Critical technology for a medical practice: how to stop money from falling through the cracks.

When you think about the incredible volume of billing and reimbursement transactions that move between medical groups and payers, it boggles the mind. Football-stadium-sized claims centers handle millions of bills with hundreds of millions of line items and codes, and cut checks--not all of which are accurate.

Without a practical means to verify accuracy, most medical practices accept what they are sent and write off what they cannot understand or recover. But this is highly troubling as the probability of errors is great because many of these transactions are processed manually on both ends, or electronically with systems that do not use the same rules of logic for claims payment.

Consider one story from a medical practice where a major payer with claims offices in five cities each reimbursed a different amount for the same CPT code even though the contract with that provider is for only one amount. The medical practice accepted each of the five payments over and over again, even though only one was correct.

Lacking the automation to flag these discrepancies, medical practices don't really know what amount should be reimbursed for a given CPT code so they simply accept any amount that seems reasonable. Add in that most practices have multiple contracts with multiple payers and the math becomes dumbfounding. Practices are simply out of control. Something has to be done.

"Needle in a haystack"

Physician practices today capture the services they provide to patients (or members) in the form of CPT--and other standard or non-standard codes--and bill them out according to a single fee schedule. This fee schedule has nothing to do with what has been negotiated in terms of expected reimbursement from any of the practice's contracted payers.

As a result, the payer receives an amount that is not correct, according to the negotiated contract, and applies automated or manual rules logic to it to "adjudicate" the claim. This adjudication process:

1. Determines what, if any, portion of the service is covered

2. Changes the amount of the provider's charge to the contracted rate

3. Deducts any co-payments, deductibles or co-insurance that should have been paid directly by the patient

4. Sends an explanation of payment back to the medical practice along with a check for substantially less than the provider's original charge

The practice receives the check, applies the payment, and adjusts the balance according to the provider's explanation of payment. But it's a very difficult and cumbersome manual process for the practice to actually go back and check to see if the payment amount has been issued according to the negotiated contract.

Without most current systems, medical practices would literally have to have someone look at every claim that comes in and compare it to the negotiated contract to make sure the payment is correct. Manually verifying the accuracy of hundreds, if not thousands, of bills seems so impossibly expensive, time consuming and disruptive that it would cancel out any possible benefits.

This "needle in a haystack" is a very serious problem that many practices face and technology vendors are finally responding.

Today, automation is no longer more pain than gain. Systems are coming into their own and are collecting more money with fewer personnel. The questions to ask are:

* "What functionality is most critical?"

* "Which system and process of implementation will deliver the most value to your practice?"

On the front end

Automation of the end-to-end revenue cycle lowers costs and increases accuracy of billing, payment posting and collections. Integrating front desk automation with back office automation provides the greatest value because patient-owed amounts can be calculated, collected and posted at the time of the office visit, reducing back office handling and the number of bills mailed.

Front-desk payment posting and benefits verification

At a minimum, front-desk personnel who receive patient co-payments, co-insurance and other payments need to be able to post those amounts correctly and to reconcile cash to payments posted at the end of each day.

They should not be allowed to make any adjustments to the account. To achieve this, it is important to pay attention to the security capabilities within the system. Some systems require practices to give levels of security (i.e., level 1 thru 9, for instance) rather than screen- or field-specific security. The latter provides better flexibility and allows front-desk personnel to assist in the collection of co-pays.

The front desk will seem more knowledgeable and be able to assist greatly in collecting money due from patients if the system allows benefits verification and estimation prior to and during the patient's visit.

Without this functionality, practices will either write off these amounts unnecessarily or have to send a bill to each patient to collect. Handling patient responsibility amounts at the front desk during the visit is less costly and results in higher collections than handling it on the back end.

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Sending bills to patients costs between $4 and $11 per bill, and that takes a big chunk out of a $10 co-payment.

Expected reimbursement

Load the reimbursement and other terms of payer contracts into the practice management system. In other words, a charge for a particular service may still be $100, but now the system and payment posters know that if they bill $100 to AETNA it's coming back at one amount, say $40, and if they bill that same $100 charge to CIGNA, it's coming back at $60, and so on.

Today, a system needs to accept between 20 and 100 reimbursement schedules. Having these schedules in your system provides the foundation for accurate accounts receivable and electronic matching of expected to actual reimbursement.

Some practices are unsuccessful in obtaining reimbursement schedules from payers. This is especially true for small practices without much market clout. But many states recently passed legislation that requires payers to disclose and provide fee schedules to providers who have contracted with them.

There are also companies that, for a fee, can build and maintain expected reimbursement logic either inside or outside of your system.

On the back end

Once the practice has the front end designed to be able to understand contract terms and expected reimbursement, the back end needs to be able to post insurance and other mailed payments accurately--preferably electronically. This eliminates the manual step of entering payments into the system and freeing up staff who can then spend more time resolving payment errors.

Line item posting

The first step toward a solution is to get a system that allows for line item posting. This simply means that bills and payments can be received and posted to each line of a claim. Older systems that only allow payments to post at the claims level--which means only against the total amount of the claim--compromise a practice in two important ways:

1. They prevent implementation of effective electronic billing and remittance.

2. They cause considerable research on the part of the staff to determine which services were and were not paid.

Without line item posting your practice will have to hold resolution of a payment until the entire claim is correct and that tempts the staff to write off more or to challenge errors less frequently in order to avoid a backlog of work.

Electronic billing and remittance

Once it is certain that the schedules and rules are loaded and maintained correctly, then the billing and posting functions can be automated. The result is either fewer staff, or the same staff, working on claims error resolution rather than simply posting payments.

Most carriers prefer electronic over paper claims, and practices get paid faster on claims that are submitted electronically. Many carriers now offer electronic remittance. This automates payment posting to the proper claim line amount and produces an error report of all discrepancies.

These error reports are more important work than simply posting payments and allow staff performance and productivity measures to change from "number of transactions" to "percentage of total collections."

Add on, outsource or own?

Since practice management technology has only recently responded to practices' needs for better reimbursement management, perhaps the first step of those responsible for this important piece of management is to forgive themselves.

Many directors of billing and collections performed near miracles in collecting the money owed using systems that just don't fit the problem. But as the technology evolves, practices need to turn their attention to a solution. There are several options, each with advantages and disadvantages.

Option 1: Add features to current system

Perhaps you are on a system that already provides line item posting, supports electronic billing and remittance, and accommodates your security and other needs, but does not have the capability to store and utilize multiple reimbursement schedules.

In this case, sending claims out to a vendor to be assigned an expected payment amount is an option. Some vendors will take claims files and build expected reimbursement tables outside of the current system. When the payments come in they hit against that newly created payment table and flag discrepancies for the staff to pursue.

Advantage:

The upside of this add-on vendor is that it saves the practice the expense of replacing the current system. Another upside to using an experienced firm is that they work with the carriers all the time and know how to identify and pursue claims errors. So they bring a level of expertise and experience and focus that most medical practices cannot acquire on their own.

Disadvantage:

The downside of this type of arrangement is that it involves additional steps in processing. Claims are sent nightly or with each billing run, so the IT staff must establish procedures to ensure that the nightly process works seamlessly and that all claims are accounted for all along the way. This process is not at all internal to one's system and so there is an extra process that offers a new opportunity for mismanagement. Additionally, there is the expense and extra work of managing a vendor.

Option 2: Outsource

Another option is to completely outsource the function. A good time to do this is when a practice management system is already on the down side of its life cycle and needs to be replaced anyway.

Another is to just outsource the billing function to a company that provides IT and billing services in one seamless package. These companies will install terminals in the practice, integrate their billing, collections, and expected reimbursement management seamlessly within the practice, and guarantee performance at a fixed cost or percentage of net collections.

Advantage:

One major advantage is that the practice is not vulnerable to losing a key employee and losing a huge capability such as maintaining expected reimbursement tables or other system configuration. With tables in disarray, the practice won't have a reliable matching process.

Outsourcing partners bring expertise and depth of staff, which allows them to guarantee that the system and revenue process will always run smoothly. Unlike running one's own system and process, the practice's costs and performance are extremely reliable and there are no backlogs that require staff overtime or additional temporaries to resolve.

Disadvantage:

Many practices are not large enough to attract an outsourcing partner. Generally, these vendors are attracted to practices that serve 20 or more physicians. If the practice is large enough for this option, it is important to focus on contracting and building a trusting relationship.

Prior to contracting, hold the vendor's feet to the fire to prove that it's systems meet the functionality needs of your practice (just as you would if you were selecting a new system), and make it provide a detailed implementation and transition plan.

Once satisfied with the vendor's commitment and capability, then focus on performance requirements and guarantees in the contracting process. Realize that the practice also has certain performance obligations that the vendor needs in order to guarantee the work.

Finally, be sure to discuss an exit strategy that will allow the practice to change vendors without unduly disrupting the practice, and especially, billing and collections.

Option 3: Do It Yourself

A third option is to buy a system with the technology needed to effectively manage the complex multi-payer revenue cycle. This requires in-house staffing expertise, and it often means hiring one or two staff who are trained on the newer technologies. In-house staff will need to be capable of selecting, installing, running, maintaining, upgrading and securing the new system and data.

Advantage:

Many practices prefer to buy and run a system so that they have total control. IT directors almost always prefer this option because it means job security for the IT staff. With a competent staff, this option may offer cost savings over outsourcing. The theory is that once the system is purchased and paid for, maintenance and other costs are less.

Disadvantage:

The disadvantage is that most practices cannot attract and retain the technical or administrative expertise to achieve the same guaranteed results offered by the outsourcing vendors. If you do develop staff and they are competent, practices are still vulnerable. Just one or two staff departures can spell disaster.

The stark reality is that most practices just don't know how to run a system and they end up with major problems. This is particularly true as the newer systems provide more complex functionality.

In the traditional systems--where a charge is sent out with the hope of getting the right amount back--those systems are sometimes easier to run. To get the new functionality that is really needed to manage the revenue cycle, you will need a more robust IT staff.

Many practices buy systems because they don't understand how much of a commitment it is to run them. Software vendors are very good salespeople and they make it look easy. But there are several almost intractable problems with this:

* Vanishing savings

The initial cost-benefit analysis may even show that practices are saving money. Over the long run, this could be a more expensive proposition. In reality, practices do continue to pay because of staff turnover, system upgrades, backlog costs and obsolescence.

* Staffing

Practices still have to have dedicated staff and this has to be factored into the overhead.

* Obsolescence

Not only does hardware technology advance rapidly in terms of functionality and processing power, but constant changes in government regulation force numerous and constant software changes and upgrades, causing premature obsolescence.

Accounting and record keeping problems

Any time a system does not allow posting at a line item level, you lose the ability to automate things like directly loading data from the practice management system into the accounting system, reporting, and the capability to perform meaningful analysis.

Good data are essential to effective payer negotiations. Practices that demonstrate they have good data on the utilization, severity and demographics of the patient population enrolled with each payer do better in knowing which payer contracts to accept, decline and renegotiate.

Practices without payer-specific data must enter negotiations blindly and say "We don't know what you paid us, so we'll take whatever you tell us you want to pay us."

Knowing your real accounts receivable, knowing that all cash collected is posted and deposited promptly and accurately, and knowing that the practice is collecting all that it is owed are important.

Patients gain confidence when the staff bills them accurately and resolves billing issues promptly. Physicians are pleased when they know they will be paid for the care they provide. Payers perform better with electronic records and respond more quickly to data inquiries.

Without the ability to know the practice better than your patients, physicians and payers, your practice is left vulnerable to lost revenue and, usually, higher costs.

IT automation bonuses

As practices implement the technology that allows them to post at a line item and in expected reimbursement tables, other doors open for receiving electronic payments and other information from payers.

The benefits go beyond reliability to include the ability to automate the entire remittance process. Newer systems support correct coding. Practices whose physicians adopt electronic charge capture at the point of care marvel in the coding assistance built into these new systems.

Many of the newer systems actually have coding knowledge built in, so a physician can provide a service and then more easily and reliably search for the code and have the codes numbered correctly.

There are many, many CPT codes, diagnosis codes and other factors involved in getting a claim filed and billed correctly. These new systems alert physicians when they code incorrectly. The result is that claims are submitted correctly and electronically right from the physicians, bypassing the coders, date entry, billing and mailroom staff.

The savings are real and the coding accuracies improve both reimbursement levels and collection cycles. Back office staffs have fewer denials and errors to rectify because physicians are provided effective tools to code and bill a service correctly the first time.

In the end, no matter which option a practice chooses, automation issues should be addressed sooner rather than later since money literally falls through the cracks on a daily basis without a reliable system in place.

This will help practices gain control, improve their financial position and bring a new level of operational efficiency. Automation also addresses a major and constant irritation that weighs on providers who would rather be thinking about their clinical responsibilities.

IN THIS ARTICLE ...

Consider the advantages and disadvantages of various ways to automate your medical practice including adding on to your current system, outsourcing or buying your own new system.

Patti Rosenberg, MBA is a partner with JHD Group, which provides management and consulting services for large practices, academic medical centers and hospital systems. She can be reached by e-mail at [e-mail]

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