3 steps for optimizing self-pay outsourcing

Healthcare Financial Management, Oct, 2004 by Maria H. Seman, Elizabeth M. Guyton

Are you thinking about outsourcing your sell-pay receivables? If so, you're not alone. Accounts receivable (A/R) outsourcing has become more common in health care as hospitals seek ways to improve their operational performance. Self-pay receivables, in particular, are generating much of this interest (see "Why Self-Pay?" page 44).

Reducing bad-debt expense by increasing net recovery rates and accelerating cash flow by ongoing account placements can improve the hospital's bottom line. In many instances, a well-structured outsourcing program focused on self-pay accounts can achieve a positive return on investment within a few months. Chiefly, this success is the result of vendors becoming more specialized and proficient in the dynamic business of A/R management and offering technology advancements.

Yet achieving financial gain through outsourcing this function isn't automatic. It is important to take the proper steps to ensure that your outsourcing program is well designed and is able to generate meaningful results-either as a one-time cash benefit or for longer-term results and profitability.

What can you do to help facilitate this success? Consider the following three steps.

1. Carefully Select Your Outsourcer

Many outsourcing companies offer receivables management services-from full service billing/follow-up account collection activities to specialized services, such as bad debt, self-pay, and Medicaid eligibility. Preparing a request for proposal (RFP) for specialized services will help you determine the best partner for your organization.

Identify vendors for self-pay outsourcing To identify candidates, contact professional organizations that are familiar with various outsourcing companies. A prospective vendor list should include some national/international firms, a few regional companies, and local agencies.

Develop the RFP. Clearly articulated guidelines allow vendors to focus their response on your specific needs. At e minimum, the RFP should include a brief overview of your hospital, scope of services requested, volume expectations (aged A/R and expected daily account placements), issues the vendor should address specific to self-pay collections (for example, operational workflows, self-pay collection techniques, specialized interactive voice response technology, and staff/training), and basis of the selection process, including timeline for decisions.

Evaluate responses. RFP responses should be evaluated on five key areas weighted according to your strategic business objectives:

> Background and references

> Financial indicators, such as fee schedule and vendor's financial history

> Operational indices, such as staffing resources and skills, hours of operation, and workflow processes

> Technology (including the ability to interface with your accounting systems, provide "real-time" access to information, and transfer files electronically)

> Administrative resources, such as dashboard and reconciliation reports

Depending on your needs, you may want to examine some key differences among vendors. Some examples may be their experience in data management, customer service, long-term clients with sustainable results, staff incentives, automated reconciliation procedures, reporting tools, and quality improvement practices.

Select the vendor. Request a formal presentation from the finalists to focus on the details of their programs and ask specific questions about program components and costs. Individuals who will oversee the day-to-day operations of the program should participate in these discussions. Site visits with finalists also should be conducted prior to selection. Depending on your findings and volume of receivables, you may need to consider outsourcing to more than one firm.

Negotiate the service agreement. The trend in outsourcing arrangements is toward performance-based, service delivery-oriented agreements and less on cost savings. It is best to finalize the agreement before starting design and implementation.

2. Design for a Seamless Transition

Program success depends on rapid, seamless integration of another business entity into your operation. Technology synchronicity coupled with the vendor's "fit" with your business office staff will be the determining factor of how soon your program will be implemented and its sustainability.

Approach. The program should accurately tag accounts in the hospital's host system, periodically reconcile account transfers, establish workflow processes for managing receivables, and set realistic performance expectations. Regular, frequent communication is critical, with the vendors as well as the various stakeholders in your organization (key management and executive staff, department managers, and the business office staff). Also, given today's legal climate, it is particularly important for providers to require the vendor to adhere to the organization's collection policies and procedures regarding fair debt collection and patient satisfaction.

Implementation team. Include representatives from hospital patient financial services, vendor representation, and information technology (IT)/telecommunication staff. A project manager should ensure key milestones are met.