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Revenue cycle outsourcing saves health systems money, oversight, executives say

But in shipping the service to a vendor, first make sure you understand what responsibilities still rest with the hospitals.

Jeff Lagasse, Associate Editor

Northwell outsources its revenue cycle to Optum360.Northwell outsources its revenue cycle to Optum360.

Though the cost savings tied to outsourcing revenue cycle operations for large-scale health systems can be attractive, healthcare finance leaders say there are more than a few details to consider before handing over these processes to a vendor.

In fact, transitioning from managing in-house revenue cycle operations to putting that trust in a third-party firm can be downright difficult if handled in haste.

John Kerndl, senior vice president and operations chief financial officer for LifePoint Health, oversees finances at a hospital system that has its revenue cycle operations split between two different agencies. Of the 48 hospitals in the system, 46 use Parallon and two use Conifer.

[Also: Overwhelming support for outsourcing revenue cycle management in healthcare]

In deciding to outsource several years ago, there were three main considerations Kerndl and his team examined. The first was freeing up administrative teams to focus on other areas.

"Hospitals are very complex organizations," said Kerndl. "We're in a very robust, ever-changing environment. There was a sense that we could pull back any office functions out of the responsibility of our administrative teams and let them focus on things like executing their strategic plans."

Those teams, he said, now focus more on patient and employee satisfaction, which adds a value more than equal to the cost of outsourcing.

The second consideration was making sure the system was holding up its end on the regulatory and compliance side.

[Also: CFOs, CIOs both favor outsourcing for technology, analytics, Black Book report says]

"There are a lot of rules around how you bill and collect," said Kerndl. "It changes all the time. Instead of trying to stay on top of 50, 60 business practices to make sure they're doing everything properly … it just became much easier to be able to make sure that we were operating our revenue cycles in a compliant manner."

Lastly, the bigger the system, the easier it is to switch to a revenue cycle outsourcing model, said Kerndl. For example, if a system has two Medicare billers in a standalone office, and one of them leaves or is downsized, the system loses 50 percent of its capacity. On the other hand, if an organization has 50 or 60 Medicare billers and it loses one, it's much easier to absorb the loss.

For Frank Danza, senior vice president and chief revenue officer for Northwell Health, scale was one of the prime motivators for outsourcing. With the considerable size of the system, outsourcing allowed Northwell "to be a part of the national revenue cycle model with greater scale, and greater information."

"We can compete with other players on a more even playing field," he said.

[Also: Intermountain innovation chief: Healthcare must have a 'passion for people']

Northwell's arrangement with its revenue cycle partner, Optum 360, is still young -- the groups joined forces in April 2015 and became more fully integrated in late July of that year. But Danza is already looking to expand the system by customizing the integration of technology tools and building expertise in areas such as commercial building and the clinical appeals process -- other elements that he describes as being crucial to the health of the revenue cycle.

The transition was necessary, he said, but often complicated.

"It's a fairly extensive process," said Danza. "You have to go through all of the contracts and technologies and vendors that we use and marry them up with the (ones) that Optum uses and figure out how they're going to be merged or moved over to the outsourcing. There's a fairly intensive process you have to go through to make sure everything happens smoothly.

"You learn things about yourself. You learn things about your organization."

LifePoint's transition process began with examining the full scope of responsibilities, said Kerndl.

"When revenue cycle is outsourced, what are the responsibilities of the hospitals, and what are the responsibilities of the outsourcing organizations?" he said. "It sounds pretty simple, but when you start getting into it, there are a lot of areas that have to be thought through."

To help,, LifePoint set up a series of routine meetings with its vendors to discuss various metrics and to work through any issues -- something Kerndl said was important to set up from the outset.

He said it's also important to establish the ability to deal with any claim issues that may arise. Kerndl's system has a mechanism in place where the outsource vendor takes a claim, puts it in the system and then sends it to the right person at the hospital in question.

"It helps facilitate issue resolution on the claims side when it's something only the hospitals can resolve," he said.

Even if outsourcing is the right move, though, it still requires effort on the part of the system to make sure that everything is running smoothly.

"There's always a struggle," said Kerndl. "Communication is incredibly important; teamwork is incredible important. Just because you outsource doesn't mean you aren't integrally involved in communicating and working closely with those outsourcing organizations. So that can be a challenge. If something goes wrong, there can be a lot of finger-pointing. You need to make sure the two organizations work very closely together.

"If you have business offices that are impacted by those positions being outsourced -- those jobs are important to those communities, and we never lost sight of that," he said. "So that's a difficult transition."

LifePoint has made it a priority to find other positions for those affected by outsourcing, or at least to make sure everyone lands on their feet. It is, he said, one of the unfortunate costs of doing business.

At Northwell, Danza said the biggest adjustment is simply tweaking the company's overall revenue cycle philosophy.

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"It's a very critical function that we in the hospital business take very seriously, but very personally," said Danza. "When you outsource, you're letting that control go to the other company. That takes some getting used to."

Revenue cycle outsourcing is an important step, he said, and with Northwell's partnership still in its infancy, there will be plenty of work to do to make sure everything is integrated smoothly.

"This is a big move for us," he said. "We want to settle into this. We want to make sure that we design the technologies right. This will be a big focus for us over the next 24 to 36 months -- just to make sure we get things right."

Twitter: @JELagasse

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