By Thomas W. Reinke & Timothy C. Hilbert, CPA
Given the pace of clinical advances in medicine, physicians constantly devote significant time and effort to keeping up with changes in the practice of medicine. However, despite changes of the same magnitude physician billing departments generally have not kept up with changes in their operating procedures to accommodate the hurdles put up by insurance companies or the problems that arise internally. The result is that many billing departments face traditional operational problems plus a host of new problems.
A Complicated Billing Cycle
The physician billing cycle is one of the most, if not the most, complicated revenue cycles in American business. It encompasses at least twelve individual steps that start with patient registration and end with bad debt write-off. That contrasts with approximately six steps in a retail transaction.
Physician billing is exponentially more difficult than hospital billing even though the value of the average physician claim is a fraction of the value of a hospital claim. The factors driving the complexity of physician billing activities include the following:
• Claims are adjudicated at the detail of each individual line item, not at the level of the total invoice. This adds complexity and inefficiency to billing activities.
• Reimbursement regulations vary from payer to payer and may be contradictory. Moreover, payers may arbitrarily change or inconsistently apply their regulations, and withhold their billing, reimbursement and coverage policies from physicians.
• There may be several responsible parties with coverage gaps and poor coordination of benefits.
• The procedural (CPT) and diagnosis (ICD-9CM) coding systems are confusing, imprecise and incomplete.
A variety of other issues exist above and beyond these technical problems:
• There is a shortage of experienced billing staff. Due to expanding opportunities in other industries, there has been a decline in the quality of people interested in billing jobs.
• The billing workload has increased due to growth in the average size of physician practices and expanding insurance regulations.
• Computer systems do not accommodate payer regulations and tools to effectively control and manage billing activities are lacking.
• Payers have become much more sophisticated in their claims adjudication procedures, and have raised the bar for practices to get paid.
Outsource Your Billing?
With all of these challenges and problems, the logical question is whether or not billing activities should be outsourced to a physician billing company. In some situations, outsourcing is a viable alternative. This is particularly true for hospital-based specialists such as emergency room doctors and radiologists, for whom billing companies have developed true expertise and efficiencies.
The arguments against outsourcing include:
• Billing companies may focus primarily on initial claim submission and not devote enough effort to labor intensive follow-up activities.
• Billing companies may not fully understand the billing and reimbursement issues in your specialty.
• Billing companies face many of the staffing and quality of workforce issues that private practices face.
Some billing companies have recently increased their fees in response to labor shortages and the increased work required to generate reimbursement for their clients. The floor of fees of five to six percent (of collections) is being raised to seven to nine percent for the easiest practices. These rates can go substantially higher for difficult practices. Private practices can run an effective in-house billing department for less than this amount. Additionally, a well-run in-house billing department usually out-performs an outside billing service.
An alternative to total outsourcing of the billing is partial outsourcing or contracting for certain expertise on a part-time basis. For example, accounts receivable follow-up, coding services and compliance programs may be outsourced.
Problem Indicators
There are no firm benchmarks that can serve as the standard for judging billing performance. Billing performance is dependent upon payer mix, the practice’s specialty, fee structure and other factors. For example, a practice with significant workers comp activity will have a higher accounts receivable than a practice with a large Medicare population.
In spite of the lack of benchmark statistics, there are key indicators that can be used in a system of internal benchmarks. General indicators of billing performance include total accounts receivable (A/R), days of revenue in A/R, accounts receivable agings by insurance and trends in monthly gross charges, monthly cash collections and net collection ratio. Trends are important because they help to highlight insidious billing problems that could go undetected.
Our firm has worked with specialist practices that have less than 55 days of revenue in accounts receivable. Generally, specialty practices have between 60 and 90 days of revenue in A/R. Practices with excessive A/R can see a significant return by reducing their A/R. For example, a practice with annual cash receipts of $3,000,000 that reduces its collectible A/R from 90 to 80 days will receive over $80,000.
Effective monitoring of billing performance must go beyond general measures to statistics that focus on critically important billing problems. Billing problems can be divided into two broad categories: errors that occur within the practice and poor accounts receivable follow-up. There are four core measures that zero-in on billing problems. Tracking them will help to focus attention on meaningful billing improvements. The four measures are:
• Insurance rejection rate: tracking the practice’s rejection rate for insurance claims will help to focus attention on reducing denials.
• Contractual allowances: tracking insurance write-offs will help to focus attention on unjustified denials that are erroneously posted by billing clerks.
• Insurance agings: tracking high balances in older aging categories will identify claims that need follow-up.
• Monthly variations in charges and payments: tracking swings in charges and payments will help to identify internal procedural problems in charge capture, charge posting, billing and follow-up.
Many practices will have additional measures that target other critically important billing activities.
A State-of-the-Art Billing Department
Physician billing changes every day. Payers implement new regulations or change their claims adjudication procedures. Staffing and computer problems pop up, or office procedures break down within practices. Small errors or mistakes go undetected to become persistent problems.
In many cases, billing managers have been struggling just to manage the daily workload. Most billing managers are working harder and are striving to overcome problems. But some are locked into a pattern of handling immediate specific problems and are not stepping back to focus on more effective management of the total operation. If this is the case, several changes may be helpful.
First, someone needs to help the billing manager understand that the billing process is constantly changing and will continue to become more difficult. The billing workload will constantly increase and new problems will constantly arise. The billing manager needs to understand the need to manage immediate problems and devote attention to monitoring the workload and workflow. If the big picture is overlooked, the practice will always be behind the curve in responding to externally imposed changes and internal problems.
Second, every practice should develop the necessary procedures to identify and communicate billing errors. This error identification mechanism should encompass the entire billing cycle and should focus on early identification, since errors compound in each subsequent step of the cycle. The error identification mechanism should be designed to signal new billing problems as they arise.
Third, practices should have clear priorities and objectives for improving their billing performance. If priorities and objectives do not exist there is no guarantee that problems will be resolved. Physicians should receive monthly performance reports to help them monitor performance improvements.
Thomas W. Reinke is the manager of Healthcare Advisory Services at Kreischer, Miller & Co. in Horsham, Pennsylvania. Timothy C. Hilbert, CPA is a director of Kreischer, Miller & Co.
