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How to Avoid Revenue Cycle Outsourcing Mistakes

In today’s evolving healthcare landscape, providers look for ways to better adapt to market conditions while sustaining profitability and gaining a competitive edge, so they opt to outsource some or all their revenue cycle functions to a third-party vendor. 

Healthcare providers are under intense pressure to reduce spending while improving care quality and revenue cycle outsourcing has the potential to significantly decrease costs and increase efficiency. 

A Black Book survey found that 80 percent of hospital leaders are considering or vetting full revenue cycle management outsourcing by the end of 2019. The surveyed hospital executives said they would partner with a third-party vendor to help manage their revenue cycle so that they could focus on decreasing costs and value-based care implementation.

The global healthcare revenue cycle management outsourcing market is projected to see significant growth at a compound annual growth rate (CAGR) of 11.9 percent from 2017 to 2023, according to one market report estimate, with the market reaching a valuation of $23 billion by the end of the period.

The decision to outsource revenue cycle management is complex but usually involves the elements of cost, access to expertise, technology, and scalability to be able to perform well under an increased and expanding workload and demand. Outsourcing allows providers to focus on their core functions and free themselves from the burden of paying a high amount of fixed costs for handling billing in-house. 

Here are some benefits to revenue cycle outsourcing: 

Lower overall cost (while achieving similar or better performance)

Advanced revenue cycle technology and optimized processes

Scalability of operations, such as adding new facilities

Access to experienced and centralized talent pools 

However, there are also some pitfalls to outsourcing especially if providers are not able to work with the right partner.  In common cases, reports of high denial rates and their causes remain undetermined due to a general lack of effective analytics and transparency. Some third-party vendors can become less professional, unresponsive and exhibit a lack of cooperation compared to the initial sales period. 

Recently, Astria Health (a three-hospital system in eastern Washington) filed for bankruptcy, citing poor A/R performance from revenue cycle outsourcing as the primary cause behind their declining cash flow. The third-party vendor was put in charge of office billing, claims processing, and collecting but failed to process large amounts of accounts receivable (A/R) in a timely manner, resulting in a significant cashflow shortfall for Astria Health. 

Therefore, here are some strategies to consider in avoiding revenue cycle outsourcing mistakes:

Performance is Key  

Performance should always be the key driver behind outsourcing decisions - not just cost, access to technology, expertise, etc. Pay attention to claim denial rates and patient collection times and compare it with other vendors. 

A partner must execute transparency in its services. If they cannot illustrate results or past performance, they are likely not a good choice. They should not only have a competitive price point, but also have strong performance and industry expertise. 

In defining contract terms with the third-party vendor, clearly and concisely define performance and service-level expectations, which could also carry bonus potential if the vendor overperforms. Setting objective metrics is crucial so that both parties know what the focus is and how they can work together to achieve their goals and enhance operational performance.  

Carefully Consider What to Outsource

The providers should also take into consideration the aspects of their revenue cycle that their organization must outsource. That said, there are some variables that are especially significant. Some organizations outsource their revenue cycle from end to end while some only outsource revenue cycle components such as coding and accounts receivable follow-up and the rest are retained in-house. What course an organization chooses will depend on its characteristics and pain points. Selecting the right partner for the specific revenue cycle component you are outsourcing is crucial and requires careful evaluation. 

Choose a Partner You Can Trust

Providers need to make sure that their relationship with their vendor is extremely transparent. Both sides need to understand that they are going to work very closely to succeed. Providers need to know their partner vendor’s support staff and capabilities well.  Are they offshoring any of their work?  Do they have experienced coders?  Do they have well-trained and friendly staff?  How do they handle claims denials?  

Outsourcing can be a highly effective solution to gain a competitive advantage. By choosing the right outsourcing partner, providers can better manage change and move toward decreased costs and increased efficiency so that they can focus on delivering better quality of care.

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