Healthcare Revenue Cycle Outsourcing – A Problematic Paradox @philcsolomon

by Phil C. Solomon on November 29, 2012

in Business processing outsourcing,Revenue Cycle Management

How does healthcare financial and revenue cycle outsourcing create a paradox?

Healthcare Revenue Cycle Outsourcing SolutionsHistorically, in healthcare, the drivers of innovation and change have been come from clinical advancements. Applying innovative strategies in healthcare finance and revenue cycle management have lagged significantly behind clinical progressiveness.

Unlike corporate America’s general financial sectors such as credit card processing and other retail and commercial account’s receivable collections, healthcare finance and business office operations have been slower to adopt many of the strategies offered by the outsourcing of functional processes and tasks.

Recently, due to economic factors, healthcare reform, the rising cost of commercial insurance and the shifting of a larger portion of financial responsibility to the patient, healthcare executives have begun to consider outsourcing revenue cycle processes like never before.

In spite of a looming paradox, which pits opposing goals against each other, maintaining fiscal health through outsourcing some operational functions versus the political pressure of keeping jobs in the local community, healthcare leaders must make critical decisions balancing both interests.

Gartner Research Inc. estimates healthcare executives spend about twenty percent of their budget on all categories of external sourcing options, compared to the general mainstream industries, which typically invest about a third of their budget on external sourcing. Gartner also estimates that seventy percent of healthcare organizations who do choose to outsource meet or exceed their cost-savings expectations, and most see an improvement of results as they shift their non-core functions to outside experts.

Healthcare outsourcing in general has begun to see a significant rise in acceptance. During the next five to ten years, it is estimated that the healthcare industry will see an increase in the outsourcing of many financial, clinical and business processes. The American Recovery and Reinvestment Act of 2009 (economic stimulus package for the U.S. economy), healthcare reform, and the Health Information Technology for Economic and Clinical Health Act (HITECH), will create significant opportunities for all outsourcing companies to aid healthcare organizations in meeting the requirements for the new set of regulations and requirements mandated by legislative action. These industry changes will increase outsourcing demand because healthcare providers cannot efficiently implement the volume of changes needed in the time-frame required.

Historically, for-profit hospitals and health systems with larger footprints and decentralized operations were the first to embrace outsourcing select financial and billing revenue cycle functions. Typically, non-profit providers relied on internal resources or in limited cases, used local outsourcing firms.

This trend is changing. All healthcare organizations are jumping on the outsourcing bandwagon and are moving toward leveraging IT, clinical and revenue cycle outsourcing to improve the financial viability of their operation. The main drivers for the shift in outsourcing strategy are due in part because of the margin pressure every provider is under and the need to reduce their operating costs.

Healthcare executives have numerous revenue cycle sourcing strategies from which to choose. Utilizing a US based local, regional or national outsourcing company have been the typical choice for healthcare executives who outsource. With today’s technology, especially in the services’ sector, it is less important to contract with a local provider than to choose the best-in-class service provider regardless where their business operation is located.

That said, In the US, outsourcing, in general, has become a polarizing political issue driven by poor economic times and localized job losses. Even with local and national pressure to curtail outsourcing activities by consumer advocates, the return on investment (ROI) from cost reductions and improvements in quality have influenced healthcare executives to pursue offshore and onshore outsourcers as an alternative to maintaining an exclusively internal workforce.

American’s value the financial opportunities offered by our free-market economy and in every State or region within the country, community leaders support and protect local labor forces, which serve more localized businesses. Unfortunately, with increased operating complexities, budget cuts and margin pressure, the need to outsource has become greater than it’s ever been.

The healthcare executives who have avoided non-localized outsourcing are beginning to succumb under the pressure they face as they attempt to keep jobs within their community or at the very least within the State they operate. An interesting paradox exists as those same executives and community influencer’s do not think twice about purchasing clothes, food products, electronics, cars, toys, furniture, and household goods produced across the US and throughout the world.

Regardless of the task, business segment or location of the potential outsourcing firm chosen to provide services, the ultimate goal of pursuing any outsourcing strategy is to support the goals of the healthcare provider, which are ultimately to serve the community with the highest level of patient care. That cannot be accomplished if the organization is under financial duress.

In general, revenue cycle outsourcing of processes saves time, effort, demands on infrastructure, manpower, and money. By leveraging the best of breed solution providers, healthcare organizations gain a competitive edge guaranteeing endless benefits to the enterprise and the patients they serve.

For more information about outsourcing, check out Phil C. Solomon’s business process outsourcing category on Revenue Cycle News.


{ 4 comments… read them below or add one }

jim mcniff November 30, 2012 at 10:05 AM

You are doing a great job in providing to the industry the changes that are taking place and the challenges and opportunities to survive in this new health care world. It is obvious from all the press releases that outsourcing of the revenue cycle is taking front stage. Companies that specialized in one part of the revenue cycle have purchased smaller niche companies to form a fully integrated revenue cycle solution. These companies have developed management teams through their consulting practices, created or purchased software products that maximize results. CFO’s of health care organizations are becoming more confident that these companies provide a total wrap around revenue cycle solution that allows the complete revenue cycle to be outsourced. However, after running a revenue cycle operation for many years, I still believe that a Hospital can achieve greater performance and at a lower cost than many outsourcing options. I would only put this out as still a viable option as CFO’s and CIO’s make their strategic decisions.
1)the opportunity exists today to significantly reduce your internal revenue cycle costs by transacting business through the communciation of HIPAA transactions and the application of intelligent software. The tangible benefits of improved cash flow and increased revenue are part of the picture. The intangible benefits of patient satisfaction and insurer relationships adds to the value of this solution.
2)there is one critical component that is rarely discussed but i believe must be in place if you are to keep the operations internal and that is revenue cycle leadership..I don’t mean good leadership, i mean great leadership..I still find it bewildering that health care organizations and CFO’s recognize that cash is their operational blood but their recognition of the position that manages it is less than or equivalent to the position that creates a financial statement..The attitude seems to be sink or swim rather than developing and nuturing..How much more nuturing is provided to clinical leadership than revenue cycle leadership?..

Phil, maybe you need to add another reason to support outsourcing..why waste time developing internal talent when you can buy it from the outside..

Thanks for allowing comments..



Phil C. Solomon Phil C. Solomon November 30, 2012 at 2:34 PM


You make some terrific points; I appreciate your perspective and thank you for your kind comments. I’m not a proponent of outsourcing in all cases. It is just one revenue cycle strategy. It’s not the Holy Grail.
I agree providers need to assess the revenue cycle talent-pool they manage and make greater “investments” to elevate their people’s skills. Of course, along with a better-trained workforce comes higher compensation (that’s a good thing). For example, patient access should be considered one of the most important points of the revenue cycle. Providers should place some of their best and brightest people there. Perhaps if they did, the amount of re-work would be reduced (certainly administrative denials), and patient satisfaction would be improved.

While there are many wrap around revenue cycle technologies to choose from, there are still needs in certain areas where newer, more nimble technology companies have a distinct advantage. For example, in certain niches, new technologies are now available to providers to scrub and audit accounts such as Medicare bad debt, transfer DRG’s, DSH and shadow billing internally. Typically, those functions were either fulfilled by internal staff in a manual mode or through outside contractors who come on-site to perform the audits. There are other examples such as contract review technologies, etc.

Healthcare leaders must move to the cutting edge and actively seek new ways of doing things (internal or external). Similar to healthcare reform, making radical changes to revenue cycle processes will not be easy. Healthcare is not getting less complex; it’s becoming significantly more challenging with reform, ICD-10, HITECH Act, ACOs and the list goes on. Many revenue cycle executives have already embraced Six Sigma style workflow processes and are moving towards using “big data” intelligence tools to get to root causes of revenue leakage sooner, so they can mitigate revenue losses.
It sounds like we are playing from the same sheet of music Jim.



William johansen December 5, 2012 at 12:01 PM

The decision to outsource revenue cycle operations, especially by not-for-profit, faith-based organizations, is truly difficult and is often conflicted by their stewardship role in local communities. But given the tremendous cost reduction pressures currently facing all healthcare delivery organizations, there are serveral inescapable realities that our traditional revenue cycle business practices may not serve in the future.

First, even the larger CBOs will find difficulty in creating sufficient critical mass in their operations to justify investments required to overhaul the tapestry of desparate niche-fill solutions into a integrated and interoperable enterprise system necessary to meet future transaction volumes and reimbursement complexities. Many, but not all, local and regional CBO operations will find themselves poorly positioned to invest heavily enough in operational improvements to deploy leading edge technologies necessary for the future.

Second, local back office operations are not easily scalable to the extent necessary to quickly react to increasing transaction volumes and new business complexities. In short, individual revenue cycle operations are not “agile” enough to become the proactive revenue managers that they will need to be in the future. And those operations that do demonstrate agility will still be encumbered by local infrastructure limitations and IT constraints whereby most of the resources are earmarked for clinical transformation and PPACA mandates..

Third, even if the back office optimized its efficiencies, there is the issue of the poor data quality associated with the Form 835 data stream that is the informational life-blood of improved recovery of denials, small balance residuals, and other forms of administrative non-payment. Simply stated,,,, the data available to the back office often isn’t up to the task and must first be manipulated, redacted, and standardized before meaningful recovery efforts can begin. There are outsourcers who are large enough and sophisticated enough to intermediate in this process and who can master the broad based challenge of managing the subtle disparaties associated with each payer format.

There are numerous other issues but I submit these as indications that even well led, well funded, and well intended revenue cycle initiatives may not be well positioned to overcome barriers to improved revenue cycle operations since the necessary scale, critical mass, availability of sophisticated technology, and access to capital are things not easily within their access or ability to controll.

The status of back office outsourcing in today’s provider healthcare market is not unlike the recordkeeping and customer service delimmas faced by other maturing industries in the past. As operations became more complex, volumes expanded, cost pressures increased, and resources became scarce these industries (banking, insurance, mutual funds, manufacturing, and others) found it necessary to ask themselves “what is our core business” and can we find others capable of achieving better results than we can for our non-core activities?

For some CBO’s and rev cycle operations, the time for this question has arrived and it will best be answered if the decision makers decide to analyze the challenge by including truly non-traditional options as part of their evaluation. But what is certain is that other transforming industries in the past could not continue to conduct their administrative functions at the high cost, low effectiveness, and marginal cash recovery levels that we do in healthcare. Leaving 10% to 20% of earned revenue as uncollected (as is sometimes the case in healthcare) was clearly a “going-out-of-business” strategy and many found that outsourcing this task to highly focused and very specialized organizations (whose core business was record keeping and administrative management) was a timely decision in their transformational strategies.

Outsourcing is not right for all back office environments ,,,, but it may be a better choice in more situations than we traditionally might think.



Dina Hady June 10, 2013 at 12:15 AM

Its amazing post. I enjoyed reading your articles. This is truly a great read for me. I have bookmarked it and I am looking forward to reading new articles. keep posting such an interesting things


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