Outsourcing practice IT functions

By John R. Thomas

Buy or Build. Lease or purchase. Hire staff or use a consultant. In years past, the decisions about investing in practice management technology were relatively clear cut.

Today, practice management technology is so sophisticated and is being updated at such a rapid rate, that keeping up with all the changes (along with corresponding payer requirements and federal and state regulations) has become a full-time job. Physicians with management responsibilities have to decide if they are going to focus on practicing medicine, or take up a second career as a MIS/IT (management information systems/information technology) director.

As a result, more and more practices are outsourcing the MIS/IT function. A survey taken at the Healthcare Information and Management Systems Society (HIMSS) 2002 annual meeting found that 56 percent of physicians surveyed said they were interested in outsourcing their MIS/IT function. The survey found that 21 percent were already using an ASP (application service provider) for some services.

Just as information technology capabilities have grown in recent years, so have the methods of delivering it. While there are many outsourcing options available for small and medium size practices, they can be grouped into three broad categories.

Application service provider (ASP). A company that provides a service or software package to a practice via a broadband connection. ASPs usually provide their services on a subscription or monthly fee basis, thus eliminating the need for practices to spend large sums upfront purchasing software or hardware. ASPs also generally take responsibility for installing, maintaining and upgrading the software and perform vital central data center functions. However, this is usually done on a remote or automatic basis. The practice must still assign staff to run and maintain the software applications. ASPs are growing in popularity: the $126 million spent on healthcare ASP services in 2001 is expected to grow to some $500 million by 2005.

Business Services Provider (BSP). This takes the ASP a step further. In addition to simply providing a practice management software system, the BSP will assume responsibility for the entire financial process function. Usually, the BSP will assign a team of individuals to work with the practice to manage the technology and improve financial performance.

Two aspects make the BSP model attractive to smaller practices. First, by assuming total responsibility for the claims and financial management functions, the burden on the practice manager is greatly eased. Second, the BSP provides a high-level of expertise through its analysts and client service directors, who benefit from the real-time business process information that the company is constantly collecting. For example, the consultants at a practice management BSP will be knowledgeable about the latest insurer payment issues, Medicare rules and HIPAA (Health Insurance Portability and Accountability Act) regulations.

Management Service Organization (MSO). In health care, these are best known as traditional billing organizations. This service originated in the 1950s with the rise of private health insurance. Today there are thousands of billing companies; many of them are one-person shops, run out of the owner’s home. Because of their familiarity and low-tech approach to business, they remain very popular with practice managers, processing more than more than 17 million claims per month.

Typically, third-party billing organizations prepare insurance claims, follow up unpaid claims, post payments and adjustments, detect and challenge incorrect payments and bill patients for deductibles and co-insurance.

Evaluate Cost, Control and Capability

What is the right option for your practice? In evaluating, you can use the three “Cs” as a benchmark: cost, control and capability.

An MSO or traditional billing company usually offers the lowest cost alternative to this function. The agency may charge a set amount per claim filed (e.g., $8 each), or a percent of collections (e.g., 5-7 percent). Many MSO operations are subsidized by a hospital sponsor as a part of their integrated delivery system. On the downside, it offers the most limited capability and inferior results, since many collection agencies do not have access to capital to continue to provide the latest claims processing and analysis software. The typical cost structure of these entities prevents them from collecting on the high volume of low dollar claims because they primarily use people rather than new technology as the means to improve collections. With limited capital and new applications, these organizations are rarely, if ever, able to provide practices with the key ingredient for success: the practice financial reporting analysis and strategy necessary to change practice behavior.

Collection agencies do offer low initial cost. However, this should be balanced against potential improvements in revenue collection. Because many billing agencies charge a set fee, they do not have an incentive for improving collections. If a practice is struggling with a high denial rate of 20-25 percent, the billing agency will probably not have any strategic suggestions and it may simply refer the problem back to the practice staff.

In comparison, a traditional ASP may offer several advantages. First, you can get access to the latest practice management software programs without having to purchase them upfront. The ASP will charge you a subscription fee for the software or services, usually on a “per doctor, per month” basis. You will also have reasonable control over your data records. While your data will have to be sent via a broadband connection to an outside company, it may also be housed on servers in your office (depending on what technology services your purchase).

From a capabilities standpoint, ASPs have strengths and weaknesses. They do offer access to the latest and most advanced software systems, and they will provide tech support for installation and maintenance. While an ASP customer will receive the improved technical MIS/IT functions and central data center functions, they do not receive the operational expertise that changes behavior to improve financial results. An ASP customer or practice typically has the same financial result as if it owned the software individually.

Also, ASPs generally will not guarantee business results—getting the most of the software from a strategic and operational standpoint is your responsibility. If the software fails to perform at a high level or you encounter continued business problems (e.g., high rate of denied claims), the ASP may not offer much help without additional charges. Now, this should not be a problem for larger practices with skilled IT staff that can troubleshoot complex software systems. However, if your practice lacks such personnel, you could be disappointed.

This is where BSPs, a kind of “ASP plus,” come in. BSPs have a shared financial relationship with their client whereby improving the billing and collections process through technology and training results in margin improvement for all parties. BSPs charge a percentage of collected revenue (usually 7-10 percent), so they have a strong incentive to increase practice revenues thereby reducing rebilling costs and improving both the customer’s and the BSP’s cash flow.

BSPs offer a key element missing in basic ASPs: a performance feedback loop. The skilled executives at a BSP can read and analyze the reports generated by the latest practice management software and provide hands-on advice to improve financial performance. An experienced BSP should be able to improve and measure financial processes, reduce the rate of denied claims and improve accounts receivable in almost any practice within six months of engagement.

In addition to improving collections, some BSPs can also provide a “payer profile,” an analysis of how different insurers are reimbursing the practice. This can help in contract renegotiations. For example, insurer A may reimburse at a higher rate than insurer B, but if A consistently rejects more claims, then practice revenue will suffer accordingly. By unlocking the payer-specific billing, physicians can level the playing field with the various arcane billing rules independent of every payer.

Your Technology Goals

A key factor in your evaluations should be your long-term goals. Do you want to retain practice IT staff or cut down on your administrative personnel? Would you like to convert to EMR (electronic medical records) and have a paperless office, or are you more comfortable with paper records? Would it be helpful to be directly connected with the information system of a local hospital or a particular health insurer?

Experts agree that moving to electronic records and claims transactions is clearly the long-term trend for all health care organizations. The new HIPAA regulations will start going into effect next year. For example, Medicare will require that all claims be submitted electronically using HIPAA standard protocols by October 2003.

The new regulations and increasing administrative costs are also prompting insurers to move to online transactions. For example, Aetna projects that it will process some eight million electronic transactions from physicians in 2003, a significant increase from previous years.

Many practices have been disappointed by earlier technology purchases. But recent improvements in software, the widespread use of broadband connections, widely accepted data transaction formats and technology upgrades by payers now make it possible for almost any physician office to file most of its claims electronically.

Electronic claims transactions can produce significant revenue gains. A study commissioned by the VISA card organization found that physicians pay 12 to 14 percent of gross revenues just to collect their claims, including write-offs of bad debt. Converting to electronic claims transactions can reduce this figure to four percent or less.

Whether your decision is to outsource or to purchase an in-house system, a top priority should be system integration. Will you be able to orchestrate all the new technology (and legacy systems) to function smoothly? Will the scheduling program interact with the claims program? Will you be able to search across your practice’s various databases? Unfortunately there is no discrete technology that solves all the practice management system needs of a physician, regardless of practice size. It requires a delicate orchestration of applications and processes to reach extraordinary financial results.

Whatever option you decide upon, you will want to check the company’s references to verify their track record for service and support. See how the company responds to user requests; are they available nights and weekends?

Stability is important too. Check how long have they been in business and if they are financially sound. And once you have verified the outsourcing company’s qualifications, you should agree upon goals and means of measurement before signing a contract. A method of dispute resolution may also be helpful.

The contract should reflect a mutually beneficial relationship. When that is achieved, practices can gain more than new technology, they will gain a valued business partner.

John R. Thomas is chief executive officer of MedSynergies, Inc., a Dallas-based business services provider serving practices in six states.