A Growing Way to Collect All of the Revenue That You're Due: Revenue Management Companies

Kenneth J. Terry


January 26, 2010


In tough times, doctors need to collect every bit of money they're entitled to.

But not every practice has the in-house resources or the knowledge to do this well, and the performance of billing services varies. Some practices have found they get better results by using revenue cycle management companies (RCMs). These firms not only bill on behalf of practices but also help them improve their processes, ranging from eligibility checking and coding to collecting copays and pursuing patients who don't pay their bills.

Leah Artega, a dermatologist in Brookline, Massachusetts, and her three partners used traditional billing services for years. But when the practice's billing service performance declined, the practice switched to Lighthouse, an RCM and software company now owned by Ingenix.

By using the company's practice management system and its other services, Artega says, her practice has cut its days in accounts receivable (A/R) from 40 days to 28 days or less. At the same time, its net collection ratio has risen to 99%, far above what it used to be.

Not every medical practice needs an RCM. Practice management consultants say that well-run medical practices can get the same kind of results with skilled in-house billers, or with some traditional billing services. But RCM firms can often help practices that have cash-flow problems or cannot find or retain first-rate billing personnel. As a result, your circumstances may dictate whether this is an option you want to consider.

"The major reason to outsource is a lack of expert staff," points out Rosemarie Nelson, a consultant with the Medical Group Management Association (MGMA). "If you don't have the expertise in-house, just like you'd refer a patient to a specialist, you refer your most important business asset to a specialist."

Cindy Dunn, another MGMA consultant, says that RCM firms benefit some practices, especially those that are poorly managed and don't have good processes in place to maximize collections.

"An RCM company works with you as a partner, and requires you to pay more attention to the many facets of the revenue cycle, starting from the time a patient makes an appointment until their care is complete. It can help you identify the holes in your practice."

In addition, Dunn notes, some RCM firms tout their ability to stay on top of health plans' complex, ever-changing rules. "AthenaHealth, for example [a company based in Watertown, Massachusetts], takes the knowledge that they gain from EOBs [Explanation of Benefits] and why things were denied by payer, and share that with you to try to catch things before they go out." By doing this, she notes, they "automate" the knowledge of skilled billers.

Firms May Bring a Variety of Benefits

RCM companies usually charge between 2% and 10% of collections, depending on the type of practice and the extent of the services they provide. Billing services typically charge 6% to 8%. A surgical group with a preponderance of big-ticket charges will pay a smaller percentage of revenue to an RCM firm than a primary care practice that has many small charges that are more costly to collect.

Some RCM firms, such as Pittsburgh-based Med3000, also provide management services that go beyond billing, and they charge practices more for that. An eight-doctor family practice in Pittsburgh, for instance, pays Med3000 about 10% of revenues for billing, human resources, taxes, insurance purchasing, automatic patient callbacks, and the services of a practice manager.

An RCM firm may offer practices its proprietary practice management software or a choice of leading practice management systems. In either case, you may get a system that your practice couldn't afford it on its own -- although some RCM firms charge a few thousand dollars upfront for implementation and training. This training includes charge entry, which most RCM firms require their clients to do.

Claims Go Out More Quickly

Artega is glad that her practice took data entry in-house. Her former billing service made many errors when entering the charges, resulting in claims denials, and claims were often submitted to insurers 2 or 3 weeks after the date of service. Now charges are entered the same day, and Ingenix sends them to clearinghouses within 24 hours. The practice hasn't had to hire anybody extra to do the charge entry because the doctors circle diagnosis and procedure codes on their superbills, making data inputting fairly simple.

As do most RCM companies, when Ingenix's staff catch a billing error, they send the charge back to the doctor's staff member who made the mistake with a message explaining how to fix it. Artega's staff members are annoyed by those "to-do" messages, she says, but they learn from them.

For example, as a result of the RCM's feedback, Artega's office manager noticed that many health maintenance organization claims were being submitted without referrals or waivers authorizing the practice to bill patients directly. So the practice policy was changed to require patients to sign waivers if they don't have a referral slip with them.

RCM companies also help practices check insurance eligibility. For example, AthenaHealth "sweeps the schedule 3 days in advance and tells you you've got someone coming in who no longer has insurance coverage," says Ted Sullivan, director of physician services at Winchester Hospital in Winchester, Massachusetts. This allows Winchester's physician offices to call patients before their visits to discuss their payment method. In addition, Sullivan says, a front-desk person can confirm eligibility when a patient arrives by clicking on a button in AthenaHealth's Web-based practice management system.

Outsourcing Changes the Workflow

Sullivan runs a management service organization that manages a group of 60 physicians, 50 of them employed by Winchester Hospital. The primary care-driven group has a central business office that used to include 22 billers. Now that number is down to 7.

The remaining staffers do charge entry, collection and posting work for the hospital's emergency department and another large client that chose to use AthenaHealth's basic service, which covers only its software and claims submission.

The Winchester group contracted with AthenaHealth in 2001, when it was experiencing poor cash flow and a lot of turnover in its billing department. Sullivan liked the idea of outsourcing much of his staff needs and also appreciated AthenaHealth's electronic "dashboard," which gives him up-to-date financial data.

Another plus, he says, is AthenaHealth's "rules engine," which constantly updates its software on the basis of changes in health plan rules for claims submission. By analyzing all of the explanation of benefits or electronic remittance advice that its thousands of clients receive daily, AthenaHealth says, it can keep up with most of these changes. It thereby increases the percentage of claims that are accepted on the first pass through insurance companies' processing systems. AthenaHealth says that its clients have a first-pass acceptance rate of 95%; Med3000's average rate exceeds 90%.

Like AthenaHealth, Ingenix uses feedback from the claims denial trends it sees in Explanations of benefits to update the "claims manager" tool in its software. "We're constantly refining the claims manager content to the point where we're raising the percentage of first-pass pay rate to historic levels," says Bill Scatchard, vice president of Care Tracker for Ingenix. For example, he says, 97% of the claims his clients send to Massachusetts' Medicare carrier go through on the first pass.

Still, Operating Costs Don't Go Down

While RCM companies can increase a practice's revenues, they are unlikely to reduce its costs for billing and collection. Even if a practice outsources its billing work to an RCM firm, it still needs staff to do charge entry, usually in conjunction with nonbilling work. That cost, plus the RCM firm's fee, roughly equals the cost of doing it all in-house.

RCM companies increase collections partly by decreasing the number of denied or pended claims and the length of time that bills spend in A/R. Equally important is the effort they put into collecting unpaid claims and patient bills.

The practices we contacted said their RCM firms do a pretty good job on both insurance and patient collections. Internist Arnold DoRosario, medical director of PriMed, a 65-doctor group in Bridgeport, Connecticut, notes that Med3000 has more clout with the local health plans than any single practice does; as a result, he feels that it can get the plans to address PriMed's claims issues more quickly. Sullivan also feels that AthenaHealth works hard to reduce his group's A/R. There's some concern in his organization that it might not pursue certain accounts as far as it could, but he suspects most of these aren't worth the effort.

In any case, Winchester Physician Associates is satisfied with the vendor's overall performance. Since this group signed up with AthenaHealth, Sullivan says, the days in A/R of its average office have dropped from 51 to 28. Cash collections are up 6.5%, "which is a lot of money," he says. And net collections are at 99%.

Sullivan is also glad that his billing and collection operation is now running smoothly. "There's a value beyond the collections to being a capable organization that doesn't worry about billing. You can create strategies to make more money."


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