In our last newsletter, we introduced the blog series: Why AR Outsourcing Fails and How to Avoid Common Pitfalls. We introduced two primary dangers with outsourcing arrangements:
- Hospitals that outsource frequently relinquish full control to the vendor and end up in an “out of sight out of mind” situation
- Vendors many times interpret “silence” from the hospital as positive reinforcement for the program they have implemented
There are lots of opportunities to avoid these common pitfalls, most of which occur in the stages before a vendor has been selected and during the implementation.
In this article we will focus on the first step to improving accounts receivable (AR) performance: Making the Decision to Outsource…or Not
In our experience, we have seen two common scenarios frequently occur when hospitals consider outsourcing their AR:
The first is the “shoot from the hip” or reactionary approach.
- Your AR continues to grow and/or age
- You know you have accounts that your internal staff just can’t get to or doesn’t have the expertise to work
- Outsourcing seems to make sense, and
- The next thing you know you are placing accounts with a vendor
The second is the “apathy” approach.
- You know about that you have a bucket of AR which continues to age, yet you haven’t addressed it
- You suspect that you need to outsource, but simply haven’t taken the time to build a business case and act
- The result: you continue to incur avoidable write-offs, bad debt, etc.
So let’s focus on the tricky scenarios where the outsourcing decision could go either way. We’ll stay away from the obvious populations that make sense to outsource like early out self-pay and bad debt, and will instead focus on populations which require a little more analysis. These can include:
- Aged insurance AR
- Low balance insurance AR
- Specialized populations (such as Auto/WC)
Many organizations rush into outsourcing without a lot of thought, or conversely, do not act when the decision should be obvious. Pinnacle Healthcare Advisers recommends a methodical approach to evaluating the outsourcing opportunity. Some questions to consider include:
- What problem are you trying to solve?
- Do you have a clear method for calculating the ROI of an outsourcing approach?
- What are the alternative solutions?
- What it would take to do the work internally?
- Do you have the expertise, capacity, and tools needed to effectively work the population internally?
- What are the costs associated with building a team internally?
- If the decision is made to outsource, what are the goals and how will you measure success?
- What is the cost?
- What is our expected ROI?
- What are the expectations of the firm two which you would outsource?
- Are they clear from the start and can they be measured?
Let’s look at an Example:
A small, rural hospital is struggling to keep up with their third party (auto insurance related) receivables. While the hospital attempts to stay on top of this population, the general feeling is that there isn’t enough staff to do the work – and that the team doesn’t have the right expertise. The requirements of managing this population include keeping up with state and federal lien laws, case law, etc., and maintaining proactive follow-up with patients, insurance companies, and involved attorneys
A proposal was made to outsource this population to a vendor with specific expertise. Pinnacle Healthcare Advisors recommends the following decision-making approach:
- Complete a staffing analysis to understand how many FTEs would be necessary to work this population internally
- Identify the tools, training, and resources necessary for an internal team to be successful
- Calculate the cost associated with outsourcing this population (assuming current performance is maintained)
- Compare the projected internal cost (fully staffed and trained) to the anticipated vendor cost
- Factor in expected improvement in performance based on each scenario
In our example, this hospital had a single FTE dedicated to working this specific AR population. The staffing analysis showed that in fact, 3 FTEs would be required to adequately cover the volume of activity. While hiring 2 additional FTEs might have been an option, the internal staff did not currently have the right tools or expertise to respond to attorneys’ inquiries which were occurring throughout the process. This resulted in a significant amount of unrealized reimbursements.
Alternatively, when factoring in the expected improvement (which could be achieved by engaging a partner with the right expertise) it was determined there would be a measurable ROI associated with outsourcing this AR population.
While this example may seem obvious, hospitals often fail to methodically evaluate different populations when making outsourcing decisions. We regularly find that hospitals either shoot from the hip or make no decision at all.
The hospital described above went through a simple evaluation exercise and has accomplished two things:
- They can clearly demonstrate why outsourcing this population makes sense
- They have a clearly defined outcome and ROI that can be measured once the program has been implemented
We’ve helped many hospitals just like yours assess their AR outsourcing opportunity. Some have identified skilled partners, and some have bolstered their internal capabilities. All have seen an improvement in their AR performance.
If you’d like to have a more detailed conversation about outsourcing, give us a call or send us a note.
Our next topic will cover vendor selection – where we’ll discuss how to objectively choose the right vendor partner for your outsourcing program.