Outsourcing billing eases major practice hassle

Take time in selecting business partner

How many of your physician practices have gone through five or six billing clerks in the past two years?

Eventually, an administrator throws up his or her hands and says, "Enough is enough." One solution your practices may want to consider is outsourcing the billing and collections function. Finding the right billing and collections firm can allow the administrators you work with to move on to other management issues.

Financial considerations are another reason practices are taking a new look at outsourcing. Many practices are feeling the pinch of lower reimbursements from Medicare, Medicaid, and HMO patients. They are trying to lower their costs of business — including costs of billing and collections. If they can’t do this efficiently in-house, they may be able to cut their costs through outsourcing.

Outsourcing makes sense for small practices, such as those a hospital might create, says Emmett "Butch" Hartsock, administrator for Beckley (WV) Hospital. When his hospital began developing a multispecialty practice last year, Hartsock decided to outsource the practice’s billing function.

In small-group and solo practices, it’s difficult to provide a clerk with the necessary continuing education, Hartsock says. But because the clerks are billing tens of thousands of dollars each month, having undereducated employees can be risky.

For a large practice, outsourcing makes less sense. Hartsock says if his practice were large enough he would probably keep the billing and collections function in-house. A large practice is able to hire a chief billing clerk to oversee the operation. Large practices also can afford to pay for billing clerks’ ongoing education, he says.

But outsourcing can be cost-effective if you can find a firm with experienced clerks who are adequately supervised. That is what Hartsock sought once he decided to outsource his billing and collections.

Almost every administrator has heard the horror stories about a billing firm that either isn’t competent or isn’t ethical in its business practices. No matter what the reason, if your billing and collections function isn’t running smoothly, cash flow problems can mount quickly and threaten your practice’s fiscal health.

So how do you find the right billing and collections firm?

The approach most administrators take is too basic, warns Barbara Pilborough, a billing and collections consultant with Philadelphia-based Parente Consulting. Many just pick up the phone book to see who provides billing services. Referrals provide a better source of leads and are likely to yield more reliable results, she says. Make sure they come from someone whose judgment you trust, not just a casual acquaintance.

If you don’t have reliable referrals, a good starting point is the Bethesda, MD-based International Billing Association. This is the trade association for companies that provide billing services to medical practices, says billing and collections consultant Robert Burleigh of Malvern, PA. "You can call the association and request a list of members in the state or region where your practice is located," he says.

It is important to know that while the association is a good source of potential candidates, it does not serve as a watchdog of its members, and it does not endorse them, Burleigh warns.

It’s also a good idea to consult the Better Business Bureau in your area to determine whether complaints have been filed against candidates, says Pilborough.

Once you have identified possible candidates, scrutinize them carefully. Practices usually do not spend enough time choosing a billing firm, Pilborough notes. A billing firm should be viewed as a long-term business partner. Find out as much as you can about the firm. At a minimum, you should find answers to the questions in Pilborough’s checklist (see checklist, above).

It’s also wise to assess the company’s finances by reviewing Dun & Bradstreet reports on the firm. Also, check to make sure bonding is available. Place the company under bond before hiring it to handle your receivables.

Once you have narrowed the field of candidates, settling on the right one is a matter of deciding which vendor services you want and how much you will pay for them.

Some practices simply want a vendor to help them submit claims and enter data into their billing information systems. In that case, the vendor is provided with copies of the practice’s encounter forms and requisite demographic data.

The vendor takes responsibility for submission of claims to the appropriate payers and posts charges to patient accounts. Afterward, the vendor sends the information back to the physician office for collections work. Practices that go this route like to have a high degree of control over the way their patients are approached in collections efforts, says Pilborough.

"Some physicians are very touchy about their patients, and they fear that something will fall through the cracks," she says. "They are concerned that a patient they have cultivated for years will get collection letters somewhere along the line. So they like to control their collection process."

Most practices that contract for services opt to have the vendor do collections as well, says Pilborough.

Many practices view collections as a colossal headache because it is difficult to find and retain staff members who are motivated, says Monticello, IN-based consultant Michael Berry. They will gladly turn their collections over to an outside firm as long as they are assured the results will be good and the work will be done in a professional manner.

For those practices that contract for both billing and collections services, it is important to ascertain what access office staff will have to patient account records. If a practice wants its staff to answer patient billing inquiries, make sure there is access to accounts and that it will be timely.

Contract for percentage of collections

While flat-fee billing and collection contracts can be found, it is generally desirable to contract for the vendor to be paid on the basis of some percentage of fees collected, says Pilborough. In that way, the practice is assured the vendor is motivated to do a good job of collecting on accounts.

Some vendors will require some annual minimum amount of collectible fees and/or multiyear contracts. For example, Physicians’ Revenue Management of Chattanooga, TN, contracts with practices with annual collectible fees exceeding $500,000. Typically, a three-year contract is required. It may be possible to negotiate a trial period with a vendor, particularly if the practice’s annual billing volume is higher than that of the vendor’s average client.

The percentage charged by a billing firm generally ranges from 5% to 10% of collected fees, Pilborough says, depending on the local market, the experience of the vendor, and any additional services the vendor has been asked to provide.

As an example of additional services, Hartsock says the billing firm he uses is able to provide consulting services. "Any time a managed care contract comes across our desks, we can give it to [the vendor] and they provide an assessment of how it will affect our practice’s CPT codes," he says.

Hartsock strongly recommends that any such relationship be clearly defined in the contract between the vendor and a physician practice. "You want to know exactly how much access you have to that company’s advice and consulting service," he says.

It also is important to understand how hardware costs affect the rate paid to the billing firm. "A portion of that percentage depends on how much computer hardware they install at your facilities," says Hartsock. If a practice can’t afford to buy the equipment up front, the vendor will foot the bill. Of course, the vendor recoups its investment by increasing the percentage of the practice’s collections it receives. "That’s when you get up into the 10% or 11% range," Hartsock notes.

The hardware and software installed at the site usually allow the client to check the status of its receivables, but not to enter data into the billing system (other than changes to patient addresses and phone numbers).

The contract also should be clear on what happens to hardware and cabling at the end of the contract term, Hartsock says. If you want that equipment at the contract’s termination, make sure the contract says it will become your property. If you don’t want it at contract’s end, make sure that is reflected in the contract’s price structure.

[Editor’s note: The International Billing Association can be contacted by calling (301) 961-8680.]