Average Number Of Days To Collect Accounts Receivable Formula Relative Value Price-Performance Calculation for Outsourced Electronic Medical Billing Service

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Relative Value Price-Performance Calculation for Outsourced Electronic Medical Billing Service

Internet-based technology has been effectively used to reduce the cost of medical expenses, especially in the stages of electronic submission and scraping. However, an excessive focus on reducing the cost of individual program components while ignoring the total cost of payment puts medical responsibility in a poor financial situation. Quantifying the level of billing and its inclusion in the value of equity performance of the payment service produces a comprehensive financial picture and better decisions about the selection of the payment service and its management. Such an approach also results in higher remittance fees and better regulatory compliance. It is effective, however, only subject to guarantees of accountability and transparency.

The traditional sequence of administrative steps to streamline medical care and reduce costs requires the physician to invest in systems, personnel, and technology:

  1. Read your denials to eliminate errors by using claims filtering software
  2. Educate your former employees about the payroll system and know how to be a part of it
  3. Explore electronic submission tools and take advantage of technology
  4. Set guidelines for what claims and what dollar amount are eligible for appeals
  5. Give patients clear payment policies from the start

ROI on Claims Processing Technology

To illustrate, consider the case of three offices with 17 internists and a patient panel of 20,000, such as Potomac Physician Associates (Donato, 2003), in Bethesda, MD, which in 2002 introduced their claims and ethics management services. in the house. Assuming three FTE’s work the bill and use Vericle’s technology, the cost would be approximately $120,000 for labor and $36,000 for technology. For reference, Vericle technology enables comprehensive claim verification, patient demographics and pre-visit eligibility assessment, electronic claim submission, and comprehensive follow-up report etc. In addition, using Vericle technology, 98% of claims are now clean, adding additional value to the investment. in claims processing technology. In this case, the payment costs add up to $156,000 per year. This is a significant achievement in terms of the cost of making the case, because without advanced technology, the same job would require at least seven FTE’s, at a cost of $280,000.

Accordingly, the initial preparation before installing the Vericle technology costs at least $292,000 (it takes 1/3 of the cost of another low-cost package). Thus, an investment of $36,000 in advanced technology saved at least $136,000, clearly an attractive ROI of $36,000.

However, this method does not include all the costs associated with the internal payment method. It ignores the total revenue of the billing function, which is its ultimate goal.

Extent of Loss Caused by Inadequacy of Underwriting Process

To get a more comprehensive view, let’s calculate the total loss of this method caused by uncollected payments. We will continue to establish a proper foundation and look for a way to estimate the loss.

In our experience, the likelihood of payment decreases significantly over time. With few exceptions, claims unpaid for more than four months are ultimately forfeited. Hence the importance of A/R beyond 120 days. Therefore, to calculate the total loss we must first calculate the total income and then use the days in accounts receivable as a proxy for the underpayment.

For the case study at hand, we estimate operating income by assuming an average physician income of $300,000, which, for 17 physicians, adds up to $5,100,000. Next, as the stated percentage of clean claims being electronically filed is about average (98%), we will also consider the national average of A/R over 120 days, which currently stands at about 17.7% (Lowes, 2004). This number shows that the total loss in billings of $5,100,000 is approaching $902,700. Even if 40% of that A/R is finally collected, we will face a loss of income of $541,620.

Therefore, while this practice saved $136,000 in labor, it still lost $541,620 in payroll without the new technology installed.

The lesson of this illustration is that the cost of payroll work can be greatly underestimated due to the following pitfalls:

Pitfall #1: Focus on the cost of each part of the billing process instead of calculating the bottom line.

Pitfall #2: Reducing the costs of such areas as benefits, sickness, management, replacement, education, and vacations in the case of labor costs.

Pitfall #3: Focus on the number or quality of claims rather than the billed and paid dollar numbers.

Another approach, focused on the bottom line, ensures improved revenue before spending a dime:

  1. Measure your current A/R percentage over 120 days and assume (due to conservative management) that money is lost.
  2. Find a payment service provider with higher performance levels than your solution
  3. Base your management decisions on overall cost/performance metrics.

Price-Performance Computation

A paid service provider with guaranteed performance levels will charge a percentage of fees. This method balances the interest of the seller and the doctor and leads to a very low A/R beyond 120 days, often as low as 4% and 2%.

In this case, the difference in remittance fees between the two methods amounts to $463,020 or 9.08% more on the bottom line.

Note that payment quality is a key part of billing cost calculations and the decision to outsource a billing service is based on multiple improvements in billing quality. Such improvements must be so large that only a paying supplier can create and maintain the required volumes and economies of scale. Therefore, one should consider outsourcing only after being forced to ensure that the paying provider delivers high performance, the difference in performance is measurable and significant enough for low growth, and such performance can be independently and continuously verified. The current rule is that the new combined percentage of payment and uncollected income must always be below the internal A/R (the payment level is measured by the percentage of the amount paid in A/R over 120 days).

Additional Benefits of a Quantitative Approach to Billing Outsourcing

Also note that by outsourcing to an appropriate payment service provider, the practice frees itself from many additional issues related to process, personnel, and payment technology issues. In particular, the only remaining payment activity for system owners is the regular review of income and accounts receivable, in other words, a fully operational supervision. No need to manage the submission process, reconcile rejections, appeal to payers, etc. Finally, there is no need to deal with any technology issues, such as installation, maintenance, backups, disaster recovery, HIPAA compliance and upgrades.

References:

  1. S. Donato, “Three Steps to Few Points. Getting Claims Management Under Control”, Physicians Practice, April 2003.
  2. R. Lowes, “Performance Indicators: How to Cut A/R”, Medical Economics, September 3, 2004.

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