Revenue Cycle Management

Key business consideration

In-house operation

Contracted service

Significant front-end capital investment required



Substantial lead time before start-up required



Upgrades and innovations readily implemented



Close involvement by physicians (owners) required



Cost of operation correlated with volume of medical services



Physicians (owners) have substantial control over operation



Attention to interests of physicians (owners)



Financial and compliance risk is diverted



  • Front-End Capital: Setting up an in-house billing operation requires substantial capital. A computer, software, office space, office equipment and furnishings, and numerous other items of major and minor equipment and supplies must be leased or purchased. Staff must be hired, and there will be at least a few weeks of downtime during which they finish setting up the office, develop operating policies and procedures, become thoroughly trained, and perform other tasks necessary before the first claim can be released. All of this must be funded via equity contribution of the physicians or owners, or through borrowed funds.

    Commercial medical billers are staffed and equipped to begin processing your charges and claims on “day one.” There typically is no capital buy-in , security deposit, or other upfront cash required of new clients. Company representatives will meet with you and, if indicated, your clients (e.g., a hospital) to create the initial set of billing and collection policies , develop a fee schedule, establish data transfer links, and perform other tasks needed to get you going, all as part of its standard new client start-up service (i.e., no extra charge). There may be an additional fee charged by the commercial biller for an out-of-the-ordinary data link or other arrangement you want that is unusual or unique to your practice or laboratory.

  • Start-Up Lead Time: As suggested in the immediately preceding point, it is unlikely that a “from scratch” in-house billing operation can be set up and “turned on” in fewer than perhaps 6 weeks. In contrast, an experienced commercial medical biller can probably have you up and running in 2 weeks or so, assuming there is nothing unusual about your medical operation. You must judge whether start-up time is an important consideration in your in-house versus contracted billing operation decision.

  • Upgrades and Innovations: Claim-filing requirements change constantly, and some, such as the pending transition to International Classification of Diseases-10th Revision-Clinical Modification (ICD-10-CM) diagnosis coding (scheduled for October 1, 2015 at the time of this writing), have significant implications for the file structure, electronic claim field population, and related specifications for medical billing software . Furthermore, innovations in office equipment and electronics become available on a regular basis, and these may hold promise of staff productivity gains.

    Software and office equipment upgrades can be costly and time-consuming to research and implement. Depending on the size of your in-house billing operation and the technical savvy of the personnel, evaluating and implementing worthwhile innovations and upgrades can be challenging and may be quite expensive as well. Of course, a relatively small commercial medical biller will face the same challenges, whereas a larger contracted biller likely will be in a position to integrate upgrades and innovations with relative ease. The key takeaway from this discussion is that you need to take technology changes into account in your decision to go with an in-house versus a contracted billing operation.

  • Physician/Owner Attention: Physicians and laboratory owners should always play an active role in the operation of their billing process, whether it is in-house or contracted. However, their role should in most instances be limited to setting and periodically validating operating and collection policies , participating in payer contract negotiations, approving capital and other major expenditures, monitoring performance, and other high-level matters. In general, it is not a wise use of valuable physician or owner time to become involved in the day-to-day operation of a billing and collection system.

    A knowledgeable, experienced, loyal, self-motivated manager is vital to the successful functioning of an in-house billing operation. With such a person on board, chances are the physicians or owners will have no need to involve themselves in anything other than performance-monitoring and high-level decision-making activities. Otherwise, it may be necessary for at least one physician member of the group to take a more active role in day-to-day operations.

    A contracted billing operation, particularly when the company is well-managed, sufficiently capitalized, and has several pathology and laboratory clients, seldom requires more than high-level policy and performance-monitoring involvement by physician and laboratory clients. Due diligence during the proposal evaluation process is very important in these regards because a less-experienced or less well-managed commercial medical biller may require much more hand-holding or close scrutiny.

  • Fixed vs. Variable Cost: In the short run at least, an in-house billing operation represents a fixed cost of the physician practice or laboratory. There is virtually no opportunity to reduce space, equipment, insurance, maintenance, and related costs if the volume of medical services rendered by the physicians falls due to seasonal or other factors. Similarly, labor costs typically cannot be quickly adjusted by more than a nominal amount to keep pace with changes in service volume; for example, if you practice in a tight labor market, it may be difficult to find a sufficient number of qualified people to handle a materially higher volume of medical service transactions. In general, it is best to assume that you cannot materially influence your in-house billing costs with less than 3 or 6 months’ notice.

    Commercial medical billers typically charge for their services based on a fixed percentage of collections. (Alternatively, a fixed fee per claim or transaction may be imposed.) Hence, the cost of billing automatically increases or decreases as the volume of medical services by the physicians or laboratory changes. (There will be a slight lag when compensation is based on a percentage of collections, because it typically takes an average of about 30–45 days to convert a medical service into a cash receipt.) This is an important advantage to physicians and laboratories that find themselves in a period of sustained growth or decline or whose volume of services tends to fluctuate due to seasonality or other reasons.

    A common mistake made by physicians and laboratories when comparing commercial medical biller proposals is to focus on the percentage of collections or other rate of charge being offered. In particular, it is often assumed that the least costly proposal is the one with the lowest percent of collections quotation. What you should focus on is the net percent of collections; that is, percent of collections adjusted for the expected rate (percentage) of revenue converted to cash according to the experience of the commercial biller. A 4 % of collections quotation as the biller’s proposed charge to you may seem attractive compared to another biller’s quotation of 5 %, but that number suddenly becomes much less compelling when you factor in a finding that the first biller’s average collection rate is 10 percentage points less than that of the second biller. “Save a dime, lose a dollar” is not a formula for financial success.

  • Physician/Owner Control: Physicians and owners of laboratories will have greater or lesser need to control the billing operation depending mainly on personal preference. An in-house billing operation has the advantage of offering maximum control to physicians and laboratory owners. Of course, increased control may also mean increased time commitment, which may not be a wise use of valuable physician resources. On the other hand, contracting with a commercial medical biller does not—or at least should not—mean a complete loss of control. Well-run commercial medical billers often go out of their way to ensure that client wishes, desires, and directives are integrated into the workflow for each client account. In short, contracted billing frequently permits pathologists to maintain satisfactory control of the overall operation, while avoiding getting caught up in workaday, mundane matters.

  • Focus on Your Practice/Lab: There is no question that one possible advantage of an in-house billing operation is that the attentions of all its personnel are devoted 100 % to your individual practice or laboratory. This dedication will be of greater or lesser importance depending on the personal philosophy of the physician members of a group or the owners of a laboratory. Of course, the value of a dedicated focus might be offset by factors such as a staff that is too small to readily keep up-to-date with the many external rule changes that regularly occur.

    A common advantage of a commercial medical biller is larger size due to service to multiple clients. The larger size accommodates economies of scale as well as intangibles such as expertise in the rules associated with particular physician specialties. Even though commercial billers have a fiduciary responsibility to multiple clients at any one time, most assign a client service representative to each individual account such that a close working relationship is established and maintained. In our experience, well-run commercial medical billers are able to give their individual clients personal attention to the extent that is satisfactory to most pathology practices and laboratories. Nonetheless, this is something you should include as part of your due diligence when evaluating a proposal from a commercial medical biller. Obviously, larger size does not guarantee better service—some of the most attentive commercial medical billers are relatively small.

  • Risk Diversion: Little or no opportunity for diversion of financial or compliance risk exists when an in-house billing operation is conducted under the legal umbrella of the professional practice or laboratory. In that instance, the actions and omissions of billing and collection personnel flow directly to the employer, which is the same entity that employs the physician practitioners. Some financial risk may be diverted when the billing operation is set up under a separate service company, but you should confer with your legal counsel to determine if this is an alternative worth pursuing under your state statutes. Your general liability insurance agent will recommend coverage terms that take your in-house billing and collection operation into account.

    Under most circumstances, commercial medical billing companies are solely responsible for their own financial affairs and business risks; physician and laboratory clients typically do not share in the profits of these companies, nor are they liable for any losses that commercial billers might incur. Of course, you might suffer suboptimal collections via poor performance if the commercial biller you select is undercapitalized or falls on hard financial times. In addition, if a disaster such as a fire or lightning strike befalls your commercial biller and destroys its physical plant or computer system, all of your account receivable and related records could be lost if the biller does not have a robust disaster recovery plan in effect. You can protect yourself to a large extent by conducting necessary due diligence steps in advance of signing a contract with a commercial biller. Furthermore, your insurance agent will advise you regarding business interruption and related coverage that will protect your company in case something untoward happens to your commercial biller, including misadventure of its employees, such as defalcation involving monies collected on your behalf.

    A common misconception holds that physicians can transfer Medicare and other payer compliance risk to another party, such as an employer or commercial medical biller. Although there are technical nuances that come into play any time an allegation of compliance violation is lodged, you are best advised to disregard that advice. The truth is that, in most situations, physicians, group practices, and laboratories are liable for the accuracy and compliance of claims filed in their name, regardless of whether the claims are prepared and submitted via an in-house operation or a contracted billing agent. This is why it is recommended that physicians, group practices, and laboratories conduct periodic (e.g., every 6 months, but no less frequently than annually) internal audits of the claims and patient accounts that are managed by their in-house or commercial billers. (An independent expert might be retained to conduct the periodic audits to assure their thoroughness and impartiality.) Such internal audits will permit immediate correction of any identified issues and inappropriate claim preparation protocols and will help mitigate the compliance liability to which the provider will be held in case of challenge by a regulator or private insurer.

Key Concept

Using an external vendor for billing does little to reduce compliance risk.

The preceding discussion has been intentionally simplified by assuming that there are only two types of billing operations: completely in-house versus completely contracted. In reality, there are hybrid arrangements to take into account. A common hybrid arrangement uses in-house billing personnel who are employed by the physician group or laboratory, but the billing and accounts receivable management computer, software, and associated support are leased from a commercial medical biller. (Variations on this basic theme are found here and there.) A hybrid arrangement can mitigate the more significant disadvantages of both “pure” types of operations. For example, the initial capital investment can be reduced by a material amount, and upgrades and innovations would be the responsibility of the commercial biller. As stated earlier, there is no “one size fits all” solution to the billing operation decision: Feel free to “think outside the box,” and realize that working with an experienced pathology/laboratory financial consultant may be a wise investment to help guide you through this very important process.

Another fact to consider is that the billing operation decision you make today need not last forever. Not infrequently, groups and laboratories start out with a contracted biller and later migrate to an in-house operation (or a hybrid arrangement) when growth in medical service volume and greater business maturity support the wisdom of that change. Circumstances may direct that movement in the opposite direction—from in-house to contracted—is the sensible course of action. The decision factors enumerated above apply in these situations with equal emphasis depending on the practice or laboratory start-up circumstance.

We conclude this section by repeating an exceedingly important point made a bit earlier: No matter the style of billing operation you select (in-house, contracted, or hybrid), the level of trust you have in your billing manager or client service representative, or any other consideration, you must objectively, closely, and continuously monitor the performance of your billing operation on an ongoing basis. Monitoring includes careful evaluation of the monthly collections and receivables reports as well as periodic audit of claims, remittances, and patient accounts. Monitoring is necessary to provide early detection of problems, mistakes, and persistent deviation from established policy. Failure to conduct appropriate monitoring activities on a regular basis can lead to suboptimal practice or laboratory financial performance at a minimum, or worst-case scenarios wherein federal or state regulators are poring through your records in preparation for compliance sanctions against you and your physician associates.

Key Concept

Built or bought, you still need to monitor and audit your billing system regularly.

Getting the Data for a “Clean Claim”

Case: Getting the Data for a “Clean Claim”

Your spanking-new state-of-the-art billing operation is all set up and ready to go! But wait a minute…how do we get the patient demographic and insurance information from the hospital to our biller? Where will the CPT procedure and ICD diagnosis codes for our cases come from? What about other “clean claim” information like referring physician, performing physician, Clinical Laboratory Improvement Amendments (CLIA) number , national provider identification numbers, etc.? Your head is about to explode!

Discussion: Relax…take six deep breaths…then calmly consult the following analysis of key billing data you need to collect and manage to file “clean claims” on a regular basis. In medical insurance parlance, a “clean claim” is one that is complete and accurate in all respects, such that it sails through the insurer’s payment processing system without tripping an integrity edit—the claim is promptly and correctly paid the first time through. The prime objective of your in-house or contracted billing operation is to maintain as high a “clean claim” performance level as possible.

Four general categories of information are necessary to prepare a “clean claim” . They pertain to the patient and his/her insurance coverage, the health-care setting and physician participants in the care of the patient, the medical services provided to the patient, and idiosyncratic data such as procedure code modifiers . The specific information that falls under each of the four categories is explained below.


Patient Demographic and Insurance Information: Commonsense information about the patient and his/her insurance coverage is critical to the preparation of a “clean claim.” The patient’s name (including middle initial), address, birthdate, sex, and telephone number are required. The insured person’s name (including middle initial), address, birthdate, sex, and telephone number are required as well, if the patient and insured person are not one and the same. (The relationship of the insured person to the patient, including “self,” must be disclosed.)

The name and address of the primary insurer are needed, as well as the group/plan number and the individual member identification number. The same information is required for any secondary insurer. A secondary insurer may be a plan such as a Medicare supplement that steps in to pay any deductible and/or coinsurance for which the patient/insured would otherwise be personally responsible.

If the condition for which the patient received medical care is employment- or accident-related (e.g., auto), that information must be captured and reported too. Workers compensation or subrogation of liability may be implicated by an employment- or accident-related event.

Pathologists and laboratories are “downstream” health-care providers, meaning that they seldom have face-to-face contact with patients; instead, they receive medical orders from physicians or other providers with primary responsibility for the diagnosis, care, and treatment of individual patients. Having no convenient way to interview patients, photocopy insurance cards, and the like, pathology practice and laboratory business office personnel rely almost exclusively on other care providers (e.g., referring physicians, hospitals) to gather the requisite patient demographic and insurance information, validate the information as necessary, and pass it along to the practice or laboratory.

The vast majority of hospitals readily agree to pass along patient demographic and insurance data to ancillary service providers such as pathologists, reference laboratories, radiologists, and anesthesiologists. (It is in a hospital’s best interests to ensure that ancillary service providers do not badger patients for the same information over and over again and that they can receive payment from insurers with little or no hassle.) Ideally, the subject information will be transferred to your billing office in electronic format by hospitals with which you have a service agreement. This will save your people significant time by not having to reenter the data into your billing system as well as eliminating the possibility of data entry error on your end.

Thinking about nonhospital referral sources, the current expansion of electronic medical record systems in this country may permit you to receive the requisite patient demographic and insurance information from at least some physician offices, ambulatory surgery centers, and other noninstitutional health-care providers in electronic format. However, experience indicates you will have to rely on a paper requisition—a form that you create, pay for, and distribute to referral sources—to gather this information in numerous instances. The requisition naturally will capture patient history, ordered procedures, and other relevant information beyond that simply in the realm of demographics and insurance.

Your billing office or agent will need to verify patient insurance coverage (and perhaps other information, such as insured person or even correct patient name and/or address) to a greater or lesser extent. Your office/agent may find that the information coming from hospitals and/or other referral sources is highly reliable, in which case their time spent on insurance verification will be nominal. On the other hand, your referral sources may not do a very good job of sending your office/agent accurate patient/insurance information, in which case the verification function may consume a significant amount of their time.

The official hardcopy Form -1500 (02-12) (Fig. 4.1; we will use Form -1500 as a framework for the next several items for discussion) used by physicians and laboratories when filing claims with Medicare Part B, other government payers, and private medical insurers provides space for signature by the patient/authorized agent (box 12) and the insured person/authorized agent (box 13). Under normal circumstances, it is not necessary for the patient/insured person to literally sign the claim form: Entering the phrase “signature on file” is sufficient, meaning that the patient gave you permission to file a claim against his/her medical benefits by signing an appropriate release in the possession of the primary health-care provider (e.g., hospital, referring physician office). Furthermore, the vast majority of the time your in-house or contracted biller will file claims electronically, which obviously does not support physical signatures.

As a “downstream” ancillary service provider, you have no choice but to rely on the primary health-care provider (e.g., hospital, referring physician) for three additional very important legal permissions from the patient: (a) release of medical information in your possession to the insurer as necessary to support your claim; (b) assignment of the insured’s medical insurance benefits to you, which allows you to receive payment directly from the medical insurer; and (c) acceptance by the patient of responsibility to pay your claim if the medical insurer denies payment. Hospital registration forms that patients must execute prior to receiving other than emergency treatment commonly gather these permissions on behalf of provider-based physicians (e.g., pathologists and radiologists) in addition to the hospital itself. The requisition your laboratory or practice gives to noninstitutional referring providers (e.g., physician offices, ambulatory surgery centers) should accommodate capture of these permissions directly from the patient, unless an alternate arrangement is made with those entities. You are encouraged to work closely with your legal counsel or pathology consultant to ensure that these permissions from patients/insured persons are arranged with all referral sources, both institutional and noninstitutional.


Fig. 4.1
Form 1500 (02-12)



Health-Care Setting and Physician Participants in Care of Patient: The standard physician and laboratory service claim record, whether hardcopy or electronic, accommodates disclosure of key information about the setting in which the services were rendered, the health-care provider who ordered the services, and the physician who rendered the services. The data elements and instructions discussed below are mandatory for Medicare and Tricare beneficiary claims; except as noted, they usually apply as well to private insurers and state Medicaid agencies, but you should confirm the extent to which any given insurer that you do business with may depart from these instructions.

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Oct 29, 2016 | Posted by in PATHOLOGY & LABORATORY MEDICINE | Comments Off on Revenue Cycle Management
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