Feature Story

Bringing outreach billing back to life

August 2002
Anita J. Slomski

When Ann Harris, manager of the laboratory outreach program at the Virginia Commonwealth University Health System in Richmond, told hospital administrators she could double the outreach program’s $3.2 million net revenue in three years, they paid attention. Hospital administrators agreed to spend $375,000 to $500,000 for the separate billing system with electronic ordering capability Harris said she needed.

"The Medical College of Virginia Hospital at the VCU Health System recognized that we were leaving money on the table as a result of being hamstrung by the hospital billing system," says Harris. For example, the hospital can only generate a bill on a UB-92 form, but many third-party payers want to receive bills on a HCFA 1500 form. "It’s of no benefit to a physician to send his Medicare patients to us and his other patients to a different lab because we can’t correctly bill commercial insurers," she adds. "We want to make it easy for clients to use our lab for all their patients and use the Internet to register those patients and retrieve test results."

Hospital billing systems are woefully inadequate for outreach, some say. Hospital billing departments often can’t or won’t generate detailed financial data for outreach programs. And hospital billing clerks often give short shrift to outreach claims, focusing instead on high-dollar inpatient claims.

"Our clients have a Rube Goldberg-type interface with us now," says David S. Wilkinson, MD, PhD, chair of the pathology department at VCU Health System. "They don’t get [fully automated] management reports listing the number of specimens we received from their offices in the last month and the cost to the patient. National reference labs give them nice, consolidated reports, and that’s what they expect from us. Our ability to grow the outreach business is limited by our anachronistic business practices."

A dedicated billing system allows a hospital to customize services to clients and makes it easier to generate spreadsheets to prove that an outreach program contributes to the hospital’s bottom line. An outreach program that has its own billing system can monitor claims and collections as well as generate timely bills with correct discount pricing for institutional clients. "To be financially accountable as an independent business, you have to have ownership of the billing process," says Harris.

That’s not to say every outreach program needs its own billing system; many do fine relying on their hospitals’ business offices, says Hal Weiner, president of Weiner Consulting, Florence, Ore. "But a lab that processes more than 1,000 requisitions per day in its outreach business can reduce days outstanding, achieve a higher collection ratio, and improve cash flow if it manages its own billing operation," he says. And how much does an outreach billing system cost? "You can buy a reasonable billing system for under $100,000," says Weiner. "But there is nothing you can buy for $5,000 to slap on your PC."

Consistent support from hospital administrators is crucial for an outreach program to successfully run its billing service through the hospital’s business office, maintains Doug Wussow, a Rhodes Group consultant who contracted with Misys Healthcare Systems to revamp the outreach program at Mary Washington Hospital, Fredricksburg, Va. "At Mary Washington, we had tremendous support from administration to create subprocesses so the hospital billing department could handle outreach claims, including hiring two people to do followup on those claims," says Wussow. "We haven’t found that support in many other places, and, without it, it’s very hard to make the hospital billing department work well for outreach claims."

Despite VCU Health System’s commitment to purchase a billing system for its outreach program, Harris will have to wait at least 18 months before Cerner’s ProFit module is installed. The billing system with Web-based ordering capabilities is undergoing beta testing.

VCU Health System has delayed other information systems projects while it rolls out a new clinical information system this fall. Until then, the outreach program will continue its cumbersome five-step dance of shuttling test orders and bills between the laboratory information system and the hospital billing department. "It’s not the best or easiest way to bill, but it works," says Harris. Eight lab staffers are dedicated to processing outreach claims and editing client bills so they are submitted correctly. "We found we can do a better job monitoring those claims than the hospital staff does," says Harris. "We all want to have jobs in the future, so we try not to write off anything that is billable."

The outreach department at Athens (Ga.) Regional Medical Center has found a less expensive solution to purchasing its own billing system. When the outreach program was started in 1995, the hospital established the program at a separate facility, which allows it to receive specific financial performance data.

"I’d like to kiss the person who made this smart move," says Charlene Harris, CHE, director of regional lab outreach. "On a monthly basis, we can pinpoint our charges, our collections, and our costs. We’ve demonstrated that regional lab outreach is, financially, a valuable service. Our charges are based on our costs per individual test, rather than an average cost. A lot of labs don’t know what their costs are."

Clean claims are more crucial to an outreach program’s success than an independent billing system, adds Melissa Moog, financial analyst for Athens Regional’s outreach program. "If you can’t generate clean claims, it really doesn’t matter whether you’re billing them or the hospital billing office is," she says. "Provided you have the cooperation of the hospital billing department, why go to the expense of having a redundant billing system? The easiest solution is to have dedicated staff in the business office to take care of small-dollar claims."

Athens’ regional lab outreach does, however, do its own billing for client accounts—which represents a minor amount of the hospital’s outreach services—to ensure that the information system applies the discount pricing correctly.

Few would disagree that collecting correct patient demographic and diagnostic information is the biggest challenge for outreach labs. "The largest portion of cost incurred in running an outreach billing operation is getting accurate data up front, not trying to collect," says Joe Stumpf, senior vice president of Misys Healthcare Consulting, a division of Misys Healthcare Systems. "Sixty-five percent of errors occur at the front end, such as when specimens show up with no insurance information or ICD-9 codes. Based on our research, the average collection rate for an outreach program is 35 to 40 cents on the dollar. But if you reduce those front-end errors, you can increase the AR for an outreach lab by as much as 50 percent."

When Misys consultants talk to hospital administrators about outreach programs, they tell them only 60 percent are believed to be profitable.

At the time the outreach program at Mary Washington Hospital decided to terminate its relationship with its outside billing company and hire Misys, its collection rate was only 37 cents on the dollar. "A lot of claims were being written off because the billing company wasn’t accountable for the number of successful bills they generated; they were paid monthly regardless," says Rebecca Damiani, director of laboratory services at Mary Washington.

Basically starting from scratch, Misys helped the outreach program create a billing interface between the lab and hospital financial system, developing a new requisition form to prompt clients to supply necessary information, and hiring registrars to register patients. (Under its at-risk agreements, Misys splits the AR gain with a client for 13 months.)

The outreach program also purchased five $6,000 optical imaging stations for its draw sites to scan advance beneficiary notices, requisitions, physician orders, and insurance cards. "No matter where the patient is seen, both the lab and patient accounts have immediate access to this information if there are questions about the registration, orders, or insurance information," says Damiani.

Two lab billing clerks spend several hours each day tracking down information on the 20 percent of requisitions that are incomplete. "These claims never go to the billing office until all the errors are corrected," she says. The claim denial rate: under two percent.

Since its overhaul, Mary Washington’s outreach program collects 48 cents on the dollar. "The revenue per outreach lab claim was $13.12 per test initially and $19.20 per test when we finished—an increase of 46 percent," says consultant Wussow.

And with improved billing, retaining clients and signing up new ones will be much easier for Mary Washington’s outreach marketing department, he adds. "They now have a product that allows them to provide an accurate bill three days after the close of the month. And because they can show a 40 percent increase in reimbursement, they have support in their own organization to market the program." Adds Damiani, "We’re now in a position to expand our courier service and to demonstrate to potential managed care clients that we operate a cost-efficient program."

No question, gathering accurate and complete billing information is less problematic when the patient is present. At Athens Regional, where 50 percent of the outreach business involves direct patient contact, the phlebotomists not only draw blood, they register patients and order tests. "Our patient service representatives are the best people to understand the diagnostic information and to make sure it’s correct," says Charlene Harris. "Our departmental registration accuracy rate is consistently in the 99 percent plus range. Having one person do the entire process is also efficient and faster for patients." The patient service representatives receive training in registration and test ordering, as well as phlebotomy, and their salaries reflect the added responsibilities. Registration accuracy and clinical accuracy are considered in their performance appraisals.

The headaches start when a specimen arrives with missing diagnostic or demographic information, or worse—a handwritten script from a physician. Outreach programs should not only rely on client service representatives to teach clients what information must accompany a specimen, but also supply requisitions preprinted with the client’s name and address, says consultant Weiner. "The next step is to add a pre-printed, bar-coded label so the requisition matches the specimen." For high-volume clients, he says, outreach programs may want to invest $500 per client to license software that prints a 2-D bar code that stores all patient demographic and diagnostic information, which is then scanned into the laboratory information system.

Collecting ABNs for Medicare patients, however, is a losing battle for most outreach programs—at least for now. "Even if an ABN is printed on the back of a requisition form, the doctors’ offices won’t have patients fill them out," says Athens Regional’s Moog. "They don’t have the tools to stay updated on which tests Medicare won’t cover." Adds Dr. Wilkinson: "Our requisition forms force them to at least consider the need for an ABN. But, in practice, this is almost impossible to comply with." And once a specimen arrives without an ABN, most labs do the test and write off the cost since the patient can’t be billed without prior notice.

Instead of writing off those claims, some advise billing a nursing home or client directly. "Until they see a bill because they failed to comply with federal legislation that requires an ABN, they will continue their bad habits," says Harris. "Of course, you stand the chance of losing that customer. But if you’re writing off a lot of work, it’s not good business anyway."

Harris estimates that the outreach program at VCU Health System writes off two to three percent of claims due to missing ABNs and another two percent due to such missing information as ICD-9 codes, provider name, or third-party insurers’ addresses. Harris has yet to take her own advice, however. "Our billing office doesn’t necessarily communicate with us that they are writing off claims, so we can’t correct that problem," she says.

But a solution is in sight for VCU Health System. Once outreach clients begin ordering tests electronically, the software won’t allow a requisition to be submitted without an ABN if one is required. Nor will any test be ordered without the client supplying the required billing information. Electronic order entry is the panacea outreach labs are banking on. "Anything you can do to get rid of paper and follow an electronic pathway will be the key to success in the future," says Harris.

Selling clients on the concept is another story. "All the labs we work with are looking at an electronic order-entry system for clients," says Wussow, "but a physician’s staff doesn’t want to enter a patient’s [demographic and diagnostic] information first in the physician’s management system and then in the lab system. It’s a lot faster to print off information from their own system and check a few boxes on the requisition form."

Outreach programs have to offer clients something in return for doing the lab’s data entry, agrees Weiner. "And the bait is to give them online access to test results in real time."

As more hospitals convert to electronic inpatient order-entry systems, outreach programs say it’s just a matter of time before all physicians and health care facilities become accustomed to ordering lab tests online. "We plan to start electronic order entry in hospital-owned physician offices," says Damiani. "And if that works, we’ll roll it out to other clients."

Labs have several electronic order-entry options. Application service providers offer browser-accessible electronic order-entry systems for about 25 to 50 cents a requisition, Weiner says. Or the lab can provide clients with EDI (electronic data interchange) terminals and software to directly access an LIS.

The ideal solution for the VCU Health System is for it to run its own Web server and have clients order via the Internet. "The most cost--effective approach for us," says Harris, "is to have clients use their Web browser. We certainly didn’t want to install software in every client’s office."

Anita Slomski is a writer in Evanston, Ill.