Giving receivables an 'outside' chance - management of outpatient transactions

Healthcare Financial Management, Oct, 1991 by Robin Michaels Slater, Ronald Corti, Joseph Privitera

PATIENT ACCOUNTS

Because of a greater number of patient visits and transactions, outpatient care typically involves more clerical and administrative work for less revenue than impatient accounts. One hospital turned to outsourcing its outpatient receivables -- contracting with an outside company to handle outpatient receivables. An outside company first can help an organization tacke an outpatient billing backlog and increase cash flow from outpatient accounts. Eventually, outsourcing can help an organization replace an outdated computer system and stem the tide of billing office employee attrition.

Chrysler Corp. Chairman Lee Iacocca is fond of saying that "a problem is just an opportunity in disguise." A 200-bed acute care hospital in Yonkers, N.Y., that was threatened by severe "opportunities" with its outpatient billing system found that turning over responsibility for the system to an outside source helped improve its internal procedures and computer system use.

Outsourcing outpatient receivables may not be a panacea for every healthcare organization's receivables, but success with outsourcing experienced by Yonkers General Hospital offers organizations with similar receivables problems an option to consider.

The concept of outsourcing gained national attention in 1990 when Eastman Kodak Corp., the multi-billion-dollar photographic company, replaced its department for management of information services with contracts for replacement service from outside vendors. In the healthcare industry, American Medical International (AMI), an international multi-hospital chain, recently signed a contract with a national information systems vendor to assume responsibility for AMI's data processing subsidiary, Professional Hospital Services.

Some healthcare administrators may see outsourcing simply as a resurgence of the "facilities management" approach that was popular in the 1970s, before computer systems became relatively easy to use. But managing outpatient billing operations as well as a hospital's computer system requires far more expertise from an outside source than the straightforward data center skills required by a facilities management approach.

Outpatient challenges

Like most acute-care, not-for-profit, community hospitals, Yonkers General derives the bulk of its patient service revenue from inpatients but handled a far greater load of outpatients in terms of numbers of patients registered and volume of transactions processed. Exhibit 1 illustrates Yonkers General's disparity between the groups for the past fiscal year.

Before outsourcing, the situation was a sort of Pareto's Law in reverse: 80 percent of the patient accounting department's clerical time and effort was spent handling accounts that generated only 20 percent of the hospital's revenue.

On the other hand, the majority of healthcare administrators' time and resources generally is focused on the area bringing the most revenue: inpatient receivables. Outpatient receivables is something of a poor stepchild in terms of management attention and computer resources.

Meanwhile, the outpatient market seems to be a growing segment of health care. Since Medicare's prospective payment system (PPS) began in the early 1980s, Yonkers General experienced an increasing shift of patient services from inpatient to outpatient. The hospital's clinic, emergency room, and private ambulatory departments have shown a steady annual growth in volume, and most new services introduced, such as ambulatory surgery, serve the outpatient sector. During the past year alone, the hospital's clinics experienced an increase in visits of more than 25 percent, while inpatient admissions slightly decreased.

In terms of revenue, however, the ratio between inpatient and outpatient care has remained relatively constant, with both increasing at the same slight annual rate. The result at Yonkers General is that the hospital's outpatient department faced an increasing burden from the volume of patients processed, while outpatient care contributed a relatively minor share to the institution's overall financial well-being.

PEOPLE PROBLEMS. Before outsourcing, Yonkers General's emergency department registrars reported to the nursing department, an arrangement common to many facilities. The logic behind this reporting structure dates to when primary duties in hospital emergency rooms were clinical, with little need for special skills in recording patient demographic information, encoding services and diagnoses, or analyzing insurance coverages.

Complications added to these basic processes now require far more special training and supervision than in the past:

* Registration. Today's third-party billing regulations can require up to four full computer screens of detailed patient demographic information.

* Coding. Since the advent of the Health Care Financing Administration's Common Procedure Coding System, emergency room personnel now must record every medical service performed and listed (to the level of detail of codes from Current Procedural Terminology, fourth edition, and modifiers), and a medical records administrator must be skilled in assigning appropriate codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM), judging from a physician's handwritten diagnosis and procedures performed.