A home care agency’s revenue cycle—the series of steps related to reimbursement for services that occur from intake to payment—are the agency’s life blood. You can provide the best client care with excellent outcomes, and grow like a weed, but with the thin margins we experience today, if you don’t collect almost 100% of the revenue to which you are entitled, your agency will struggle.
For agency management, there’s a natural inclination to focus attention on the revenue cycle if they believe performance is a problem. The question then becomes does that leave enough management capacity to focus on providing excellent client care, growing the agency, and executing on the challenges and opportunities that exist in today’s market?
Below is an illustration of the current market. When you consider the items in the chart, what we might consider to be challenges could in fact be turned into opportunities with proper focus and execution. Agencies whose management is purely reactive and not thinking strategically will miss these opportunities. Focusing too much management time on revenue cycle could put your agency in that position.
There are challenges, risks, and costs (let’s appropriately call these headaches) associated with managing any internal process. With respect to Revenue Cycle, these include:
- Performance – every percent collected under 100% of revenue is a significant cost
- Productivity/Staffing – time off, weather, turnover, timing of staff additions to cover growth, and bad hires
- Cost –
- Staff cost is more than just base pay – Add overtime, employer payroll taxes, workers compensation and other insurances, employee benefits (health insurance, retirement plans, etc.), payroll services costs (timekeeping, calculation, banking, tax prep), human resources administration, temporary replacement personnel.
- Turnover – internal and external recruitment, background checks and drug testing, initial training, lost productivity, cost of bad hire that needs to be repeated
- Overhead – rent, supplies, utilities, ongoing training and education, technology costs
- Expertise – keeping up with payer changes, new payers, government mandates, and establishing payer relationships for claims assistance
- Technology – EDI, ERA, EFT maximization to generate efficiencies, improve cash flow, and meet payer requirements
- Analysis and reporting – KPI’s, metrics, identification of issues and root cause
- Focus – consistent application of management attention, as well as follow-up with the correct functional areas to address root cause issues both inside and outside the revenue cycle departments
Outsourcing of the revenue cycle functions may assist agency management with maximizing revenue and cash flow performance while providing them with the capacity to focus on providing excellent client care, growing their agency, addressing strategic opportunities, and doing so while remaining as profitable as possible.
The decision to outsource must consider balancing the natural concerns with the potential benefits. Balance is achieved by managing both.
What Do I Need to Know First?
The first step in this evaluation is to obtain an understanding of current collections performance. How am I doing? This is a surprisingly simple exercise, performed by comparing receipts to revenue for a year. The analysis can be enhanced by also comparing how much of those receipts was actually posted to the AR, which gives a view into the accuracy of your AR reports. This analysis should be easy and likely can be done by a junior level accounting resource.
Evaluating the revenue billed vs cash deposits vs payments applied over the course of a year smooths out any month-to-month anomalies and gives an insight into true performance. In the case of the agency in the above illustration, we can identify the following issues:
- RCM performance reflects that they only collected 89.6% of their billing, a 10.4% shortfall. With thinning margins in home care, this could be catastrophic.
- Adjustments are 5.6% of billing, notably high. And there are some months with large adjustments. Are these to correct prior years? What is the root cause of these high amounts?
- Difference between payments applied and total deposits—month-to-month and for the year as a whole—there should be a discipline to applying all payments received within a set time frame—48 hours optimally. This provides accurate receivables, and allows for timely identification and addressing of issues.
The natural next steps are to “drill down” to see where and why it’s occurring. What we also don’t know from the analysis is if the revenue was billed at the correct rates. If they over-billed, then the percentage collected is understated. If they under-billed, they may be missing a revenue opportunity on top of the payment shortfall. This might indicate the first benefit opportunity of outsourcing—to determine the underlying issues and recommend remediation solutions.
With all the above being researched and understood, the next step is to determine the cost-benefit of addressing it internally or by outsourcing all or components of the process. That balance of management resources that we previously discussed must be considered. Is the agency better off having management focus on the external opportunities vs internal process remediation and results monitoring?
Notwithstanding the “softer” side of the analysis, here is a simple financial analysis of outsourcing the entire revenue cycle process, for the agency in the above illustration:
Full–Service Revenue Cycle Management Cost-Benefit Analysis / ROI
The ROI computation consists of the incremental net revenue performance divided by the net increase in cost. While the expended cost of outsourcing might be higher than insourcing, which at face value makes outsourcing look more expensive, the revenue cycle performance improvement (reduction in uncollected revenue) far outweighs the expended cost in this example. What is not considered here is the added benefits to agency growth and operational efficiencies and effectiveness (including client care) generated by allowing agency management to focus on those aspects of the business. And billed revenue might also be benefited by ensuring that correct rates are used.
Also, the analysis begs the question, “Why is there still an internal cost if I’m outsourcing my entire revenue cycle process?” There still needs to be some agency infrastructure left in place to support the process. These include processing of authorizations, updating contracts, bringing issues to external departments, and supporting the outsource vendor by providing documentation, remittance information, and answers to questions on client services. There is also agency management oversight required—reviewing reports, monitoring progress and performance. It should be far less than for an internal revenue cycle department, but outsourcing is delegation, not abdication.
Sandata’s Revenue Management Solution is a service whose mission is to maximize home care agency revenue cycle performance, and thereby agency revenue and cash flow. We provide revenue cycle management outsourcing as well as revenue cycle effectiveness evaluation, regardless of agency management solution. Schedule a call with our experts today to start your evaluation, and make sure to register for “Outsourcing Decision Impactors,” the first in a 3-part webinar series, “The “Ins and Outs” of Insourcing vs Outsourcing Revenue Cycle Management.”