Collections got you down? Outsourcing may help

Measure your performance to make best decision

Many chief financial officers in hospitals around the country are not happy with the collection rates at their facilities. And that’s not good news for managers who direct patient financial service operations.

But there is a possible answer, and one more hospital financial leaders are willing to try — outsourcing the collections functions. (For details of a study of the attitudes of chief financial officers, see story on p. 4.)

Health care consultant Bobette Gustafson says there’s a simple way for hospitals to determine if outsourcing — what she calls "outpartnering" — is right for them.

"If an outside vendor can deliver the same or better results than you are currently experiencing, for less money, then you have no choice but to outpartner," says Gustafson, president of Gustafson & Associates in Naperville, IL.

Access managers called upon to help make that decision need to determine how much their department is collecting, when and how much is going to bad debt. "You have to know what your current performance is, and then you have to be able to determine in an objective way how much it’s costing you to provide that performance," she says.

In an outsourcing situation, it’s important to ensure both shared risk and shared reward, says Gustafson, who helps clients assess the feasibility of outsourcing arrangements, and select outpartners if they decide to go that route. "If my outpartner says they will be able to match the collection recovery I am experiencing and they don’t do that, they have to be willing to make up the difference — that’s their risk," she explains. "But if the outpartner returns a greater result, they should be rewarded for that, through incentive or bonus."

A thorough analysis of outsourcing examines a variety of issues, all the way from preregistration to bill submission, and each must be examined from the standpoint of potential opportunities vs. potential risks.

You also must look at outsourcing from a customer service perspective, finding a partner that will treat the patient with dignity and offer several payment alternatives, Gustafson says.

Selecting an outpartner should be a very deliberate undertaking, with a request for proposal (RFP) process that is just as comprehensive as buying a new computer system, she advises. Partners should prove they have the technology to support the job, the financial strength to sustain the relationship, and the human resources skills to work successfully with patients, Gustafson says.

"To give a very basic example, if an outpartner does not understand insurance benefits — why the patient owes what they owe — and can’t explain that, how can they possibly be a good partner?"

She suggests providers take the following steps before contracting with an outsourcer:

Make site visits to the outsourcer’s place of business and to several locations where services are being provided.

• Check references extensively.

Make sure the outsourcer is willing to negotiate fee structures, incentives, and disincentives. You want a company that is willing to work with you, not one that only does things its way.

Outsourcing collections is still quite rare among nonprofit hospitals — although more widespread among for-profits — but it’s not because outsourcing isn’t a viable alternative, Gustafson contends. Rather, providers are hesitant to take the plunge.

It’s a plunge they very much need to take, she suggests. "[Health care providers] have got to get out of the self-pay financing business," Gustafson says. "Traditionally they have never been good at it, it’s distasteful to deal with, and they don’t have the people they need to pursue this tiny part of their business, which is getting smaller with managed care.

"Why put so much effort into something that has so little reward?" she asks. "Why do it when there are experts for whom that is their entire business?"

Personalized approaches

Also remember that when outsourcing collections, one method does not fit all. Work with the company doing the collecting to fit the method and message to the image you want to project about your hospital.

Some providers want a softer, more personal touch, says Carol Mark, president of Outsource Partners Inc. (OPI), a San Diego-based company. A softer approach might include a couple of telephone calls asking the patient questions like, "How was the service you received?" and "Have you received your bill?" and then, "Can we help you with a payment schedule?"

Hospitals may specify that no demands be made, and that the firm accept such arrangements as $5-a-month payments, Mark says. Other institutions want to get right to the point on the first call, asking patients how they intend to pay the bill. By the third call, patients are told if they don’t pay by a certain time, the account will be turned over to a collection agency, she explains.

"We work with [the provider] on how they want to tailor the message," Mark adds. OPI normally keeps an account no more than 120 days. If it’s not paid by then, it’s assigned to a collection agency or written off as bad debt.

Companies that handle collections tend to specialize in a particular segment, such as self-pay accounts more than 90 days old, for example, Mark says.

She could provide no hard data on her own company’s results. She says the general rule regarding outsourcing is that hospitals should expect at least a 20% increase in productivity — meaning that for the same dollars paid out, they should see 20% more results than if they did it themselves.

Hospitals considering outsourcing should ask for a detailed cost analysis, and sit down and really talk with the principals of the company. "Find out how they operate and what their feelings are about customer service, and get a detailed plan of how everything would work," she says.

Mark became interested in the field when, as vice president of patient financial services for SharpHealth Care in San Diego, she looked into outsourcing.

"My working on this project showed me this was a really tremendous field, a great product," she adds. "It’s an industry trend right now, going along with the idea that industry as a whole — and certainly health care — is undergoing revolutionary changes."

CFOs like idea of outsourcing receivables

Improving cash flow is appealing

Most hospital chief financial officers don’t think much of their existing business offices and would consider outsourcing their receivables, according to a recent survey.

Even though they indicate only average results with previous receivables outsourcing projects, most CFOs — nearly 88% of those responding to the survey — said they would consider outsourcing because of a need for cash and their unhappiness with their existing business offices.

CFOs who responded to the survey conducted by Zimmerman & Associates, a Milwaukee-based health care consulting firm, said they were looking for better cash flow, a reduction in their present cost of managing receivables, and increased patient satisfaction. They placed nearly equal emphasis on all three aspects.

Half the survey respondents indicated that their business offices were performing below their expectations. Only 9% of respondents felt their business office staff was "most effective." Eighty-four percent of the CFOs felt their business office staff was either somewhat ineffective, average, or only somewhat effective.

Of the CFOs who have had some experience with receivables outsourcing, most give the firms they have worked with only average marks. But because of need for faster collections, they indicated a willingness to consider one-time (cleanup) projects, partial outsourcing of some financial classes of their receivables, or total outsourcing of the entire business office.

Looking at outsourcing by type of service, 31% of the CFOs said they would consider any outsourcing arrangement, 29% would consider outsourcing partial business office services, 22% would consider one-time projects such as accounts receivables cleanup, 6% would consider complete business office outsourcing, and 12% expressed no interest in outsourcing.