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Outsourcing: A viable alternative to a complex in-house business office
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I asked George Fraley, MBA, former principal of HealthLink Minnesota Management Group Inc. to discuss the advantages and disadvantages of outsourcing business office functions as opposed to maintaining these processes in house. George has 33 years of experience managing physician groups. His previous company specialized in revenue cycle management, billing, coding, and information technology — all of which are essential for running a successful orthopedic practice.
Jack M. Bert, MD
Business of Orthopedics Section Editor
Jack M. Bert, MD: What is the benefit of outsourcing the business functions of an office?
George Fraley, MBA: Outsourcing administrative functions for the small to medium independent orthopedic medical practice is a critical decision that should be considered in today’s cost-conscious and increasingly complex health care environment. By outsourcing billing, revenue cycle management (RCM), coding and computer services, such as software development, storage and desk top support, an orthopedic clinic can improve efficiencies, manage costs and significantly improve profitability. By choosing an appropriate outsourcing partner for these administrative functions, an independent orthopedic practice can see an improved net profit of up to 5% to 7% annually. This increase in profitability will be evidenced by improved collections, reduced costs and a more efficiently managed practice. The costs savings will be seen in several categories including — but not necessarily limited to — insurance costs, claims processing costs, labor costs, hardware and maintenance costs, tax liabilities, lower benefit costs, space costs, accounting costs, and other direct and indirect costs. Practices will benefit from reduced administrative overhead because the outsource company provides these services to their staff, which work on the practice’s account.
Bert: When should you outsource as opposed to hiring RCM, billing and coding employees, and keeping all business functions and coding functions in house?
Fraley: Practices today that see their overhead increasing faster than their revenue base should determine what portion of the practice operating budget is increasing the most. In many practices, the answer is the business office and information technology (IT)/connectivity services. If these costs are increasing faster than the rest of the practice expenses, including personnel, it is time to consider outsourcing. Today, a case can be made for many small and medium practices to outsource their business and some administrative functions. In orthopedics, a group of five or less will benefit from outsourcing more than a group of any other size. A group of six to eight orthopedic surgeons will benefit less, but is still a candidate for improving operations, improving collections and reducing costs by outsourcing. The business office is a unique environment because some employees have a limited but critical skill set that is essential for driving good results for RCM. For example, an employee may only be working 6 hours to 8 hours per week on a critical job function and fill the rest of their 40-hour work week on less costly functions, but still must be paid at a higher rate as determined by their work on the critical job function. An outsource destination company (ODC) will utilize an employee with that critical skill set across multiple clinics, so each practice will only have to pay for the number of hours each week that its clinic needs. It is the responsibility of the ODC to take advantage of economies of scale for all of the functions a clinic needs and to negotiate the best contracts for underlying services, such as clearing house fees, that are required for successful RCM. The tipping point is definitely economic.
Groups with more than nine physicians in one location often have enough economic power to hire and train employees for the various job classes and utilize them efficiently. In the case of a large group, an ODC could create a layer of unnecessary bureaucracy. If a group of this size has out-of-control business costs and has concerns about practice management and EHR, outsourcing is not necessarily the right solution. However, I have seen several examples where ODCs and RCM companies have been used effectively by large groups to separate joint venture operations. In this case, a large group (e.g., 50 surgeons) might be able to take advantage of using an ODC for RCM and administrative support. For example, if a practice owns an ambulatory surgical center (ASC), the billing for the ASC could be turned over to an ODC. This would prevent confusion and help physicians adjudicate their claims as efficiently as possible.
Bert: What business functions are best outsourced and which should be kept in house?
Fraley: The bundle of administrative functions a practice should consider outsourcing includes billing, RCM, credentialing, IT, bookkeeping, software hosting, coding and tracking clinical outcomes. Owning and paying for the IT infrastructure for the practice management software and the integrated EMR is difficult and costly. As demands on the practice increase with the Affordable Care Act and other performance-measure reporting, it makes sense for a practice to outsource software deployment and hosting to the ODC’s IT networks. Independent practices are suffering financially due to increased overhead and decreased reimbursements. It is difficult to provide an affordable IT infrastructure as demands for a greater level of security and sophistication grow. An ODC should be able to offer better pricing for clearing house fees, errors and omissions insurance, and data breach insurance. It can also provide better education and growth opportunities for staff.
Tracking clinical outcomes is another service clinics can efficiently outsource to take advantage of an ODC’s economies of scale. Collecting patient demographic and personal history data necessary to run revenue cycle management operations and the practice management system typically occurs during check-in at the front desk for an appointment. Many clinics streamline the process by having new patient forms available by mail or on their websites. Physicians and patients do not like using outsourced call centers but are open to a call center that is managed by the practice.
The overall patient experience can be enhanced by technology. An interactive website and EMR patient portal is common. Having an ODC perform or outsource website development and management is also cost effective.
It is important to note that no RCM company will maximize a practice’s potential if the physicians do not code their services and procedures appropriately. With the advent of ICD-10, good RCM companies will have strong coders and coding trainers on their staff who are capable of teaching physicians how to properly use the new ICD-10 coding system. By shifting the clinic’s daily focus away from administrative functions and toward patient care, the practice can improve the clinic experiences of their patients, improve payment collections, and lower costs.
A note from the editors
Look for part two of this discussion in the May issue of Orthopedics Today.
For more information:
George Fraley, MBA, can be reached at george.fraley.2@gmail.com.
Disclosures: Bert and Fraley have no relevant financial disclosures.