This post is part one of a two-part blog.
It’s no secret that over the past few years, physician organizations have faced several significant financial hurdles. From adjusting to value-based care, to serving more and more underinsured patients, to the most recent financial hit: dealing with the effects of COVID-19. With margins already so tight and many practices still facing reduced volumes, keeping the doors open requires a practice’s revenue cycle to be operating in a precise, efficient way that is continually increasing cash flow.
This intensified financial pressure has highlighted certain pain points within a practice’s operational structure that can no longer be ignored. For example, traditionally many practices have handled their revenue cycle management (RCM) through a central billing office (CBO), where employees are hired to complete a myriad of RCM-related tasks. While having this key financial operation remain within the practice may seem like smart business practice, the reality is that maintaining this type of model in-house is expensive. It also requires leadership teams to constantly be searching for talent with the specific knowledge needed to perform RCM tasks skillfully and successfully. Without these specialists on staff, who also understand what specific best practices and processes need to be in place to maximize revenue, practices will have a difficult time sustaining financial stability.
Practices should consider these two critical drawbacks to a CBO when deciding how to best move forward with their businesses:
To properly staff a CBO, practices must set aside a significant amount of funds to cover salary and benefit costs. For example, the total salary cost of a CBO for a physician organization that employs 40 people in an area with a higher cost of living can total $2 million¹. Salary and benefit costs are also projected to increase by at least 5-10% per year² to remain competitive with the marketplace. Few practices can budget for this type of expense, on top of continual investments they need to make to clinical infrastructure. For a breakdown of CBO costs and their impact on practices, check out this infographic.
In addition, since there are often limited opportunities for development and advancement in an CBO, it can be difficult to retain employees leading to expensive turnover and recruiting costs. It can take up to 8-12 weeks to replace an experienced worker, plus 1-2 months before that replacement reaches full productivity mode³. Plus, when an experienced employee leaves, the rest of staff must work overtime to fill in gaps which can lead to burnout or a decreased focus on critical financial areas.
Many physician organizations think that if key revenue cycle functions like billing and collections are being handled efficiently then their CBO is serving its intended purpose. However, if an organization has manual or flawed processes within their billing operations or doesn’t have the right expertise in place to drive profitability in key revenue generating areas (payer contracting, coding, charge capture, etc.), it can lead to significant financial issues such as unnecessary denials, underpayments and lengthy times to bill and collect A/R. This can also lead to potential errors which will further drive up operating costs. For example, 67% of denials are appealable, however as many as 65% of denials are never reworked resulting in an estimated 3% loss in net revenue.⁴ MGMA also estimates that payers are currently underpaying physicians by 7-11%.⁵ Without the right processes and specialization in place, practices will continue to underperform and miss out on valuable reimbursement opportunities.
With so much at stake financially, practice owners no longer have the time or funds to be managing revenue cycle processes in-house. When discussing the drawbacks of maintaining billing operations internally, Craig Jones, CFO of District Medical Group said, “…should we really be spending our executive level time on the business office, worrying about where we find more coders, how we get billers to work well? Is that really the best use of our time or is the best use of our time focusing on growing the providers and the physician practice?” A high-performing RCM partner can simplify much of this administrative burden while increasing profitability and reducing cost to collect at a much faster rate.
For a breakdown of the key advantages revenue cycle partnerships bring to physician practice, read part 2 of this blog: 3 Ways Revenue Cycle Partnerships Produce Financial Sustainability.
1. R1 industry findings
Richard Lopez del Rincon is the senior vice president of office-based physician services at R1. Richard obtained his degree from the University of Miami.