December Outsourcing, Enablement, Enlightenment. John R. Thomas President and Chief Executive Officer MedSynergies, Inc.

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1 December 2008 President and Chief Executive Officer

2 Revenue cycle management (RCM) for healthcare includes a series of complex processes: charge entry, claims production, payment processing, A/R management, self pay collections and reporting functions. Due to the growing complexity of the healthcare payment system (i.e. alternative insurance programs, payer/employer quality initiatives, and technology), the difficulty in managing the revenue cycle is expected to increase in the foreseeable future. Faced with the higher cost of technology, what solutions can healthcare providers employ to combat these challenges? Until recently, the RCM options available to healthcare providers were 1) internal management and 2) outsourcing to a third party billing company. Today, there are additional ways to attack these challenges. A varied blend of both internal and external resources can create a more flexible solution that is more congruent with the financial and technological needs of the provider. Whether you are affiliated with a hospital, physician practice or ambulatory service provider, you should consider an alternative to the typical in source or outsource model to meet your organization s unique challenges. There is not simply one solution or one strategy that will work within your medical practice. What are the options? Outsourcing 101 Outsourcing entails using a third party, independent provider of revenue cycle services whereby the medical provider creates the claim data and the outsourcing provider provides the technological and processing functions to get the claim produced and paid. Generally, this outsourcing function is provided regionally or with a specialty-specific focus. These outsourcing providers offer an end-to end solution to their clients in return for a percentage of collections. The percentage paid to the outsourcer becomes a variable cost to the medical practice. A variable cost model is welcome to many medical practices as the majority of overhead is fixed. In other words, rent is a fixed amount each month regardless of patient visit and or collections each month. However, there are a number of considerations associated with this solution. Here is a summary analysis of the traditional outsourcing model for healthcare RCM. Pros Variable cost of collection Aligned incentives Low cost when collections are low Creative tension with office Cons Higher volume generates higher practice cost May drive collection effort on large dollars only High cost when collections are high Little process alignment from front to back For a practice that has significant management turnover or needs immediate help due to high receivables, outsourcing to a third party is a good solution. Managing a third party RCM provider requires time and effort due to the creative tension between the practice staff who create the data and the billing company who must analyze, repair and get payment on the data. Customer service issues and employee turnover issues arise due to this tension between practice staff and the RCM staff. At times, the common interest of collecting the right amount at the right time can get lost and generally creates emotional conflict which can be difficult to manage. There is ample evidence that outsourcing billing functions in a traditional method is appropriate for practices and truly a great solution for practices that are facing challenges in staffing, turnover and cost of space and employees. 1

3 Transactional RCM Services There is also an emerging transactional approach to providing RCM services in which the traditional RCM outsourcing functions are unbundled. In other words, the medical provider may select one or more of these functions on an independent basis to meet the staffing, space and RCM process needs of the practice at a certain point in time. Here are some examples of Transactional RCM Services: Technology Services Application hosting, disaster recovery, maintenance, claims production and database management, application training and reporting. Payment Processing Payment posting, bank reconciliation, correspondence imaging & indexing and credit balance processing, secondary claims production and reporting Patient Services Self pay statements, automated phone calls, self pay letters, customer service call centers, and reporting. A/R Management Aged Insurance A/R analysis and denial management, batch denial analysis and resolution, current denial resolution. Analytics Operational exception metrics, key customer metrics, process consulting, practice RCM assessments and provider reporting. All of these functions whether they are provided in-house or by a third party merit an in-depth discussion as the complexity and metrics used to measure the performance of each are critical to the success of a medical provider s RCM cycle. Each of these functions is available today on an independent basis to meet the varied and changing needs of healthcare providers. For example, a medical provider may determine that capital should be invested in a surgery center versus a new practice management system and elect to enter into a contract with a third party for technology services to lower capital requirements. The provider performs the remaining functions internally. Additionally, this provider may not have the technology infrastructure or staff to manage the patient balance process and elects to enter into a contract with a third party to provide a turnkey patient services function. The provider can then leverage and focus internal staff to improve other functions within the organization. This Transactional RCM Service model allows the practice to determine what specific needs it has to help improve the focus and staffing efficiency of its internal RCM process without outsourcing it entirely. In the event that circumstances at the practice change, a provider may re-bundle these functions for a period of time. One of the key advantages of the Transactional RCM Service model is that the practice determines the level of service based upon its particular needs at a specific point in time. The pricing for these Transactional RCM Services is based on the work performed rather than the amount collected. For example, there would be a transaction fee or subscription fee for each claim, CPT code, account, provider, location etc. The interesting advantage of this pricing is that an internal RCM group experiences the cost of their RCM functions on a transaction basis as well. The difficulty in this transactional model is determining the internal cost. However, with a little effort, this per unit or transactional cost can be determined for these functions. 2

4 For example: Practice A has one person who performs the Claims Production function. Assuming the person has a salary of $40,000 per year, you would add 30% for benefits, space etc. to estimate the total cost of that employee which, in this case, would be approximately $52,000. If Practice A produces 52,000 claims per year, the cost of claims production would be $1.00 per claim. For each of these functions, a unitized view of RCM is critical in determining the effectiveness of internal functions and the cost associated with each task. This unitized view will also help in evaluating internal RCM policies and procedures regardless of the chosen strategy for managing the increasing complexity of the RCM cycle. Here are some key questions to guide you through an evaluation of unitized costs: What is the total cost of your internal RCM function? -Take the total salary cost of the RCM staff multiplied by 130% to approximate the total cost of the employees. What are the number of primary claims, secondary claims and patient statements you send for the year? -Your practice management system and electronic claims provider statements will be a good source. How many payment transactions (per CPT code) are posted each year? This would include both dollar payments and zero payments. (Zero payments for each CPT code is a denial) How many patient calls do you receive about billing each year? How many CPT codes per patient visit? Answering the questions above will allow you to calculate the internal cost of your RCM transactions. Understanding the cost of these functions will then help you determine if any course of action is warranted to help improve the efficiency of the RCM process. Summary Today, medical providers have many options to help combat the ever increasing cost and complexity of the healthcare revenue cycle. Traditional outsourcing and a new Transactional RCM Service offering allow practices to determine the type, price and timing of these specialist services to improve efficiency or reduce risk in current RCM processes. There are situations in which each solution has advantages. Additionally, it is very important to understand the risk of these solutions as well as the cost of the internal process independently. By taking a few moments, a provider can determine the unit cost of each component of the RCM process. This unitized view provides insights about the revenue cycle and its associated costs that will benefit the organization regardless of outsourcing/in sourcing variation it chooses as result of this knowledge. 3

5 President and Chief Executive Officer John Thomas has been with MedSynergies since its inception in 1996, when he began as senior vice president and managing director of development. While at MedSynergies, Mr. Thomas has held positions such as senior vice president and chief financial officer, and has been a member of the board of directors since Prior to joining MedSynergies, Mr. Thomas was the vice president of the newly formed HealthCare Finance Group for Bank One. He was also the assistant vice president for Texas Commerce Bank, where he focused on hospitals and emerging healthcare markets. About Now serving 3,000 healthcare providers in 37 states, MedSynergies provides revenue cycle services and integrates leading software programs into the daily operations of healthcare organizations. Founded in 1996, MedSynergies serves physicians in hospitals, specialty medical groups, ambulatory surgical centers, rehabilitation centers, and independent practice associations (IPAs). Based in Irving, Texas, the company has regional offices across the United States. For more information on MedSynergies, please visit Mr. Thomas is a national speaker on topics such as revenue cycle management, billing and collections processes, capitalization, and turnarounds. Mr. Thomas received his Master of Business Administration, with honors, from the University of Texas Graduate School of Business. While at the University of Texas, he focused on finance and management and was selected as the Sword Scholar and received the Dean s Academic Award. Mr. Thomas received his Bachelor of Arts from the University of Arkansas Corporate Drive Third Floor Irving, Texas Copyright 2008 No reproduction, in whole or part, without written permission.