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Outsourcing revenue cycle services has its perks, but also pitfalls, analysis shows

Analysis found that while hospitals that outsource that revenue cycle collect more patient balance payments, getting the money takes much longer.

Beth Jones Sanborn, Managing Editor

A new study from public accounting, technology and consulting firm Crowe suggests that hospitals think long and hard before outsourcing their revenue cycle. It's not a financial no-brainer for everyone.

Crowe analyzed hospitals in 45 states: 553 hospitals within Medicaid expansion states and 378 hospitals in non-expansion states as of 2018. Metrics included accounts receivable, denials, bad debt, credit balance and cash to expected pay.

The analysis found that while hospitals that outsource that revenue cycle collect more patient balance payments, getting the money takes much longer. For point-of-service collections from patients, insourced revenue cycles collected 16.45 percent of total patient collections. Outsourced revenue cycles collected 19.68 percent. Self-pay after insurance collection rates for outsourced revenue cycles versus insourced were 38.72 percent versus 36.73 percent. While not a huge difference there, the uninsured/self-pay collection cycle tells a different story: 109.4 days versus 76.3 for insourced.

Higher denial rates and higher final denial write-offs also proved to be trends stemming from outsourced revenue cycles. Roughly 9 percent of patient accounts saw an initial denial for insourced revenue cycles and outsourced revenue cycles showed a slightly higher initial denial rate of 10 percent.

The report said that the numbers for insourced revenue cycles translate for an average 400-bed hospital into an additional $22.7 million of revenue, which requires additional efforts to secure payment.

Also, final denial rates showed some variance as well, with insourced revenue cycles showing a  1.65 percent final denial rate and outsourced revenue cycles exhibiting a 2.56 percent final denial rate. The difference may be associated with inappropriate use of transaction codes, Crowe said.

"The decision to outsource any core function (such as revenue cycle) is complex and should involve several management disciplines – finance, human resources, information technology, clinical operations, and managed care. The key management principle should be precise, transparent measurement of performance (sometimes validated by third parties), financial benefit, and progress toward organizational goals," Crowe said.

Despite it's somewhat dicey attributes, outsourcing is nonetheless getting a lot of consideration by executives as cost-cutting solutions. According to a recent Black Book survey that polled leaders from C-suites, hospital boards and senior managers from 709 hospitals and inpatient organizations showed that more outsourced services are in demand to free up resources.

The survey showed that 98 percent of hospital leaders are considering working with third-party vendors for in both clinical and nonclinical functions to save money and allow hospitals to focus on value-based programming.

"Outsourcing technology, financial services, and facilities management services have been long established ways for hospitals to transfer day-to-day administration of noncore functions to outside vendors.  However, the drive to deliver value-based care at the highest quality is pushing nine of ten hospitals to consider outsourcing to provide clinical expertise, as well," Black Book said.

Twitter: @BethJSanborn
Email the writer: beth.sanborn@himssmedia.com

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