Outsourcing Revenue Management Can Pay Big Dividends for Clinical Labs

Transcription

1 Outsourcing Revenue Management Can Pay Big Dividends for Clinical Labs A report by Donna Beasley, DLM (ASCP) McKesson Revenue Management Solutions, Laboratory Effective management of a clinical laboratory in today s environment whether the lab is hospital-based or independent can present major challenges for laboratory administrators. The combination of low-dollar, high-volume claims, inadequate billing platforms, poor denial remediation and the inaccessibility of accurate financial data all conspire to undermine the financial health of the laboratory. Given the multiple obstacles that labs face in the current market, a growing number of organizations are electing to outsource their revenue management to thirdparty vendors. Experienced companies that use lab-specific billing software and dedicated expertise to effectively manage the lab revenue cycle can significantly boost collections and ease operational burdens. As a result, laboratories are free to focus on their core business and pursue outreach growth opportunities. Most importantly, efficient third-party revenue management can help transform the lab s operation into a significant profit center. Multiple Challenges One of the biggest hurdles facing many hospital-based and stand-alone labs is the inherently low-dollar, high-volume nature of the lab business. According to Chi Solutions Outreach Industry Trends released in 2008, the average net revenue per lab test in 2006 was just $

2 Because predictable cash flow depends on timely collection of a large number of small claims, labs can quickly find themselves in financial trouble if denials affect a significant portion of these claims. The problem is compounded for hospital outreach labs by the fact that, in most cases, the lab s billing is handled through the hospital billing system. Hospital billing platforms typically are not equipped to process claims of relatively low-dollar amounts. Nor can they easily handle multiple fee schedules, test discounts or custom-formatted invoices required for client billing. And they often do not have a full spectrum of front-end edits, which, in turn, can contribute to denials. The net result is an increase in accounts receivable (A/R) and the mounting expense of trying to collect on the low-dollar balances. Making matters worse, rejected lab claims frequently fall below hospitals dollar threshold for small balances and are consequently automatically written off by the hospital system. These small balance write-offs can fatally undermine the cash required to make an outreach program profitable. Since most labs have limited resources to proactively mitigate denials or rework and manage them when they do occur, a significant amount of technical income is routinely lost by many laboratories. The Centers for Medicare & Medicaid Services (CMS) estimate that 40% of all laboratory claims filed with Medicare and Medicaid either cannot be processed or are denied. Of those, only half are subsequently corrected and resubmitted to the provider. Key Financial Data Absent Another major challenge for both hospital-based and independent labs is the inability to access management reports, compliance reports and accurate and timely financial information. Net revenue, or the actual amount of cash coming into the business for services rendered, is often inaccessible either from the hospital billing system or through the aging applications used by many independents. Inaccessible financial data results from the hospital billing systems inability to account for payor discounts and other, frequently changing contractual allowances. Without access to accurate net revenue, labs cannot measure revenue growth, costs as a percentage of revenue, profitability, bad debt or days sales outstanding (DSO). In addition, they re unable to effectively isolate let alone resolve documentation, coding and billing errors. Insufficient documentation and poor coding, in turn, increase compliance risk. Additionally, hospital billing systems do not provide laboratory administrators with the tools required to manage the client bill portion of their outreach business. Compliance statistics regarding front-end error monitoring also are essential for communication with providers. Laboratory sales representatives rely on this data to improve the profitability of each individual client. Having the ability to prospectively model a potential client will help administrators negotiate better contracts and more fully understand the relationship of costs to profit potential. The issue of inadequate financial reporting is widespread in the lab industry. According to a Chi Solution s 2008 report, only 50.6% of hospital outreach labs surveyed had access to net revenue information. 2 Just 38% knew their bad debt rate, while only 25% knew their DSO rate. Perhaps most telling, only 32% of survey respondents believed they were collecting everything to which they were entitled. 3 The pervasiveness of this information void underscores the enormous upside that exists for hospitals to transform labs into profit centers by outsourcing their billing and obtaining robust management reporting. Properly run, an outreach lab can account for more than 50% of a hospital s

3 earnings before interest, tax and amortization (EBITA), according to Chi Solutions. 4 Overall, the Chi Solutions survey reports that outreach revenue jumped by 22.5% during the most recent two-year period, or 11.3% annually. 5 An Outsourced Billing Solution Outsourcing through a qualified billing vendor allows laboratories to capitalize on growth opportunities by taking advantage of cost-effective billing and revenue management systems that can dramatically boost the speed, efficiency, accuracy and transparency of the billing process. Systems capable of integrating automated procedures and applying payor rules in the claims generation process reduce denials and regulatory exposure and also accelerate cash flow. Clean claims are generated through sophisticated rules and pricing engines that validate and automatically populate required demographic and charge information fields, then send erroneous or incomplete information to logical work queues for efficient corrections. Technology is the key to success, and having a billing platform designed specifically for the lab provides a clear advantage. Automation of the rules, edits and data requirements for specific payor claims known as conditionally processing eliminates the need for manual processing of exception lists and clearinghouse edit reports by comparing fields for matches to identify errors prior to submission. Required demographic information likewise is automatically checked against or extracted from historical patient paid claim data. In addition, all accessions and/ or unbillable line items are segregated for automated internal and external remediation. If the required information cannot be found through searches of existing files or databases, the system generates automatic fax information requests directed either to the physician, the patient or the client designee. Advanced technology also provides automated and continuous updates of system files such as CPT, ICD-9, NCD/LMRP and payor edits to help ensure accurate and compliant claims submissions. The benefits of outsourced A/R management benefits include: Billing and reimbursement management Complete and timely charge capture Line-item posting of charging and payments Managed care contract expertise and reimbursement tracking Fee-schedule optimization Gold Standard compliance program Customized client invoice formatting Client compliance statistics Multiple fee schedules/ discounting Net revenues and other key financial metrics are identified by automatically adjusting for contractual allowances and other payor discounts in real time. Regulatory compliance is supported through embedded compliance logic, monitoring and reporting. Capabilities that automatically prevent and/or correct the errors that lead to denials, delays and write-offs can have a dramatic impact on collections and cash flow.

4 Hard Data Aside from boosting and accelerating collections, one of the biggest benefits of an advanced billing platform and an outsourced billing solution is the transparency they can provide regarding the financial details of the laboratory. Net revenue that takes into account contract terms, conditions, allowances and discounts can be generated by type of service, by carrier and for the practice as a whole. Once net revenue is identified, the system can take into account expenses per test to produce a range of other key reports, including profitability by test, account or payor. Payor profitability data can be particularly valuable during contract negotiations. Access to detailed financial reports also is critical for budgeting, financial and strategic planning, tax preparation, banking relationships, insurance purchasing and investor disclosures. In the regulatory arena, advanced applications maintain up-to-date compliance rules and provide compliance audit logs and functionality to ensure timely and accurate documentation of payment claims, physician acknowledgement letters, annual disclosures, ABNs, indigent patient forms and the like. Taken together, these detailed reports provide managers and executives with previously unavailable business insight into productivity, daily volume, staffing and an array of other critical operational and financial components. The result is that laboratories are finally in a position to make knowledgeable, critical decisions about their business. The Human Factor As powerful as today s revenue management platforms are, the software like any information technology performs only as well as the people running it. Thus, it is important that laboratories contemplating an outsourced billing solution examine the experience level and capabilities of the team that will be responsible for overseeing billing operations and their A/R. Regular, ongoing training is important to ensure that billers working denials are fully informed about the latest regulatory requirements. Quarterly audits also should be part of the offering, so that individual performance can be monitored and sustained at the highest level. Because many billing decisions can be subjective in nature, a well-trained and fully informed workforce is essential not just to ensure full reimbursement but also to reduce compliance risk. It is also important that the thirdparty billing vendor provide services that extend beyond billing and A/R management to include client and sales force management. The ability to submit claims electronically is also a necessity in today s market. Finally, billing vendors should be able to provide ancillary services, such as credentialing assistance and consulting in contract negotiations with hospitals and payers. A Cost-Effective Solution The operational difficulties facing laboratories today are many. Few independent or hospitalbased labs possess adequate resources to effectively address these challenges on a day-to-day basis. To do so would require unsustainable staffing levels and significant investments in new technology. Outsourcing to a competent and experienced thirdparty, therefore, represents the most cost-effective way to meet the demands of today s difficult environment.

5 McKesson Business Performance Services McKesson 1145 Sanctuary Parkway Alpharetta, GA mckesson.com/labservices Copyright 2013 McKesson Corporation and/or one of its subsidiaries. All product or company names mentioned may be trademarks, service marks or registered trademarks of their respective companies. Outsourcing offers a noncapital solution to ease the burden of rising salaries and eliminate the often exorbitant costs associated with billing platform start-up and maintenance. Other overhead components associated with infrastructure that are eliminated include: Billing staff expense IT staff expense Clearinghouse expense Printing, mailing and other supplies Business office rent Utilities By partnering with a qualified vendor, groups can expect to not only cut costs but also significantly increase the percentage of clean claims, drastically reduce denials, increase revenue and gain an entirely new level of understanding of the key metrics of their business. These advantages, in turn, can open the way for improved strategic planning and new growth opportunities. 1. Chi Solutions Outreach Industry Trends, March 2008, com/images/cmsupload/file/031908_ Murphy_Outreach Industry Trends_ Gateway Group.pdf 2. Chi Solutions Inc., Lab Budgeting and Financial Management Basics, Sept 17, 2008, images/cmsupload/file/091708_root_ LabBudgetingandFinMgmt.pdf 3. Chi Solutions Inc., Sixth Comprehensive National Laboratory Outreach Survey 2007, cmsupload/file/042607_murphy_6th OutreachSurvey Results_Outreach Conf.pdf 4. Chi Solutions Inc., Outreach Industry Trends, March 2008, chisolutionsinc.com/images/cmsupload/ file/031908_murphy_outreach Industry Trends_Gateway Group.pdf 5. Chi Solutions Inc., Outreach Industry Trends, March 2008, chisolutionsinc.com/images/cmsupload/ file/031908_murphy_outreach Industry Trends_Gateway Group.pdf 09/2013-ORMC