Business Services). Additionally, Michael is a graduate of Loyola University School of Law and is Special Counsel to the Health Law Section of the Milling, Benson & Woodward law firm in New Orleans, LA. Michael has served as CEO of SGCBO since its inception and maintains primary responsibility for strategic relationships, business development, performance analysis, and client relations. Celeste B. Ponvelle, CCS-P, COO & Compliance Celeste, the COO at SGCBO, has worked in healthcare administration since Celeste has served SGCBO since Prior to SGCBO she served in various administrative capacities with Family Doctor Clinic (Thibodaux, LA Business Office) and Thibodaux Regional Medical Center (Thibodaux, LA Physician Services). At TRMC Celeste coordinated staffing, billing and administrative requirements for TRMC s employed physician staff. Celeste is certified by Ingenix to install and support the CareTracker PM and EMR practice management software products, as well as to provide comprehensive software training to SGCBO end user clients. Currently, Celeste has direct management responsibility for SGCBO s business office staff and all aspects of SGCBO client revenue cycles. Additionally, Celeste is a American Health Information & Management Association (AHIMA) certified coder. Celeste also serves as the SGCBO Regulatory Compliance Office