The decision to change an existing medical billing model must 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 cash flow disruption and we won’t even bring up the worse case scenario.
Any adverse health care provider’s starting point is always to determine whether his/her current medical billing model is achieving the desired financial result. Although financial analysis is beyond the scope of the 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 possess the capacity for generating actionable management reports.
In the long run, basic financial analysis will shed light on the strengths and weaknesses from the provider’s medical billing model. Some points to consider when evaluating a medical billing model: the inherent good and bad points of on-site and outsourced medical billing models; the provider’s practice management experience & management style; the local labor pool; and medical billing related operating costs.
In-house versus Outsourced Models
No medical billing model is without unique advantages and pitfalls. Consider the in-house medical billing model. Approximately one third of independent medical care practices utilizing an in house medical billing model experience cashflow issues ranging from periodic to persistent. The level of action essental to a provider to settle his/her cashflow issues may vary from an easy adjustment (adding staffing hours) to some complete overhaul (replacing staff or switching with an outsourced medical billing model).
The provider with the under performing on-site medical billing model has a clear advantage over the provider with an under performing outsourced (also referred to as alternative party) medical billing model: proximity. An in house medical billing model is within walking distance. A provider has the chance to observe, assess and address – observe the process, evaluate the system’s weaknesses and strengths and address issues before they become full blown problems.
Think about the provider having an outsourced medical billing model. The relatively low entry barriers of the third party medical billing industry have triggered a proliferation of medical billing services scattered throughout america. Chances are the provider’s medical billing service is found in another geographic area making personally observations and assessments impossible.
The role of management reporting in a alternative party medical billing model is essential. A provider must regularly review charge entry, posting, write offs and account receivable balances to insure his/her cash flow is correctly managed. A study as basic as 30, 60, 3 months in receivables will quickly provide a provider a good idea of how well their medical billing and account receivable processes are being managed by a third party medical billing service.
A common mistake for a lot of providers with an outsourced medical billing model would be to gauge the potency of this process within the very short-term, i.e. week to week or month to month. Providers maintain a vague and informal feeling of their cash flow position by maintaining mental tabs on the checks they received this week versus the prior week or if perhaps they deposited the maximum amount of money this month as recently. Unfortunately once a weakened cash flow will get the provider’s attention a significantly larger problem may be looming.
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What may cause a decrease in income within the outsourced medical billing model? By far the most commonly cited scenario is insufficient followup on the part of the medical billing service. Why? Like every other business, medical billing companies are involved first of all with their own cash flow.
A billing company generates 99.99% with their revenues on the front end in the billing process – the information entry procedure that generates claims. Billing firms that devote almost all of their manpower to data entry will likely be understaffed on the back end from the billing process – the followup on unpaid claims. Why? Every hour of data entry generates an extra 1 to 2 hours of claim follow up. Unfortunately for your provider, a billing company that ignores will 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 any given 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 prior to the cashflow crunch gets out of control. On the contrary, providers with virtually no practice management experience will very likely allow his/her cashflow to reach a vital stage before addressing as well as recognizing a difficulty even exists.
Whether a provider with billing issues chooses to retain and fix their current model or implement a completely different billing model depends 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 confident with turning their billing process to a 3rd party service.
Local Labor Pool
Whether a provider chooses an on-site or outsourced billing model, an effective medical billing process continues to be contingent on the people involved with executing the medical billing process. On the side note, choosing office staff for an in house model is a lot like choosing a third party billing company. Regardless of the model, a provider will want to interview the possible candidates or even an account executive in the 3rd party billing service for experience, motivation, team oriented personalities, highly developed communication skills, responsiveness, reliability, etc.
Providers with the in-house model must depend on their hr and management techniques to bring in, train and retain qualified candidates from the local labor pool. Providers with practices based in areas lacking qualified candidates or with no desire to get caught up with hr or management responsibilities may have hardly any other choice but to select 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 in house model, costs associated with the billing process range from the Internet access utilized to transmit states to the office space occupied from the billing staff.
The simplest way to manage billing costs is made for the provider to think of the amount of those costs as being a portion of the practice’s revenues. The provider’s accounting software should enable him/her to classify and track billing related costs. After the billing related expenses are identified, dividing the amount of the expense by total revenues will convert the expenses to your portion of revenues.
The exercise of converting billing related expenses to a percentage 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) supplies a grounds for more comprehensive analysis of the practice’s cost and revenue components; and three) enables easy comparison involving the cost impact of the on-site versus outsourced models.
The expense of an outsourced model is rather straight forward. Considering that the fees of the majority of outsourcing services seem to be a portion 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 case a provider is considering an outsourced model, he/she should remember that this model is not really necessarily the silver bullet to ending all billing related costs and headaches that these services fxbgil to advertise. True the billing company will acquire some of the expenses associated with the process nevertheless the provider will still need staff to act since the intermediary involving 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 extra fees for add-on services such as on line use of practice data, practice management software, management reports, handling patient inquiries, etc. The particular cost of the service increases even more if claims 30, 60, 90 in receivable are certainly not properly worked to facilitate adjudication.
In summary, the provider must carefully weigh the pros and cons of every model before making a decision. In the event the provider is not comfortable or experienced analyzing financial data he/she must enlist the assistance of a cpa or any other financial professional. A provider must understand the expense and also the inherent pros and cons of each and 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 objective evaluation of the components 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 an affordable of ownership but those shortcomings could eventually result in a loss of revenues.
In case a provider is decided to make use of a 3rd party billing service, he/she should invest the time to thoroughly familiarize him/herself with all the outsourcing industry just before interviewing prospective billing services. The provider must realize the hidden expenses associated with the outsourced model to make a knowledgeable decision.