It’s a simple enough concept, “We provide the services you need, and you pay us for them.” However simplistic in theory that may be, the actual process of collecting what you should is much more complex.
We seek to educate you on 6 major aspects of the Revenue Cycle that prove to raise issues for many Lab Executives:
Often times labs struggle to keep up with the complex and confusing world of laboratory billing, and that’s okay. Labs seldom specialize in the actual billing practice since their main expertise is performing diagnostic tests.
We understand your Toxicology Lab technicians aren’t necessarily drilled on the specific payer requirements necessary to process Liquid Chromatography tests in claims.
And they shouldn’t be.
To maximize your profit, you need to have an optimized Revenue Cycle with proper management of its processes.
Let’s dive into Laboratory Billing and how the Revenue Cycle affects it.
Laboratory billing is the process of billing laboratory specific claims to the responsible parties for review and payment.
This is what actually gets you paid for the services you, typically, have already performed.
When you receive orders to perform certain tests on samples delivered. After you perform them, you then bill the insurance companies insuring the respective patient in order to receive the compensation for your services.
This process begins with the diagnosis and procedure codes assigned to certain tests and services. Insurance companies rely on these codes to determine coverage and necessity of the services. These CPT codes once billed enter the collections and revenue cycle management areas.
TechTarget defines Revenue Cycle Management as “the financial process, utilizing medical billing software, that healthcare facilities use to track patient care episodes from registration and appointment scheduling to the final payment of a balance.”
Simply put, the Revenue Cycle itself is the collective functions involved in tracking, management, and ultimate collection for all products and services you’ve provided.
Navigating each of these stages determines the overall revenue your lab is able to collect, and the pitfalls are everywhere. Are you billing all of your work? How efficiently are you sending claims out of the door. Are your CPT codes and HCPCS codes up to CMS guidelines? Is your billing and collections team trained in the specifics of the seemingly endless number of payers
Ultimately, you should ask yourself, “Are my current billing processes up to the task?”
“My lab isn’t collecting as much money as it should” is probably the end all beat all problem experienced by the Lab executive. Your system is designed and operated efficiently, and your revenue cycle should function as seamlessly as your lab. As any collector will tell you, this is rarely the case.
The revenue cycle will have its technicalities and nuances that prevent the proper collection and full payment of the claims it sends out, and while nothing is necessarily perfect, the laboratory doesn’t have to limp through an unoptimized billing cycle. Below, we will get into many of the major problems with the Laboratory revenue cycle, and how to remedy them.
Now, when we say issues, we want to clarify they typically originate from external sources. This isn’t the blame game, but it’s critical to identify the problems to work towards the solution.
Let’s look at these revenue cycle issues that cost the lab from collecting all the money it should.
Simplicity in the solution is key.
The perfect revenue cycle doesn’t exist. Insurance companies will never want to pay you, and the sooner you go out of business the better for them. As a Lab Executive, you fight this with investment. Invest in identifying where your problems are, and training your billing team to solve the various issues with OON, OOS, unbilled work, and all the other various issues with the Revenue Cycle. Another viable solution to optimizing your Revenue Cycle lies in outsourcing. Maybe it’s time to just hand it off to the experts if you lack the resources (or if your resources aren’t as capable).
Hopefully, this has educated you to better address the issues you have in your Revenue Cycle, and start devising a plan to bring in more money.
In recent years, insurers have been forcing labs out of network (OoN), and, as a result, they are unable to contract due to changes in healthcare coverage.
Only the largest labs that can execute an array of services get contracts and remain in network.
So what does being out of network really mean? What are the pros and cons of being in or out of network?
A lab that is out of network means that they have not contracted with an insurer to receive reimbursements at a negotiated rate.
For laboratories, being out of network is truly a nightmare. Medical insurers are making it more and more difficult for laboratories that are out of network to receive the reimbursements they are owed.
These roadblocks that make being OoN a nightmare for labs include:
These barriers not only slow down the revenue cycle, but in many instances it halts the payment process completely. It is getting increasingly difficult for OoN labs to establish an effective revenue cycle.
One benefit that an OoN lab has is that it chooses the rate at which it charges for laboratory services. This gives the labs an opportunity to increase and maintain higher profit margins. Higher profit margins means more flexibility and room for growth and most importantly keeps the revenue cycle functioning properly.
Contracted or in network labs must stick to the previously negotiated rate agreed on by both the lab administrators and the health insurer.
Also, OoN collections on patient accounts is usually higher than those of in network collections when insurers issue the checks to the patients (but more on this later when we cover BCBS).
If your lab is out of network, take a look at how these factors affect your revenue cycle. If these obstructions aren’t prohibiting the desired financial progress, maybe it isn’t the right time to get contracted yet.
The bottom line is that this laboratory billing process is essentially designed to collapse, so labs typically collect next to nothing when billing out of network. In fact, many labs just refer these samples out to a reference lab that is contracted to eliminate the cost, avoid the loss, and allow someone to collect on them.
Not only does this result in a loss of revenue, but it adds tremendous operational complexity in managing referrals and coordinating the delivery of results.
Next, we will dive into the contracting aspect to learn about the benefits of being a contracted lab.
Choosing to contract or to be in network with a health insurer is a scary decision. What does it mean for your lab?
A contracted lab is connected to a network of labs, physicians, and clinics that are covered by the health insurer they are all contracted with.
This contract dictates that services are paid at a certain rate, so the amount billed for these services must remain fairly consistent as well.
There are major barriers in the revenue cycle that can be avoided by being a contracted or in network lab.
These benefits include:
Being contracted, though, does have a downfall. These large payers are able to bring the rate of lab work down so low for it’s contracted providers that contracted labs’ profit margins are almost nonexistent. Out of network labs have the freedom to inflate the costs of lab work to generate large profit margins.
To evaluate whether or not you should contract your lab you must assess what problems your lab possesses currently. If you need to maximize profit margins, keep your lab out of network.
If your lab is having problems retrieving reimbursements and communicating with payers, it may be time to get contracted. Evaluate the needs of your lab to determine the best solution: in network or out of network.
Let’s get into a real world example of contracting vs. OoN and how it can affect your revenue cycle, and what better way than examining Blue Cross Blue Shield.
If you work in an independent laboratory, BCBS has probably made your billing much more difficult year after year.
A combination of changing BCBS policies, the morphing landscape of healthcare, competitive market pressures, and acquisition binges by LabCorp and Quest (the two largest US labs) have posed a new question for independent laboratories: Should I contract with BCBS?
Like most issues that we’ve covered previously, the ultimate answer is typically circumstantial.
The pros and cons of being on contract outlined above are substantially more complicated than they used to be.
Contracted payments have shrunk to the point that profit margins are functionally non-existent, and contrasting out-of-network payments have become increasingly harder to collect.
It seems to be a damned-if-you-do and damned-if-you-don’t scenario.
Why BCBS specifically? Because they are the biggest, most involved insurer in the United States.
So what should you do? Let’s break down the origin of the problem, some strategies to mitigate the challenges, and how to evaluate your choice.
In times past, contracting simply made everything simple and easy. Payments were consistent and nothing hitched your revenue cycle. However, lately, downward pressure applied on contracted rates has altered the collection in this area. This phenomenon is exacerbated by (and has probably driven) industry consolidation.
Now, Quest and LabCorp have dominated business with BCBS as the labs have moved to consolidating smaller labs and moved into acquisition of hospital labs in order to drive costs down.
So BCBS pushed the bulk of their business to the two dominant labs, who gave reduced rates for volume commitments, and for the most part closed their panels and refused to contract with most independent labs.
We covered this previously in the Out Of Network section, but let’s examine it as it could apply to BCBS and the revenue cycle.
As the option of contracting and becoming in network disappeared, most laboratories were left with no choice but to be out of network (“OoN”). But BCBS also moved to make that more complicated by adopting a policy of sending OoN payments directly to the patient and making it their responsibility to reimburse providers. So labs were in a position of having to chase the patient for payment.
Worse yet, BCBS do not implement any system to inform providers when/if payments are made to the patient, so labs had no way of knowing when (or if) it was appropriate to bill the patient, how much was allowed, how much was paid to the patient, whether to follow up on payment of an existing bill, or even whether the claim had been denied entirely. Under the typical revenue cycle management process, most billing departments or laboratory billing services don’t function in a way that is compatible with this system.
They typically wait to hear back from payers on payment or denial. They might follow up after 60-90 days if they don’t hear anything if they follow up at all. Typically they will then submit a statement to the patient requesting reimbursement by the payer. By the time you hear whether the claim is adjudicated and payment is made, it could be a period of months after a check is mailed to the patient.
Even if patients are honest (though some are not, of course), it is an uphill battle to receive payment. Patients get a check and very often neglect to set aside the amount they need to pay out. They are unlikely to be diligent about disbursing reimbursements to labs and other providers, especially if the bill from the lab shows up long after the money is spent.
The bottom line is that this laboratory billing process is essentially designed to collapse, so labs typically collect next to nothing when billing out of network with Blue Cross/Blue Shield. In fact, many labs just refer these samples out to a reference lab that is contracted to eliminate the cost, avoid the loss, and allow someone to collect on them. Not only does this result in a loss of revenue, but it adds tremendous operational complexity in managing referrals and coordinating the delivery of results.
While for many years there was little choice in whether to contract or remain out of network, recently many of the BCBS groups have been reversing course and allowing independent laboratories to contract and bill in network. While this could be seen as a good sign for labs, the rates being offered are so low as to be insulting and often unlikely to even cover the marginal cost of running the test.
So contract fees are too low to be profitable, and OoN fees are nearly impossible to collect.
Here’s an example of an unnamed test BCBS would reimburse for during 2017.
What do you do?
Since the standard laboratory billing process yield little to nothing for out of network payments to patients, you’d be forgiven for casting this as a simple choice between the lesser of two evils and potentially choosing to contract. After all, if you can receive the cost of running the test, isn’t that better than receiving little to nothing out of network?
Don’t fret too much. There is a way to make the choice a bit less evil. First, out-of-network collections can be improved dramatically through processes you can implement to substantially increase your collections on OoN payments.
This involves proactive outreach to the patient regarding payment at three critical points:
The payment is best if it’s in the form of an endorsed check, but receiving it over the phone from a credit card, ACH, or other means will ensure your lab’s compensation.
And remember, action is everything. Waiting for a patient to take action rarely yields success.
On the other hand, if contracts are so low that no profit is obtained in contracting, remaining OoN and optimizing your patient outreach efforts could yield a much higher payment on your claims.
The example below shows how OoN patient outreach can optimize your revenue collection.
OoN with Patient Outreach
BCBS Contracted Rate
BCBS Allowed OoN Average
Payment to Patient
Collection Target (70%)
Patient Collections (40%*)
*Note that in this example patient collection percentage is lower than the insurance collection percentage because in an attempt to get the insurance check out of the patient and get a prompt payment, laboratory billing companies are often willing to negotiate on the balance.
As long as you have a patient outreach program in place, you can clearly exceed what you would have collected in-network. So from a purely financial (revenue) perspective, being out-of-network is clearly a better choice.
Sometimes, in-network status can also deliver value that might not be readily apparent. There is value in being contracted that extends beyond what revenue you immediately collect from those samples. In fact, it may sometimes be worthwhile to be willing to generate less collections (revenue) from BCBS in order to be in network. And that may contribute to your bottom line in ways you need to account for. Some of these benefits are:
Don’t underestimate the value in an increasingly competitive marketplace of being able to market your laboratory as being “in network”.
In order to avoid the increasing hassle of being completely out of network many labs are adopting alternative strategies like buying in-network labs, or starting up under a pathologist to get in network under their contract. If this is not an option, the decision to contract with Blue Cross/Blue Shield comes down to which is of more value to your business.
If you want to maximize your revenue per sample, stay out of network as long as you have a process in place to collect on those checks going to patients. If the marketing benefit you get from being in-network outweighs the forgone revenue, then contracting is probably the way to go.
Medical billing, like many industries, has had its share of debate over the merits of outsourcing the work. Some providers have experienced sub-par medical billing companies that only go after the low hanging fruit, while others have found that outsourcing has saved their practice and they will never go in-house again.
But what is really happening? What is the real value in outsourcing your billing?
We all have faced this question in our everyday lives: “At what point do I pay more to get the best quality work?”. Merchandise of greater quality will deliver better value in the long run versus an inexpensive product that fails quickly. Yet, at the same time, it costs more time, money, and resources.
A quality pair of shoes or a reliable car might be examples of this. You pay more up front for great quality, but they prove to be reliable and dependable, making your ROI much higher than going with the “low-cost leader”.
So, cost and value are distinctly different. And value (not cost) is what we are trying to maximize, whether we are cognizant of it or not.
There is little doubt that outsourcing can drastically save businesses like labs large amounts of money. The logic, so it has gone, is that labor costs in countries like India and the Philippines are drastically lower, so there is money to be saved, and this is no different from the laboratory billing arena.
Those economies invest in infrastructure and begin to produce better-educated, motivated workers. The thinking is that the outsourced workforce can compete with American workers in terms of their quality of work and even their English-speaking skills. This mindset makes up the cost-based denominator of this equation.
Nowhere is the cost/value relationship more apparent (and more critical) than in medical and laboratory billing services. After all, if you are hiring a service to collect money for you, then the value of their work is immediately apparent.
The math is pretty simple – your collections/revenue goes up or it goes down. If costs go down, but revenue goes down even more, then you have received no value (or perhaps negative value).
“Lower cost leader” is the hallmark of sales pitches by professional billing companies, especially Indian (Business Process Outsourcing) BPO’s, which may claim as much as 60% cost savings. But cost claims don’t help you assess the value of the service. In fact, such claims can be mask the true value delivered by outsourcing services.
Here are some examples of how lower costs can actually cause a decrease in value:
If “lowering costs” to be the primary goal in outsourcing your billing, then you have likely missed the bigger picture. You can actually achieve lower costs and be worse off financially as a result.
A more useful measure of performance is return on investment (ROI). Regardless of whether outsourcing reduces your costs, it will have either a negative or positive impact on your collections, so when you add cost savings to the change in collections, there will be a net return (positive or negative) that is distinct from costs.
Once you frame your assessment in ROI terms, you can begin to make a more informed decision about any potential benefits of outsourcing your medical billing. Here are some important aspects of an “ROI-based” evaluation.
Although it seems self-evident that you need to identify your current billing practice costs before evaluating if you are going to save money by outsourcing, it can actually be quite challenging to assess your costs.
Here is a checklist of items to consider when calculating your in-house costs:
You may well achieve significant cost savings with outsourcing, but as we have discussed, you can’t make an informed decision based on cost alone. Performance differences often vastly outweigh cost differences, so the cost must be evaluated against a service level that is comparable to or better than the performance you are getting in house.
Most medical billing companies charge based on a percentage of collections. Therefore, this makes an “apples to apples” price comparison even more critical. This means you need a deep understanding of your own costs, because it will allow you to make an effective comparison.
In order to make such a comparison, follow these best practices:
In many, if not most industries, scaling your business brings efficiency and other benefits. Laboratory billing is no different. Many billing companies have a real argument in their favor here. General medical billing is all they do, and they typically do it on a scale you could never match.
But even if you have a dozen in-house billers, then chances are the people on your billing team are more generalists than specialists. They are essentially required to wear many hats and understand several aspects of the laboratory billing process.
At a larger scale, though, outsourced billing companies could specialize and each member of the team might have one function and the time to learn all the nuances of that function. Theoretically, such a team would be more efficient.
Some of the potential benefits of scale which laboratory billing companies can provide are as follows.
If you are considering an outsourced medical billing solution, here is the bad news: you have a lot of work to do before you can make an informed decision. But the good news is, if you do the work, you have the potential to save a significant amount of money, increase your collections, or in some cases both.
While much of the analysis seems to focus on the cost-saving benefits of outsourcing due to low labor costs and economies of scale, you are not necessarily better off going that route. While many billing companies tout absurd savings of as much as 60%, this is unlikely to be the case for your business.
More likely, improvements in collections have the potential to significantly impact your bottom line. Additionally, you will only benefit if you can find a high-quality medical billing service that fits with your practice.
In the end, you should only outsource if you find a medical billing service that can demonstrate that it has the ability to generate as good or better collections than an internal billing department. Either way, the choice is not an easy or a simple one.
Be deliberate and patient in your decision process. Don’t move hastily in the interest of slashing costs. As the saying goes, never be “penny-wise and pound-foolish”. The more time and care you take to evaluate, the more likely you are to achieve great financial results.
Stay up to date on the latest news and relevant information by subscribing to The Apache Health Blog now!