Could This Be the End of Insourced Billing?

June 11, 2013

This is my opinion of some of the current changes. The cost for billing your anatomic pathology work just went up; as payments for services decease the cost for billing has to decrease equally.  If billing costs do not decrease at a rate even to the decrease in payments then in fact your billing costs went up.  Look at the facts:  If your billing cost is 5% on an 88305GB that paid $105.86 then you paid $5.30 to get this claim paid.

FY 2013 MPFS Final Rule, released Nov. 1, 2012, CMS announced a 33% reduction to the global payment of an 88305.  Now the same 88305GB now pays at $70.46 in 2013 but it still costs you $5.30 to bill.  This is now 7.9% of the total payment.   This means you are paying an extra 2.9% for billing.  This may not seem much but on a practice that collects $10M a year this costs about $290,000 per year.

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How are you going to handle this increased cost?  Many independent labs are saying that they are not changing billing and that they are going to see how it plays out.  These labs have a strong local presence in their communities and have a given mission statement to support their local economy.  This is very admirable.  Some labs will choose to out-source billing and use the savings to increase efficiencies in the lab, increase marketing presence, or drive managed care contracting.

My opinion is that no matter what your business is you must choose the path of least resistance to stay competitive. Failure to do this leads to issues that defeat the business.  The key in any business is creating a profit margin. Those companies that can do this survive and those that don’t fail.

I can see the writing on the wall for self- billing.  The 2013 MPFS Final Rule cut the clinical lab fee schedule 4.5% and slashed the global charge 33% on 88305. These cuts are significant obstacles to overcome.  I fear some labs won’t survive this change.

If you consider the current out-sourced billing world you will see that these services are offering quality outcomes at very reasonable prices.  These billers have huge economies of scale.  They all have large proprietary billing platforms built specifically for pathology and lab billing.  Plus they can take advantage of the cost savings that come from off shoring the manual part of billing and data entry for example. These variables allow them to bill more efficiently and at a lower price than most in-sourced services.  As a person who has reviewed and audited pathology and laboratory billing processes and results for the last ten years I can comment that there are some very effective in-sourced billing sites. But, if you consider the future of further cuts from Medicare and managed care plans, and the proposed increase in the minimum wage and the burdens that come with the billing process changes, i.e. the point of service changes self-billing is going to become more arduous in the future.  Like independent labs, only the most efficient billing operations will maintain profitability.

The bottom line is this:  Most labs or groups that do their own billing have costs between 7% and 15%. A realistic outsourced cost is around 5.5% or 6%.

I often hear labs say their billing costs are 3% or 5%, although this number may be true, usually these labs have lab people double shifting as billing people. Furthermore when audited  their costs are found to be to be significantly more.  It is not unusual to find these labs are actually paying 10%-15%.  The highest I have seen is over 22%.  (This lab saved about $500,000 when they fixed their billing costs.)  Here is a simple overview if you lower your costs down to 6% from 15%.  This calculation looks at a lab that collects $4M per year:

Lab gross collections:  $4,000,000.00     Billing costs:     at 6%  $240,000

Billing costs:     at 7%  $280,000
Savings:          $40,000

Billing costs:     at 8%  $320,000
Savings:          $80,000

Billing costs:     at 10% $400,000
Savings:          $120,000

Billing costs:     at 15% $600,000
Savings:          $360,000

 

As you can see the benefits are obvious and please note this is only the cost benefit, it does not include an average of 2%-4% increase in revenue from using a new outsourced provider. A lab that collects $4M a year may find an additional $80,000 to $160,000 a year in revenue, add this to the costs savings and you can clearly cover the entire loss from the payment decreases. We have numerous labs that have moved through this process.  It is the only way to stay profitable and make a margin.

 

Mick Raich is a revenue cycle consultant who owns Vachette Pathology, and Stark Medical Auditing.  He can be reached at mraich@vachettepathology.com or at 866-407-0763 or 517-403-0763.

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