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Thinking of outsourcing your billing functions?

By Todd A. Rodriguez, Esq.

Few operational aspects of a medical practice are more critical than the billing and collection functions. However, maintaining a trained staff and an electronic billing system sophisticated enough to deal with the complexities of medical practice billing can be expensive and time-consuming. These pressures lead many physicians, at one time or another, to consider outsourcing their billing functions to a third-party billing company. While outsourcing may be a cost-effective alternative for many medical practices, there are a host of practical and legal issues that must be considered (and in most cases addressed in the written agreement between the practice and the billing company) before taking this leap.

One of the most important factors in selecting a billing company is whether the company has specific expertise in your specialty. In addition, if your practice offers ancillary services, you may need a billing company with billing expertise in both your specific medical specialty and in the ancillary services you offer. An example is the orthopedic practice that offers in-house imaging services. The nuances of billing for orthopedic services are considerably different from those of billing for imaging services. Consider having your office manager or someone else who is familiar with billing for services in your specialty interview the prospective billing companies to ascertain their level of expertise. In addition, it is advisable to include a specific representation and warranty in the billing services agreement that the company is familiar with the size and scope of your practice and has expertise in billing for services in your specialty (including any ancillaries).

Another important issue in selecting a billing company is whether the company has sufficient resources (or is too big) to effectively service your practice. Large medical practices with multiple ancillary services may overwhelm a small billing company. Similarly, a small medical practice may be lost in the crowd when dealing with a billing company that devotes the majority of its resources to its biggest accounts. When interviewing prospective billing companies, discuss their resources with them and if possible, come to terms on the number of personnel that will be dedicated to your account. In addition, find out if there will be an individual within the company who will serve as the primary contact for your practice. These issues should then be memorialized in the billing services agreement.

Consider also the technology the company brings to the table and how it will work within your practice. Technology related issues range from the most basic – such as how data will be transferred on a daily basis from your practice to the billing company – to more complex issues such as data analysis capabilities and communication with your electronic medical records system. Find out what software program the company uses. If the software is proprietary, bear in mind that it may be difficult to switch to a new billing company vendor or to bring your billing functions back in-house if the proprietary system does not “communicate” with other more common billing software systems. Finally, find out what kind of reports the system can generate. Review the report formats to be sure they are usable and consider attaching them as exhibits to the billing service agreement so that there is no question in the future about the types of reports the billing company is to provide.

Once you have narrowed the list of potential billing companies down and have gone through the interview process addressing the issues noted above, request and check at least three references. Among other things, ask references whether the company has met expectations, whether they have been timely in addressing problems and how they have responded to specific problems. If a reference refuses to provide information or will only provide general information, take this as a bad sign.

Selecting a reputable and qualified billing company is only the first step. The billing services agreement should include specific, measurable performance standards so that you are able to monitor the effectiveness of the billing company, and, if the relationship sours, point to demonstrable failures on the part of the billing company. Performance standards should, at a minimum, address the basic billing and collection functions. For example, the agreement may require the billing company to:

· Submit clean claims to third-party payors within 24 hours of receipt from the practice of all necessary information.

· Post all payments to the billing system within 24 hours of receipt of payment.

· Respond to patient inquiries and inquiries from the practice within 12 hours.

· Respond to all written correspondence and telephone inquiries pertaining to invoices within three business days of receipt.

· Provide the practice with the billing and collection reports identified in the billing services agreement within five days of the end of each calendar month.

· Disseminate any and all billing information including third-party payor coding and documentation bulletins and inquiry correspondence to the practice within 24 hours of receipt of the same.

The agreement should also include the consequences for failure by the billing company to meet the performance standards. For example, if the billing company fails to meet any performance standard multiple times in any given period (e.g., in any 60-day period), the billing service fee might be reduced by some fixed amount. In the alternative, repeated failure to meet the performance standards may result in termination of the agreement altogether.

There are, of course, a host of other operational issues that should be addressed in the billing services agreement. Among other things, the agreement should address how patient demographic and claims information will be obtained by the billing company. Will there be a T-1 line between the practice’s computer system and the billing company’s system? Will the information be sent by courier or overnight carrier? How frequently must the information be sent?

Next, the agreement should specifically address whose responsibility it is to code claims. It is generally advisable for the physicians to do their own coding, but if the billing company will be involved at all in the coding process, the agreement should include a representation that coding will only be done by certified professional coders.

Finally, the agreement should address how difficult and uncollectible accounts will be handled. Generally the billing company should be required to obtain prior approval from the practice to (1) write off uncollectible accounts, (2) send any account to a collection agency, or (3) initiate litigation to collect accounts receivable. Handling delinquent accounts can be a sensitive undertaking. For example, long-standing patients who may have forgotten to pay a claim or who have a temporary financial need may be offended of contacted by a collection agency. Ultimately the practice should have the final say on how problem accounts are handled.

Outsourcing of a practice’s billing functions necessarily involves the outsourcing of the fraud and compliance functions associated therewith, even though the practice (and the physician whose name is on the claim) maintains responsibility for claims submitted. The practice is dependent on the billing company to ensure that its employees are adequately trained on applicable laws, regulations and third-party payor rules that mechanisms are in place to report compliance issues and that the billing company has adequate policies, procedures and safeguards in place to ensure that claims are properly prepared and submitted.

The Office of Inspector General of the Department of Health and Human Services (OIG) has acknowledged the critical compliance function played by third-party billing companies by publishing specific compliance program guidance for third-party billing companies. It is advisable therefore to request that the billing company provide you with a description of its compliance program prior to signing the billing services agreement and to include in the billing services agreement a representation that the billing company will, throughout the term of the agreement, maintain an effective compliance program that conforms to the OIG’s program guidance for third-party medical billing companies.

In addition to fraud and abuse compliance, billing companies are also subject to the Health Insurance Portability and Accountability Act (HIPAA) privacy and security regulations. In most cases, a billing company will be deemed to be a “business associate” of the practice. Accordingly, the practice has an affirmative duty to include specific contractual provisions in the billing services agreement (or in a related business associate agreement) imposing upon the billing company a number of privacy- and security-related obligations. The HIPAA regulations are complex, so have the billing services agreement reviewed by your health care attorney for compliance with these requirements.

Unfortunately, billing companies and medical practices do not always part on the best of terms, so it is important to plan for an eventual break-up and incorporate specific provisions addressing this in the billing services agreement. The agreement should specify the terms under which the agreement can be terminated by either party, how much notice must be given to terminate the agreement and, once notice is given, what is to occur.

The billing services agreement should affirmatively require the billing company to cooperate with the practice, and any new billing company to effectively and efficiently transfer the billing functions either back in-house to the practice or to the new billing company. The billing company should be obligated to provide all billing information and data in at least hard copy form and, ideally, in electronic form as well. The agreement should also specifically address when the data will be provided (which should be on or before the date of termination so that the billing functions can continue without interruption). Finally, if there will be extra fees for “consulting” or other transitional services, the agreement should stipulate how those fees will be determined (e.g., a fixed fee, at hourly rates, etc.) or a fee schedule can be attached as an exhibit.

Of course, the billing services agreement must address the billing service fee. Most billing companies charge practices a percentage of amounts collected. Be mindful that where a billing company is in a position to generate business for a medical practice, various fraud and abuse laws may be implicated, including the federal anti-kickback statute. For example, where the billing company will provide marketing or practice development services, percentage fee arrangements may violate the anti-kickback and other statutes. Depending on the nature of the services the billing company will provide, therefore, it may be important that the billing service fee be consistent with fair market value for the services rendered. Bear in mind too that Medicare rules prohibit billing companies that are paid on a percentage basis from receiving and negotiating checks payable to a provider.

Hiring an outside billing company may make considerable sense for a variety of reasons. However, as with other aspects of you practice, attention to detail and some advance planning will go a long way toward ensuring a successful relationship with your billing company.

Todd A. Rodriguez, Esq., is a health care attorney in the Chester County, Pennsylvania office of Fox Rothschild LLP.

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