Billing: Hand Off Billing Nightmares

December 15, 2008

Should you outsource your practice’s billing, or keep it in-house? Revenue cycle management vendors promise to reduce denials, improve collections, and get you your money faster. But, are they for you?


Peter Masucci, a solo pediatrician in Boxford, Mass., is glad that he outsourced the bulk of his billing and collection to athenahealth, a revenue cycle management firm in Watertown, Mass. His days in accounts receivable has dropped from over 60 to 23 days, “and at the end of the month, there’s money to pay my bills.” Far more of his claims are going out “clean” to insurance companies, so more of them are paid on the first pass. Plus, he cut expenses by eliminating a part-time billing position; now he has only one billing person.

Even with the fees he pays athenahealth, Masucci says, his overhead is lower than it used to be and his revenues are higher. The practice has finally written off $250,000 in A/R that accumulated over the years because older debts weren’t pursued. Now his net collection percentage is close to 100 percent.

Masucci’s practice has benefited from outsourcing its RCM partly because it was somewhat disorganized to start with. But it can also be argued that this approach helps some practices due to the nature of their specialties.

Peds-friendly option

Richard Ferrelli, executive consultant to the Pediatric Health Alliance, a 42-doctor group based in Tampa, Fla., points out, “Pediatric practices have very small claims compared to a surgical practice. Those small bills are harder to work than the large claims. So you’ve got to make it a pri­ority, and do it in a technologically savvy way, or you’ll have a lot of people working those claims.”

That was one reason, he said, why Pediatric Health Alliance chose to work with Med3000, based in Pittsburgh. Med3000 offered the group a choice of Web-based practice management systems, and it had the required expertise in technology and financial operations.

Would it make sense for your prac­tice to hire an RCM firm? That depends on a number of factors, notes Rosemarie Nelson, an MGMA consultant based in Syracuse, N.Y. “The major reason to outsource is a lack of expert staff. If you don’t have the expertise inhouse, you can refer your most important asset to a specialist, just like you’d refer a patient to a specialist.” On the other hand, she observes, there are many other steps that practices can take to improve their billing and collection processes on their own.

Here are a few things you should know about RCM companies if you’re considering whether to hire one.

The argument for outsourcing

RCM vendors maintain that they can do a better job than practices can on their own. Not only do they specialize in getting revenue in the door, they note, but they also have econ­omies of scale that allow them to offer a more consistent, effective approach using start-of-the-art technology. They point out that health plans have complex rules that are changing all the time, making it difficult for practices to prevent claims denials that increase staff work.

Of course, some groups do just fine on their own. For example, the St. Louis consulting firm LarsonAllen surveyed 23 practices that submitted accurate claims to their clearinghouse 99 percent of the time. Those practices had average days in A/R of 40 and a net collection ratio of 97 percent. They posted bills within a day and payments within two days, and they worked denials within 48 hours. They had processes in place to understand why claims were denied and to take corrective action.

Most practices, however, do their own RCM in an “unsophisticated environment,” says Richard Schickele, executive vice president of the physicians services division of Med3000, which has about 2,500 clients in 25 states. “They don’t even realize the opportunities they’re missing. They only look at cash coming in the door.”

When practices come to Med3000, Schickele notes, their claims denial rates are typically above 10 percent. The RCM firm, which receives a percentage of collections, works with practices to get the denial rate below 5 percent, “because that’s our margin. If we can’t get these claims going clean, it’s never going to work for us. And the client will also be unhappy, because we have to keep calling their office to fix the claims. So both sides are incentivized to get those denials down.”

This is one key difference between a revenue cycle management company and a billing service: Whereas the latter merely handles billing, usually for a percent­age of collections similar to that taken by RCM vendors, an RCM firm partners with a practice to improve its internal processes. Some RCM services also provide a practice management system and will train your staff to use it properly.

All of these management systems are Web-based, and practices typically pay an upfront fee for training and implementation. While that can be several thousand dollars per doctor, it might be worth it. Pediatric Health Alliance, for instance, was formed from the merger of several smaller practices, each of which had its own billing system. After looking at the cost of buying a new system for the whole group, the physicians decided to outsource instead.

RCM firms offer various technology options. Athenahealth requires clients to use its own billing and scheduling system. Med3000 gives customers a choice among several leading practice management systems, including Misys, Sage, GE, and Allscripts. And MedSynergies, a Fort Worth, Texas-based company, offers the GE Centricity and IDX Groupcast systems.

Especially if your practice is small, RCM companies may be able to provide a system you could never afford on your own. “We’re aggregating physicians to be able to deploy a high level of technology,” says Frank Marshall, chief operating officer of MedSynergies, which serves about 4,000 physicians in 35 states. In addition, RCM firms take care of software updates and server maintenance - something that Peter Masucci especially appreciates.


If you get a new practice management system as a result of hiring an RCM company, you’ll be able to transfer your patient demographics automatically. But the vendors urge new clients to enter the insurance information manually, to avoid errors and inconsistencies that can hold up claims.

Claims scrubbers on steroids

Top-of-the-line practice management systems all have claims “scrubbers” that spot problems that can cause denials. But RCM firms say they do it better. For example, athenahealth, which serves 13,000 providers in 33 states, has a “rules engine” that uses claims denials from all over the country to keep its scrubber up to date and help the firm alert practices about rule changes by particular plans. That makes its rules engine much more current and payer-specific than most systems’ claims scrub­bers, says Jeremy Delinsky, the company’s vice president of operations and innovation.

MedSynergies and MED3000 have also developed proprietary tools that incorporate plan rule changes and supplement their claims scrubbers. Does it work?

MedSynergies and athenahealth say their average first-pass payment rates are 95 percent. MED3000’s average rate exceeds 90 percent.

Practice vs. RCM duties

RCM firms divide up duties with practices in various ways. For example, like other companies, athenahealth sends billing statements to patients. But Masucci’s practice continues to call patients about overdue bills. Similarly, while athenahealth does all of the routine insurance billing and collection work, the practice still follows up on some claims that plans refuse to pay.

Athenahealth starts checking eligibility on scheduled patients a few days before they visit. Masucci’s practice confirms eligibility on new patients and walk-ins, and calls other patients when there’s a problem with their insurance.

In contrast, Med3000 has its clients handle eligibility verification. But, like the other RCM companies, it helps practices improve their eligibility checking, a key to reducing denials.

Good RCM firms also provide reports on key metrics and feed back information to clients about problems with their claims. Those are among the valuable services that Johanna Jones, administrator of Ophthalmology Associates in Forth Worth, Texas, says her group receives from MedSynergies. She also appreciates her ability to get advice from the firm’s operations people and to use them as a sounding board.

Jones says her group’s days in A/R average 28, and its first-pass payment rate exceeds 90 percent - excellent performance compared to national benchmarks. If her group really worked at it, she says, it might be able to achieve similar results on its own. But, according to her calculations, the cost of bringing RCM in-house would be comparable to what the group pays MedSynergies.

Cost structure varies

What you’ll pay for all of this varies. Athenahealth charges 2 percent to 8 percent of collections, depending on a practice’s specialty, patient volume, and claims volume. The cost to a pediat­ric practice would probably be in the upper part of that range, because of its high volume and low average charges. For the same reasons, Med3000 would assess a busy pediatric practice 6 to 10 percent of collections, says Schickele.

MedSynergies doesn’t charge a flat percentage. Instead, it breaks the revenue cycle into its component parts - including insurance billing, self-pay billing, and technology - and charges differently for each one. The bottom line is that if a practice is diligent about collecting charges from pa­tients and has a low denial rate, it will pay a smaller percentage of collections to MedSynergies.

Jones feels this approach is more reasonable than a straight percentage would be because her practice does a good job on the front end. She also likes the clause in the MedSynergies contract that allows her to bring any of the company’s services in-house with 90 days notice.

MedSynergies charges no termination fee if a firm leaves after the end of its contract term, which might last one to five years. Neither athenahealth nor Med3000 charges a termination fee, and athenahealth clients can exit at any time with 30 days notice.

Ultimately, the decision of whether to sign up with an RCM firm hinges on how good you think your practice is at billing and collection. “RCM is MedSynergy’s core business,” Jones points out. “So why not let them do what they do best? That allows us to focus on what our core business is, which is supporting these doctors and taking care of patients.”

Ken Terry is a freelance writer with years of experience in practice management. He can be reached via editor@physicianspractice.com.

This article originally appeared in the October 2008 issue of Your Best Practice.