The decision to change an existing medical billing model should not be taken lightly. Even the best case scenario involving a change to/from an in-house or outsourced medical billing model will involve some degree of short term cashflow disruption and we won’t even bring up the worse case scenario.
A health care provider’s initial step is always to determine whether his/her current medical billing model is achieving the desired financial result. Although financial analysis is past the scope of this discussion, the provider, accountant or any other financial professional must have the ability to compare actual financial data to revenue and operating budgets. Assuming the integrity in the practice’s financial information is intact though accurate and timely data entry, the provider’s medical billing software should have the capability of generating actionable management reports.
Ultimately, basic financial analysis will shed light on the weaknesses and strengths of the provider’s medical billing model. Some points to consider when evaluating a medical billing model: the inherent strengths and weaknesses of in-house and outsourced medical billing models; the provider’s practice management experience & management style; the regional labor pool; and medical billing related operating costs.
In-house versus Outsourced Models
No medical billing model is without unique advantages and pitfalls. Think about the in-house medical billing model. Approximately one third of independent healthcare practices utilizing an on-site medical billing model experience cash flow issues starting from periodic to persistent. The amount of action essental to a provider to resolve his/her cashflow issues may range between a basic adjustment (adding staffing hours) to your complete overhaul (replacing staff or switching for an outsourced medical billing model).
The provider with the under performing in house medical billing model includes a clear edge over the provider having an under performing outsourced (also known as alternative party) medical billing model: proximity. An in house medical billing model is within walking distance. A provider has the ability to observe, assess and address – observe the process, measure the system’s strengths and weaknesses and address issues before they become full blown problems.
Think about the provider with an outsourced medical billing model. The relatively low entry barriers in the alternative party medical billing industry have triggered a proliferation of medical billing services scattered throughout the United States. Odds are the provider’s medical billing service is located in another geographic area making upfront observations and assessments impossible.
The role of management reporting in a third party medical billing model is essential. A provider must regularly review charge entry, posting, write offs and account receivable balances to insure his/her income is correctly managed. A study as basic as 30, 60, 90 days in receivables will quickly provide a provider a great idea of methods well their medical billing and account receivable processes are managed by a 3rd party medical billing service.
A standard mistake for most providers with an outsourced medical billing model would be to gauge the potency of this process within the very temporary, i.e. week to week or month to month. Providers maintain a vague and informal sense of their cash flow position by maintaining mental tabs on the checks they received this week versus the prior week or maybe they deposited as much money this month as last month. Unfortunately once a weakened cash flow gets the provider’s attention a lot larger problem may be looming.
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What may cause a decelerate in cash flow inside the outsourced medical billing model? By far the most commonly cited scenario is absence of follow-up on the area of the medical billing service. Why? Like every other business, medical billing companies are involved first and foremost using their own cash flow.
A billing company generates 99.99% with their revenues on the front end in the billing process – the information entry process that generates claims. Billing firms that devote most of their manpower to data entry will be understaffed on the back end from the billing process – the followup on unpaid claims. Why? Every hour of web data entry generates an extra one to two hours of claim followup. Unfortunately for that provider, a billing company that ignores does not devote enough manpower towards the diligent follow up of 30, 60, 90 days in receivables can mean the main difference from a provider building a profit or suffering a loss during any given time.
Practice Management Experience & Management Style
Providers with practice management experience will be able to effectively manage or recognize and resolve an issue with his/her billing process before the cashflow crunch gets out of hand. On the other hand, providers with virtually no practice management experience will much more likely allow his/her cash flow to arrive at a vital stage before addressing or even recognizing an issue even exists.
Whether a provider with billing issues chooses to retain and repair their current model or implement an entirely different billing model will be based to some great extent on his/her management style – some providers cannot fathom having their billing staff out of sight or ear shot while other providers are completely at ease with turning their billing process to a third party service.
Local Labor Pool
Whether a provider chooses an on-site or outsourced billing model, an effective medical billing process remains contingent on the people involved in executing the medical billing process. On the side note, choosing office staff for the in-house model is a lot like choosing a 3rd party billing company. Whatever the model, a provider would want to interview the potential candidates or an account executive in the alternative party billing service for experience, motivation, team oriented personalities, highly developed communication skills, responsiveness, reliability, etc.
Providers with an in house model will have to depend on their human resource and management techniques to attract, train and retain qualified candidates from the local labor pool. Providers with practices located in areas lacking qualified candidates or without any want to get caught up with human resource or management responsibilities could have no other choice but to choose an outsourced model.
Medical Billing Related Costs
As a businessman, the provider’s primary responsibility would be to maximize revenues. A responsible company owner will scrutinize expenditures, analyze returns on investments and reduce costs. In an on-site model, costs associated with the billing process range from the web access employed to transmit states to the office space occupied through the billing staff.
The best way to manage billing costs is made for the provider to think about the sum of those costs as being a portion of the practice’s revenues. The provider’s accounting software should allow for him/her to classify and track billing related costs. After the billing related expenses are identified, dividing the amount of the costs by total revenues will convert the costs to a amount of revenues.
The exercise of converting billing related expenses to a amount of revenues accomplishes three things: 1) will get the provider, business manager or accountant in tune using the billing related costs from the practice; 2) offers a grounds for more in depth research into the practice’s cost and revenue components; and 3) enables easy comparison between the cost impact of the on-site versus outsourced models.
The price of an outsourced model is fairly easy. Because the fees of nearly all outsourcing services look like a portion of any provider’s revenues, the annualized cost of the medical billing service’s fees is a fairly close approximation from the provider’s billing related costs for this particular model.
In the event a provider is considering an outsourced model, he/she should remember that this model is not necessarily the silver bullet to ending all billing related costs and headaches these services fxbgil to advertise. True the billing company will acquire a few of the expenses associated with the process but the provider will still need staff to act because the intermediary involving the provider’s office and billing service, i.e. someone to transmit data to the billing service.
Costs will further increase for the provider in the event the billing service charges additional fees for add-on services like on the web use of practice data, practice management software, management reports, handling patient inquiries, etc. The specific price of the service will increase much more if claims 30, 60, 90 in receivable are not properly worked to facilitate adjudication.
In conclusion, the provider must carefully weigh the pros and cons of every model before you make a determination. When the provider is not really comfortable or experienced analyzing financial data he/she must enlist the expertise of a cpa or other financial professional. A provider must realize the costs and also the inherent advantages and disadvantages of every billing model.
Providers employing an on-site model need to understand the true cost of their process. Determining the real cost not only requires accurate financial data and accounting but an unbiased evaluation in the elements of his/her current process, i.e. technology and staff. Why? Outdated technology, under staffing, turnover, or unqualified staff may play a role in the appearance of a low cost of ownership but those shortcomings will ultimately result in a lack of revenues.
In the event a provider is determined to utilize a 3rd party billing service, he/she should invest enough time to thoroughly familiarize him/herself with the outsourcing industry before interviewing prospective billing services. The provider must understand the hidden expenses related to the outsourced model in order to make an educated decision.