Pumping Up Performance of Lab Billing & Collections

Improving management of the lab revenue cycle

CEO SUMMARY: Coding, billing, collections, and compliance continue to grow in complexity, making management of the lab’s revenue cycle ever more difficult. One by one, a number of the nation’s largest laboratories are taking steps to automate management of their revenue cycle by utilizing “Software as a Service” (SaaS). Intrigued by this new market trend, THE DARK REPORT spoke with Lâle White, the entrepreneur who is behind this new approach to AR management.

BILLING, CODING, COLLECTIONS, AND COMPLIANCE are essential functions in every clinical laboratory and pathology practice. Small improvements in each of these areas can translate into a significant increase in net collected revenue.

Recently Mayo Medical Laboratories (MML) of Rochester, Minnesota, contracted with XIFIN, Inc. of San Diego, California. MML will use XIFIN’s automated, Web-based system to support laboratory accounts receivable and financial management operations. It is likely that MML’s goal is to improve productivity and performance, and to have the detailed information needed to react quickly to future changes.

XIFIN is now in use at four of the nation’s largest 11 laboratory companies. This collective endorsement of XIFIN’s revenue cycle management system and services by a number of the lab industry’s largest firms caused THE DARK REPORT to investigate XIFIN and ask its Founder and Executive Chairman, Lâle White, why these larger laboratories are turning to “Software as a Service” (SaaS) as the foundation of their efforts to continuously improve the performance of their accounts receivables team.

According to White, the nation’s largest lab companies are responding to unfolding changes in payer practices and more complex compliance requirements. Her insights include advice on how clinical laboratories and pathology group practices can boost the effectiveness of their billing, coding, collections, and compliance efforts.

“There is probably no other medical specialty—nor even an industry outside healthcare—that has the revenue cycle complexity of clinical laboratories,” observed White. “Not only are coding and billing requirements complex and different for every one of the 2,000 or so types of tests offered by most labs, but each payer constantly changes their requirements for coverage and reimbursement.

“When a laboratory fails to track these changes, it is likely to make mistakes that can prevent it from collecting significant amounts of money,” she continued. “Other mistakes can be made during negotiations, by accepting contracts without understanding the full implications of every clause, and when coding and billing for lab testing services. Invariably, these mistakes become costly, because they often last during the entire contract term.”

“The problem with the lab industry is that, while it represents only about 2% of all healthcare spending, it generates almost one third of all claims filed!” White said. “That means labs produce a great volume of mostly smaller bills. This is a reason why clinical labs and AP labs seeking to achieve “world class” performance need to intelligently automate all billing, coding, and compliance processes. But this is just one step in a total management approach to raising performance.

Measuring and Managing

“It’s true throughout healthcare, and it’s especially true in billing and accounts receivable (AR): You can’t improve what you can’t measure,” she declared. “Labs should look for systems that allow them to measure and manage accounts receivables (AR) in more detail than they could do before.

“For example, after a lab installs a best-in-class AR system, it should be able to get its exact net sales—regardless of the size of the operation,” she explained. “It also will reveal how much of what the lab previously assumed was contractual allowances is, in fact, bad debt. That’s a significant distinction for any laboratory.

“Once an accurate assessment is made of what’s allowable and what’s bad debt, then the readily collectable items are obvious,” she said. “Decisions about how aggressively to pursue collections can’t be made until one knows the actual dollar amount that should be paid to the laboratory.

“Such collections are complicated,” added White, “because the actual value of the claim is not the gross billing. So, you need a system that can determine these amounts quickly. When your lab has that information, you can choose to write it off or decide whether it is actually collectable.

“Once the decision is made to collect that money, can you consolidate all the information that you need from a given physician or patient?” she asked. “If so, then you can make one call to obtain all the data you need to successfully bill that item.

“Labs should have that kind of information at hand,” said White. “These automated systems can improve workflow and take manual decision-making out of the process—as much as possible. That’s good management for an important reason: having clerical staff make manual decisions is probably the biggest failure of most billing systems. Many billing departments are organized in such a way that they produce too many pieces of paper for billing clerks to review.

“Keep in mind that this is a clerical staff working in a complex industry,” White explained. “You don’t want them looking at explanations of benefits (EOBs), front-end rejection reports, and a variety of pieces of paper to make decisions. If they are, then their decisions will be neither timely nor will they be handled in the same standardized format each time.

Standardized Decisions

“What’s more, having clerks making these decisions creates compliance problems,” she said. “Most labs don’t even realize the specific compliance issues within their laboratory that need to be addressed. That’s why a well-designed billing, coding, and compliance system will have rules in the system so that the same issue can be handled in the same manner every time.

“The best systems can create automated requests for information,” continued White. “It’s a complicated process, which is why your system requires rules, settings, and configurations. This will ensure that your billing and collections are done in a standard format—not by an individual clerk constantly making new decisions.

“All labs today need revenue cycle management. However, they also need extensive financial analytical information,” White noted. “They need an accounts receivable system that goes way beyond simply generating a bill. The AR system should provide the lab with enough feedback to run its business efficiently. Most labs today want better operational and financial information. The goals are improved cash collections and a reduction of operational costs.

Following Early Adopters

“The laboratory industry shares the problem that exists across healthcare,” observed White. “In general, healthcare lags other business sectors in its embrace of new information technologies. Healthcare in America moves slowly and adopts new concepts slowly. That means there are only a few market leaders who are innovators.

“Within the lab industry, these innovators run the top laboratories and have strong growth strategies,” she explained. “A number of them are public companies. To support strong rates of growth, these labs therefore want to leverage the information they have and use it to optimize how they make decisions.

“These companies embrace technology because they understand what is required to stay ahead of the curve,” stated White. “They are financially savvy and have a higher demand for good strong financial data. They want timely and accurate information that they can use to respond to changing market needs. Of course, one reason the national players have a much bigger demand for information than local and regional players is because they work in multiple markets and have hundreds of payer contracts.

“That means all laboratories can learn from the largest labs because they tend to be innovators,” she explained. “These innovators recognize that they need a billing, coding, collections, and compliance system that will provide a return on investment and also allow them to maximize the productivity of staff.

Look For Three Results

“There are three basic outcomes that labs should look for from a revenue cycle management system,” White added. “First, regardless of the lab’s size, the system should generate a direct improvement of between 5% and 10% in third party cash flow in the first year. Second, it should produce labor efficiencies.

“There are several strategies that can accomplish this. My experience in working with a number of laboratories led me to organize XIFIN using the ‘Software as a Service’ (SaaS) model. This makes the billing, coding, collections, and compliance software accessible via the Web. Essentially, the software vendor becomes the billing IT staff for the client laboratory. This arrangement creates certain advantages and can contribute to continuous improvement.

Benefits To This Approach

“The most important benefit to the laboratory is that the software vendor maintains and upgrades the system, which can happen monthly or even more often,” noted White. “As soon as software is installed into any location, it’s almost obsolete the next day. That’s one reason why labs want to use software as a Web- enabled service. With one site to maintain, vendors of these systems can add dozens of new pieces of functionality to the software each month. That means the laboratory is always using the most advanced version of the software system.

“When a laboratory uses this approach in billing, the vendor assumes responsibility for the IT functions of the billing department. That frees up the lab’s billing staff and allows them to concentrate on production items. It also eliminates the need for them to handle multiple pieces of paper and make a decision about how to follow up each one.

“It is important that such a system deliver a return on investment to the client laboratory,” advised White, “Ideally, in the should target a $2 return for every dollar they spent on this type of system. Further, the laboratory should see improvements and measurable returns no later than six months from the go-live date.

“Software as a service is generally priced on a transaction basis, much like the reagent rental arrangements laboratories have with instrument manufacturers,” noted White. “In the current market environment, this arrangement would cost around $1 per transaction—and that’s for preparing and submitting a single patient’s claim, regardless of how many times it is billed.

 Achieving Best Practices

“In addition to these three basic outcomes, labs should also want their billing, coding, collections, and compliance system to include management tools,” she said. “The goal is to achieve best practices. Take the goal of timely billing, for example. You want your system to immediately submit a claim that is complete and ready. If part of a claim is waiting for a diagnosis, then the system should immediately bill for what it can. It should then be able to bill the balance later, when missing diagnosis codes and other needed information has been provided.

“Another feature that makes a difference is the system’s ability to identify and flag any inactivity beyond what’s expected,” she added. “That’s a powerful management tool, since most electronic systems basically let claims age within the system. When that happens, the billing staff never knows when to touch them again. The best billing and collection systems actively review and manage submission deadlines. They then flag problems, such as when a payer should have paid and how much.

Avoiding Failure to Comply

“While billing, coding, and compliance systems can improve processes in all of these ways, few pathologists and lab directors recognize another valuable benefit,” observed White. “The best of these systems also can help labs address issues related to the changing nature of the lab services market itself. It helps them understand how changes rippling through the industry directly affect their revenue cycle management. These changes can include payer pricing pressures that result from increased competition.

“For instance, look at the tremendous amount of competition among the larger labs as a result of the UnitedHealth contract,” White explained. “That single national contract has generated significant downward pressure on prices. Eventually, all smaller labs will feel this pressure on their revenue management cycle. One consequence of this competitive pressure is that it will be more difficult for labs to make up any revenue shortfall by billing the patient.”

White says that patient expectations are changing, in ways that affect billing for laboratory services. “It is common for some laboratories to send out bills which show nothing but a balance due them,” she stated. “The bill fails to provide details to the patient about what was submitted to the patient’s different insurance companies.

 Sending Detailed Bills

“This approach no longer works in the market,” offered White. “Now it is neces- sary for your laboratory to identify which part of the patient’s bill is coinsurance, which part is the patient’s deductible, what insurance company received the bill, and what payment has been received by the lab. This new level of detail is needed on every bill today.

“Payers are pushing laboratories and other providers to include that level of detail because of the growth in consumer-directed health plans (CDHPs),” she added. “Patients need to know the exact amount of their bill to submit to health savings accounts (HSAs) and flexible spending plans for reimbursement. The large independent labs are cognizant of these issues, but some smaller labs don’t understand the detail in laboratory bills that is necessary today.

“Similarly, labs can’t automatically just kick a bill to collections when it has gone unpaid for a certain time,” she continued. “It’s hard to believe, but often providers have their systems set up so that, when an insurer doesn’t pay after 60 days or 90 days, the patient is automatically billed at full price. A number of state attorney generals have targeted this exact issue and are charging penalties for this behavior.

“Because of these situations and ongoing changes in billing and collection practices, it is no longer good enough for labs to react passively with ‘work arounds’,” advised White. “For good customer service and effective compliance, laboratories need a system that is sophisticated enough to understand the differences and to support the revised procedures needed for proper compliance.

Adopting Best Practices

White believes it is useful for clinical and AP laboratories to track how the nation’s largest laboratories are responding to ongoing changes in coding, billing, collections, and compliance. “Within our industry, these are the lab companies that have a good strategic sense about what is changing and how to respond,” observed White. “They understand why it is important to tightly manage their revenue cycle. And usually, their innovations and responses can be copied and put to successful use by other laboratories.”

Data to Support Contract Talks

WHEN NEGOTIATING MANAGED CARE CONTRACTS, pathologists and lab directors need detailed information to negotiate the best reimbursement and terms possible. A sophisticated revenue cycle management program can provide the enriched data sets needed to support contract negotiations.

“The major payers represent 80% of all claims filed and they follow Medicare rules closely,” stated Lâle White, Founder and Executive Chairman of XIFIN, Inc., in San Diego, California. “If your laboratory contracts with large payers, such as Cigna, UnitedHealth, Aetna, and Blue Cross Blue Shield, you want to analyze profitability by payer. For example, how long it takes each payer, on average, to pay on an electronic claim? How many times do they return a claim for whatever reason? What are the reasons they give for returning claims?

“It is important to understand what payers are paying, how much they’re paying, and whether they stick to the contract,” she added. “With this information, you can push back against payers when it is time to negotiate contracts. It gives your laboratory tremendous clout.”

White’s observations about the use of accounts receivable data to support managed care contract negotiations demonstrate how laboratory management becomes more sophisticated as the healthcare market changes. This is another area of laboratory operations where access to more detailed information becomes a critical success factor.

 

Extensive Experience In Revenue Management

AN EXPERT IN MEDICAL FINANCIAL MANAGEMENT and regulatory compliance, Lâle White has more than 25 years of successful executive leadership in information systems development and medical billing.

White is currently CEO of XIFIN, Inc. She held senior management positions with several of the largest independent reference laboratories. She was a principal contributor in working with the OIG to develop the initial “OIG Model Compliance Program” for laboratories.

In the 1990s, White was Vice President, Finance, for National Health Labs and subsequently Laboratory Corporation of America. She managed national coding, billing, collection, and compliance activities. In 1997, she left LabCorp to develop a national consulting practice in laboratory billing and collections.

Around this time, White raised venture capital and launched a company to design a laboratory billing system organized around the model of “Software as a Service” (SaaS). That company, XIFIN, Inc. of San Diego, California, began serving its first laboratory customer in 2003. XIFIN has grown steadily since that date. Among the laboratory companies that it serves are LabCorp, BioLabs Inc., and Myriad Genetics. It also recently signed an agreement to provide its services to Mayo Medical Laboratories.

 

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