Anthony Reino, M.D., knows he makes his money by working in the operating room as a plastic surgeon, not by sitting at his desk reviewing his accounts receivable. That's why the solo practitioner, with offices in New York City and New Rochelle, N.Y., was happy to hand over his billing operation to Healthcare Transitions Management in Babylon, N.Y., two years ago.
"A full-time, in-house billing person costs at least $35,000 to $40,000 a year," says Reino, "and I'm paying less than that to HTM."
Not only did his costs go down, but Reino's collections improved. Recently, his greater-than-90-days accounts receivable for his office practice was less than $440, and his average turnaround time for payment was 45 days. The average turnaround time for medical practices' accounts receivable is 76 days, according to the 1999 Cost Survey by the Medical Group Management Association.
Reino declines to say what his receivables were like when the function was done in-house, but he does say it was "scaring" him. "Your agita level is so much less when you outsource, it's unbelievable," he says.
Reino, who sees nearly 2,500 patients annually and has annual practice revenue around $350,000, adds that "billing has become so complex, you really need some entity doing it 24 hours a day, seven days a week and that knows the ins and outs of all the coding and how to get things approved by the insurance companies."
Billing is just one of many functions that physicians are outsourcing today as they attempt to refocus their attention on the delivery of care and eliminate much of the extraneous activity of their practices.
"The benefits of outsourcing are cost containment, though not necessarily reduction, the ability to focus on the core business, and the ability to get resources (such as skilled labor) in areas where there is a shortage of resources," says Howard Lackow, outsourcing practice managing director of Transition Partners Co. in Reston, Va., which provides outsourcing consulting to many industries.
Lackow says that as a general matter "outsourcing used to be a dirty word, but now it's a legitimate profession." The rapidly changing pace of business, coupled with a shortage of skilled workers, has made outsourcing an increasingly popular tactic for American industry, especially in the past few years.
While many industries outsource some functions, Lackow says healthcare has been a leader of the trend, with hospitals, for example, outsourcing everything from janitorial and cafeteria services to building and grounds maintenance and emergency department staffing.
Typically, medical groups have outsourced a smaller part of their business office activity. A 1997 survey by the National CPA Health Care Advisors Association showed that 72% were doing billing and collection in-house. Today, however, medical organizations are taking a second look at outsourcing for such things as bill collection, payroll, transcriptions and information technology systems.
"Certainly, healthcare is trying to reduce costs, and one way to do that is to find more cost effective and efficient ways of providing the services that are not core to healthcare," Lackow says.
"In the past, everybody thought they were so unique and had to do everything themselves, so outsourcing was viewed as trying to get rid of things people didn't want to do (in-house). But outsourcing is a strategic business practice."
Rubin Harris, M.D., one of six hospitalists who comprise Physician's Inpatient Care in Austin, Texas, agrees that outsourcing has many benefits. Because the group doesn't have an office practice, in January the practice began outsourcing its billing to Reliant Healthcare Solutions, also in Austin. Reliant processes all necessary paperwork, follows up on claims and has increased the hospitalist group's accounts receivable to approximately 75%, which is 10% higher than it was with the company they previously used.
Reliant was formed in June 1999 by two women with 27 years of healthcare management experience. It has five employees and seven physician clients, though it expects to double in size during the next year. Co-owner Paula Rentiers says her company is selective about accepting clientele and won't work for emergency room physicians because they don't want the liability of coding, which ER doctors often want billing companies to do.
Harris especially likes the detailed reporting that Reliant provides, which includes demographic information, records of payer sources, amount of indigent care that is not reimbursed and physician referrals to the group. Harris and the other physicians would never have time to compile this data.
Physician's Inpatient Care also outsources its credentialing and managed care contracting to a woman who works out of her home for them and other physicians.
"It is such a hassle to get your transcripts sent," Harris says, "and this woman has all our data on her computer, so it's a lot easier for her to do it."
He notes that working with a home-based businessperson for this outsourcing function is acceptable because most of the paperwork is not time-sensitive.
"It's not something you need every day, so if her kid gets sick (or something else delays the paperwork), it's not a big deal." But for billing, Harris prefers a larger company with more people dedicated to his group's account.
Susan Goldberg, a practice management consultant with American Express Tax & Business Services, in Deerfield, Ill., says many physicians outsource their payroll, accounting, photocopying and collections functions. But she cautions that some billing companies don't want to do anything that involves a lot of paperwork, such as worker's compensation claims, which often involve attachments, manual rather than electronic claim filing, notes from doctors, operative reports and distribution of paperwork to several sources such as adjustors, case managers, the patient's employer and the insurance company.
Goldberg foresees more information technology being outsourced. "Some billing companies give physicians their software and then dial into the doctor's office to do their work," she explains. "This is attractive because if a physician decides to bring the work back in-house, they have control over the data."
Many physicians also use an application service provider (ASP), which is an outsourcer that can offer Web hosting, physician practice management software and other applications, such as billing software. Physicians can rent the technology from the ASP, which keeps costs down and ensures access to current technology.
"Even a group of 50 physicians is not able to track the human resources talent to set up, fix and tweak a state-of-the-art information system, and they shouldn't," says Lawrence Benson, president and CEO of Practice Partners, an ASP and outsource provider based in Toledo, Ohio. "It makes sense economically to outsource, especially billing. It is not a mission-critical process to the laying on of hands and treating of sick people, which is the core business of physicians."
Benson also is aware of outsourcing companies that take care of recruitment, development, discipline and payroll for physician offices. "A physician can lease the entire office staff, setting up criteria for the (type of) people they want. It's cheap to give that (function) away," rather than pay the expenses of advertising job openings, training new employees and being involved in other traditional human resources functions.
San Jose, Calif.-based Electronic Health Infor-mation, formerly MED-COR, helps physicians with chart assembly and completion, coding, file room management, and retrieval and release of information. EHI can place full-time staff in a physician's office or have an EHI staffer visit a physician office once a week to perform these services. The company has 500 clients nationwide.
"There are not normally enough requests for information to make it a full-time position," EHI President and CEO Jim Killin explains. "So we add on other services, such as file management or front desk help, to make that a full-time person in the office."
Killin says physicians outsource these functions to EHI so the outsourcing company, not the medical practice, has to worry about the problems involved in hiring, training and retaining good staff. "A lot of people outsource administrative functions because it's less expensive and takes less time than having to interview. This labor market is fairly tight, and it's hard to find people at a clerical level."
EHI provides two to six weeks of pre-onsite and onsite customer service training, so employees placed by EHI are familiar with medical records terminology and assembly, and reading charts.
EHI electronically transmits coding requests between physician offices and EHI's coding division, with turnaround for most outpatient settings averaging 24 to 48 hours.
McKessonHBOC's Outsourcing Services Group in Somerset, N.J., focuses on information technology and revenue cycle generation for physicians. It provides software and services to 23 groups encompassing 4,500 physicians.
"A lot of physicians who became part of big multispecialty groups got tainted on outsourcing," says Derek Pickelle, the division's vice president and general manager. "But as you get all the regulatory requirements that will be forced on everyone, it's going to force physicians to do more centralization and standardization."
Pickelle knows that physicians like to be in control, so handing over some of their functions, and especially their data, can be uncomfortable. "A lot of physicians feel almost that they've failed at something if they don't do it themselves," he says. "But we show them they can have more control. We give them management reports with executive summaries outlining areas they need to address, such as coding issues, which are things physicians aren't doing on their own."
Depending on how well the physician's office was functioning before outsourcing, the reaction of permanent staff may vary. They may feel either happy to let go of one burdensome task to concentrate on something else or they may be bitter that part of their job was taken away. But outsourcing companies note that physicians should clearly communicate their outsourcing decision to employees and suggest not outsourcing a function that is being handled well in-house.
Pickelle expects even more functions to be outsourced due to technological advances. He says the Internet will be used as a way to send and receive referrals, claims, radiology results and more. Companies like McKessonHBOC can provide the technological expertise, on an outsourced basis, to keep physicians up-to-date, he says. Other companies in this sector include Southfield, Mich.-based Superior Consultant Co., Hunt Valley, Md.-based Innovative Outsourcing and Denver-based MC Informatics.
Harris cautions physicians looking for an outsourcing firm to do their research carefully and ask colleagues for references, even though some physicians are reluctant to admit having had a bad outsourcing experience. And he stresses asking a billing company whether it has ever had problems with Medicare audits because physicians are liable if their billing company does something fraudulent. Medicare claims, he notes, are often returned for further explanation or downcoding.
Peter Bendor-Samuel, publisher, editor and CEO of OutsourcingCenter.com, says the contract should quantify exactly what is expected from the outsource company-- how fast bills will be collected, for example--and specify penalties (including contract termination) if the company's results do not match what is promised. Bendor-Samuel's Web site provides resources for finding and structuring outsourcing arrangements, including a copy of a standard outsourcing contract.
"Outsourcing can be a tremendous reduction in costs and improvement in performance," Bendor-Samuel says. "But there are many suppliers out there that won't provide that if you don't know how to manage them."
Goldberg says the outsourcing company should have a compliance plan that physicians can review. And she emphasizes that physicians should always have access to their own data, which can best be accomplished by keeping the data on their own computers and letting billing companies dial into the physician offices to do their work.
Pickelle says the outsourcing company and the physician should set realistic performance expectations. He also suggests that physicians chose a stable organization that has a proven clientele and references that are the same size group as they are.
There are many ways to pay an outsourcer. Harris suggests giving a billing company a flat fee plus a percentage of collections, which provides a guarantee to the company as well as an incentive to collect all money due.
Goldberg says most physicians pay 5% to 10% for billing, with an average around 8%. She emphasizes that the costs vary depending on the type of claim, marketplace and state regulations.
McKessonHBOC allows physicians to pay either a higher base rate per claim or a lower base rate with an incentive based on collections.
EHI charges between 75 cents and $2 per patient (or sometimes per page) for scanning and transmission of records. Coding costs $2 to $5 per transaction. Labor services usually charge an hourly rate, though the rate can be monthly depending on the market and labor demands of the area.
Overall, physicians and outsourcing companies agree that outsourcing a function doesn't mean physicians can totally disregard it.
"Too many times, physicians hand things over to a company and as long as they get a check, they're not paying attention," says Goldberg. She advises physicians to make sure billing companies make a serious effort to collect all money. "The bulk of the money will come in if you file for it. It's the other money that differentiates the service--the money that takes a lot of follow-up and phone calls. And that can make or break a business."
Robin F. DeMattia is a freelance editor and writer based in Fauquier County, Va.