Revenue Cycle Outsourcing – From No Way to A-Okay

About the author: Phil C. Solomon is the Chief Client Officer of UCB, Inc, a healthcare analytics and revenue cycle outsourcing firm located in Toledo, Ohio and a member of HFMA Georgia and Central Ohio Chapter.

continued from HFMA Visions, Issue 4

For the healthcare revenue cycle, outsourcing spending is focused on several key areas, including but not limited to:

1. Supplemental Staffing
2. Payroll
3. General IT
4. Operational Business Intelligence
5. Self-Pay Early Out
6. Pre-collection
7. Eligibility Verification
8. Medical Necessity
9. Billing Follow-up
10. Bad Debt
11. Medical Records Storage
12. Patient Records Transcription
13. Diagnostic Services 

As a result of political pressure, in 2010 healthcare outsourcing will see significant gains. Thanks to the American Recovery and Reinvestment Act of 2009 (ARRA, the economic stimulus package for the U.S. economy), healthcare reform, and the Health Information Technology for Economic and Clinical Health Act (HITECH), the next five years will see a rise in outsourcing of all segments in the healthcare industry. With new money in hand, executives will be held accountable for their decisions and must ensure the money and resources spent will be leveraged to the full extent, returning the expected ROI.

It is anticipated that spending outlays will vary by facility size and system affiliation. Historically, facilities with larger footprints and decentralized organizations tend to rely more on outsourced partners while smaller hospitals rely more on internal resources. This trend is changing. Smaller facilities are jumping on the outsourcing bandwagon in a big way and are expected to leverage both IT and revenue cycle outsourcing cost reductions and economies of scale. The drivers for this shift in strategy are due in part to the margin pressure smaller facilities are under and the need to cut costs, improve operational efficiencies while maintaining superior patient satisfaction.  

Healthcare executives have numerous sourcing strategies from which to choose. Utilizing a U.S. based local, regional or national outsourcer has been the typical choice for executives. With today’s technology, especially in the services sector, it is less important to contract with a local provider than choose the best-in-class provider regardless where their business operation is located.

The term "Outsourcing" did not enter the English-speaking lexicon until the early 1980s. Since the 1980s, the first wave of outsourcing by transnational corporations increased subcontracting across national boundaries. In the U.S., outsourcing has become a popular political issue, driven by poor economic times and localized job losses. Even with local and national pressure to ban outsourcing, cost reduction and cost containment strategies have led executives to consider offshore and nearshore overseas as alternative sources of less expensive labor.

This emerging outsourcing trend has experience some challenges and PR issues over the past ten years. In early 2000's, many large mainstream companies chose to outsource customer service and IT help desk services in India and the Philippines. They experienced customer fall out due to the poor service and cultural misunderstanding of how to serve the American consumer. In fact, companies like Dell Computers and Delta Airlines moved much of their call center operations from overseas locations back to the U.S. for this reason.

The second wave of outsourcing began in early 2004 when many companies switched strategies and expanded operations throughout the "Americas" (south of the border). Statistics have shown a large increase of American companies operating outsourcing service and call centers in Costa Rica, Mexico and Guatemala to name just a few. Many of these firms offer revenue cycle outsourcing services that are owned and operated by American's. With the current labor cost savings, and the Spanish language being spoken by almost 20% of the U.S. population, it only makes sense to look south of the border to fulfill the needs for outsourcing in the North American healthcare industry.

American's in general, take pride in the values and opportunities offered by our free market economy. In every region of the country, community leaders attempt to support and protect local labor forces which serve local businesses. The goal of this action is to protect the work force and keep jobs in the community. Unfortunately, with budget cuts and margin pressure becoming greater than it’s ever been, revenue cycle executives cannot meet the demands of managing many administrative functions, like lower risk, high volume repetitive tasks such as: following-up on smaller balance insurance accounts, resolving credit balances, and processing mail returns. By utilizing qualified outsourcers, Gartner Research Inc. estimates hospitals can achieve productivity gains, collect incremental cash and operate with cost savings ranging from twenty percent to fifty percent. 

Many healthcare executives have succumbed to the local pressure of keeping jobs within their community regardless of the impact on the financial performance of the health system and have shied away from moving some non-core segments of business work to outsourcers across U.S. borders. That said, an interesting paradox exists as those same executives and community influencers do not think twice about purchasing clothes, food products, electronics, cars, toys, furniture and households goods produced globally. Regardless of the task, business segment or location of the potential outsourcer chosen to provide services, the ultimate goal of pursuing any outsourcing strategy is to support the goals of the healthcare organization, which are ultimately to serve the community with the highest level of patient care.   
Many of the top healthcare thought leaders are now accepting outsourcing as a cost reduction and operational improvement strategy designed to combat the economic squeeze the healthcare industry is experiencing. Outsourcing saves time, effort, demands on infrastructure, manpower and money. By leveraging the best of breed solution providers, healthcare organizations gain a competitive edge guaranteeing endless benefits for the enterprise and the patients they serve.

Why Do Healthcare Executives Outsource?

Healthcare organizations that consider outsourcing are seeking to realize benefits or address the following issues:

Cost Savings - The lowering of the overall cost of operating business processes.
Focus on Core Business - Resources are focused on developing the core business – in the case of healthcare it is investing on the clinical side vs. business processes.
Cost Restructuring - Outsourcing adjusts fixed costs to flexible variable cost structures making variable costs more predictable.
Improve Quality – Achieving a positive change in quality through contracting out services with new service level expectations.
Knowledge - Access to intellectual property and wider experience and knowledge.
Contracting - Services are provided in a legally binding contract, many times with financial penalties. This is not the case with internal services.
Operational Expertise - Access to operational best practices too difficult or time consuming to develop in-house.
Access to Talent - Access to a larger talent pool and a sustainable source of skills.
Capacity Management - An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
Catalyst for Change - An organization can use an outsourcer as a change agent becoming a catalyst for major change.
Enhance Capacity for Innovation - Companies increasingly use external knowledge of service providers to supplement limited in-house capacity for product innovation.
Scalability - The outsourced company will usually be prepared to manage a temporary or permanent increase or decrease in work flow.

What Are The Risks Associated With Outsourcing?

The risks associated with outsourcing can be significant if the wrong partner is chosen or if the there is poor planning or a lack of acceptance of the stakeholders. The following are risks hospitals should consider when evaluating an outsourcing engagement:

Quality Risk - An organization can be at risk if the outsourcer does not produce services that meet service level agreements (SLA) therefore creating operations-related issues.
Quality of Service - Quality of service is measured through (SLA)’s contractually agreed upon. Poorly defined or absent (SLA)’s can open the door for imperfections in the services provided.
Language Communication - In some outsourcing arrangements, especially offshore and nearshore, foreign cultures and language barriers can negatively affect the end-user-experience leading to patient dissatisfaction.  
Security - Some outsourcers put their clients at risk by not offer the highest levels of security such as ISO certification, SAS 70 certification, PCI data security standard.
Public Opinion - There is a strong public opinion in the U.S. against outsourcing when combined with offshore or nearshore because it leads to job displacement. However, supporters focus on mainstream economic benefits to argue that outsourcing improves overall quality of healthcare by holding down administrative cost, creating overall healthcare benefits to all.

Conclusion