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 calls for some degree of temporary cashflow disruption and we won’t even bring up the worse case scenario.
Any adverse health care provider’s first step is always to determine whether or not 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 other financial professional must have the ability to compare actual financial data to revenue and operating budgets. Assuming the integrity from the practice’s financial data is intact though accurate and timely data entry, the provider’s medical billing software should hold the ability of generating actionable management reports.
Ultimately, basic financial analysis will shed light on the good and bad points of the provider’s medical billing model. Some things to consider when looking for a medical billing model: the inherent weaknesses and strengths of in house and outsourced medical billing models; the provider’s practice management experience & management style; the local labor pool; and medical billing related operating costs.
On-site versus Outsourced Models
No medical billing model is without unique advantages and pitfalls. Consider the on-site medical billing model. Approximately 1 / 3rd of independent health care practices utilizing an in house medical billing model experience income issues ranging from periodic to persistent. The amount of action necessary for a provider to settle his/her cash flow issues may vary from a simple adjustment (adding staffing hours) to a complete overhaul (replacing staff or switching with an outsourced medical billing model).
The provider with an under performing in house medical billing model features a clear edge on the provider with an under performing outsourced (also known as 3rd party) medical billing model: proximity. An on-site medical billing model is within walking distance. A provider has the chance to observe, assess and address – notice the process, evaluate 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 from the third party medical billing industry have led to a proliferation of medical billing services scattered throughout the United States. Chances are the provider’s medical billing service is situated in another geographic area making first hand observations and assessments impossible.
The role of management reporting in a third party medical billing model is crucial. A provider must regularly review charge entry, posting, write offs and account receivable balances to insure his/her cash flow is correctly managed. A written report as basic as 30, 60, 90 days in receivables will quickly offer a provider a wise idea of how well their medical billing and account receivable processes are managed by a 3rd party medical billing service.
A typical mistake for many providers having an outsourced medical billing model would be to gauge the effectiveness of the process in the very temporary, i.e. week to week or month to month. Providers keep a vague and informal sense of their cash flow position by keeping mental tabs on the checks they received in the week versus the prior week or if perhaps they deposited just as much money this month as recently. Unfortunately once a weakened cashflow receives the provider’s attention a much larger problem might be looming.
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What may cause a slow down in cash flow within the outsourced medical billing model? By far the most commonly cited scenario is lack of followup on the portion of the medical billing service. Why? As with any other business, medical billing companies are involved first and foremost making use of their own cash flow.
A billing company generates 99.99% with their revenues on the front end of the billing process – the data entry process that generates claims. Billing firms that devote most of their manpower to data entry will be understaffed on the back end of the billing process – the followup on unpaid claims. Why? Every hour of web data entry generates an extra 1 to 2 hours of claim follow-up. Unfortunately for the provider, a billing company that ignores does not devote enough manpower for the diligent followup of 30, 60, 90 days in receivables often means the real difference from a provider making a profit or suffering a loss during virtually any time.
Practice Management Experience & Management Style
Providers with more experience management experience will be able to effectively manage or recognize and resolve an issue with his/her billing process before the cash flow crunch gets out of control. On the contrary, providers with hardly any practice management experience will very likely allow his/her income to arrive at a crucial stage before addressing or perhaps recognizing a problem even exists.
Whether a provider with billing issues chooses to retain and fix their current model or implement an entirely different billing model will depend to your great extent on his/her management style – some providers cannot fathom having their billing staff from sight or ear shot while other providers are completely comfortable 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 is still contingent on the people involved with executing the medical billing process. Over a side note, choosing office staff for the in-house model is a lot like choosing a third party billing company. Regardless of the model, a provider will want to interview the potential candidates or even an account executive from the 3rd party billing service for experience, motivation, team oriented personalities, highly developed communication skills, responsiveness, reliability, etc.
Providers having an on-site model will need to depend on their hr and management skills to draw in, train and retain qualified candidates through the local labor pool. Providers with practices based in areas lacking qualified candidates or without any want to get caught up with human resource or management responsibilities may have no other choice but to pick an outsourced model.
Medical Billing Related Costs
As a business owner, the provider’s primary responsibility is always to maximize revenues. A responsible company owner will scrutinize expenditures, analyze returns on investments and reduce costs. Within an on-site model, expenses related to the billing process range on the web access used to transmit claims to work space occupied from the billing staff.
The most effective way to manage billing costs is made for the provider to consider the sum of those costs as a percentage of the practice’s revenues. The provider’s accounting software should allow for him/her to classify and track billing related costs. When the billing related expenses are identified, dividing the amount of the costs by total revenues will convert the expense to some percentage of revenues.
The exercise of converting billing related expenses to a percentage of revenues accomplishes three things: 1) receives the provider, business manager or accountant in tune with all the billing related costs of the practice; 2) provides a grounds for more thorough research into the practice’s cost and revenue components; and three) provides for easy comparison involving the cost impact in the on-site versus outsourced models.
The price of an outsourced model is fairly straight forward. Because the fees of the vast majority of outsourcing services look like a share of a provider’s revenues, the annualized expense of the medical billing service’s fees is a fairly close approximation in the provider’s billing related costs for this model.
In the event that a provider is considering an outsourced model, he/she should keep in mind that this model is not necessarily the silver bullet to ending all billing related costs and headaches these services fxbgil to market. True the billing company will acquire some of the expenses associated with this process but the provider will still need staff to do something as the intermediary between the provider’s office and billing service, i.e. a person to transmit data towards the billing service.
Costs will further increase for that provider if the billing service charges additional fees for add-on services like on line use of practice data, practice management software, management reports, handling patient inquiries, etc. The specific cost of the service will increase much more if claims 30, 60, 90 in receivable are certainly not properly worked to facilitate adjudication.
To sum up, the provider must carefully weigh the advantages and disadvantages of every model before making a determination. In the event the provider will not be comfortable or experienced analyzing financial data he/she must enlist the assistance of a cpa or some other financial professional. A provider must understand the costs as well as the inherent benefits and drawbacks of every billing model.
Providers employing an on-site model need to understand the real cost of their process. Determining the true cost not only requires accurate financial data and accounting but an objective evaluation of the aspects 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 look of a low cost of ownership but those shortcomings could eventually produce a lack of revenues.
In case a provider is decided to use a third party billing service, he/she should invest the time to thoroughly familiarize him/herself using the outsourcing industry just before interviewing prospective billing services. The provider must realize the hidden expenses associated with the outsourced model to help make an educated decision.