Should a Physician Practice Outsource their Medical Billing?

August 13, 2010 in Blog, Uncategorized by support Team  |  Comments Off on Should a Physician Practice Outsource their Medical Billing?

I have visited in hundreds of Physician Offices and seen a wide range of billing operations. Physicians have a very difficult job to stay current on diseases as well as medical treatments. The world of medical/insurance claims and practice management changes daily with new rules for rejecting claims as well as changes on how to bill (e.g. see article on “billing options for flu clinics”). Insurance companies invest in ‘scrubbers’ and software products that reject claims based on certain rules. These rules change constantly. There are vendors that create software for Insurance Companies with these claim edits. I have met and seen these systems at the vendor display area of the American Health Insurance Plans (AHIP) annual conference. Sales representatives for software vendors with this claim logic system sell to insurance company executives the amount of money their system can save an insurance plan. Insurance executives are very aware that many billers for Physician Offices do not resubmit claims. Insurance companies utilize these systems and some have probably denied what most would consider appropriate claims. For example, the courts provided a judgment in 2010 against United Healthcare for using a software system that rejected many insurance claims that should not have been rejected.

Unfortunately, many owners of practices are losing thousands of dollars each year due to their billing system. Worse, most are not aware that they are missing this revenue. For example, a practice that generates $1,000,000 in total yearly revenue might feel that they are doing well. Usually, I would ask a physician partner or practice administrator, “What is your collection rate of the contract insurance amount?” Many practices are unaware what their collection rate of the contract amount. Benchmarking organizations like the Medical Group Management Association (MGMA) consider collecting 95% of the contract amount for all claims to be ‘good’. This would mean that if the practice brings in $1,000,000 per year in receivables that the practice is unable to collect $50,000. This $50,000 is usually insurance claims and/or patient statements that poor billing systems/operations miss. At Doctor Office Management, Inc, using the PhysicianXpress system, we have a system that benchmarks to 99% of the contract amount. So far, we have been able to achieve this benchmark for our billing clients.

Many software systems used for Medical Billing are difficult for a physician partner to answer these simple questions. Additionally, ‘drilling down’ or ‘spot checking’ might not be possible for a physician partner to view specifics on a claim as needed. I have been in physician offices for which the providers are very knowledgeable on Medical diseases, treatments and have invested much in their facilities and equipment but their billing systems that are based on technology from the 1980s or 1990s. Since insurance rules change, in some cases, monthly, using a ‘dated’ system places the complete burden on the billing staff and practice managers. Even if the billing staff and practice managers for a practice are top in their field, they would not have the time & resources to stay current with the insurance claim edits.

Speaking of billers and practice Management, there are many questions a physician partner needs to insure if they choose to perform billing and patient statements with their own staff. Some of these questions include: Do the billers and management have the depth of skills for today’s insurance climate? Can all the billers explain the difference between a 99213, 99214 and 99215? Are there formal SOPs in the practice which includes an audit system? How much redundancy occurs in the operation? Does the practice check the billers work and provide feedback? If not, how much revenue is being lost that the practice owners are unaware of? Does the practice management have the skills to interview and constantly check on the performance of the billers? Is the practice able to bring in new talent that utilizes the latest or is there a system to improve the skills sets for the billers? Does the practice establish benchmarks for ‘good’ performance? What type of feedback loop does the billing team use to communicate with the other stakeholders and influencers of the revenue cycle (providers and front desk)?

There has been a dramatic shift in design of insurance policies in the last twenty years. Billing and patient statements were very predictable when most of the insurances were 80/20. Today, most insurances are PPOs/HMOs with <5% that pay the entire billed amount. More and more patients have high deductible plans as well as plans that limit the number of well checks per year. The revenue cycle is constantly changing. Benchmarking is difficult to do with one physician office. MGMA has a strong benchmarking history in practice management. In some of the highly regarded revenue cycle courses they provide benchmarks. One important benchmark is how many days of Accounts Receivable (AR) does the practice have outstanding. If the practice bills on average $1000 (evaluate over 1 year of time) and the practice has $60,000 in AR then the AR days are 60. MGMA sources show that 60 is the average for a practice and better the 40 is ‘good’. Using the PhysicianXpress system, Doctor Office Management, Inc. benchmarks 30 AR days as ‘good’. This is 25% higher benchmark than MGMA groups provide.

From a cost stay point, a physician office needs to be able to identify the salary paid to the biller, the time needed per month for management (whether the physician partner manages or a practice manager), benefits, taxes, office space, training and time for hiring replacements if the biller leaves, is sick for extended period of time or underperforms. Additionally, there is a cost for postage, maintaining the computer, office area, phone lines, and supplies of the biller. There are many articles by the Business Process Outsourcing (BPO) groups that provide further background and depth related to Medical Billing Outsourcing as well as how to determine if a practice should outsource. One good article I found on the subject is

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