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Outsourcing – Another Way to Squeeze the Lemon
Thomas McCormickAVP, Patient Accounting
University of Pennsylvania Health System
Page 2
Clinical Practicesof the Universityof Pennsylvania
(CPUP)
PENN Medicine Overview
TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
PENN Medicine Board
PennsylvaniaHospital(PAH)
Clinical CareAssociates
(CCA)
Penn Home Careand Hospice
Services(PHC&HS)
Health SystemClinical Components
School of Medicine
President of the University
Academic &Research
Clinical
University EVP/SOM Dean
Hospital of the University of PA
(HUP)
PENN PresbyterianMedical Center
(PPMC)
Page 3
Revenue
$3.4 billion
Employees
16,000
Adult admissions
78,262
Births
9,130
Outpatient visits
2.06 M
Avg length of stay
5.84
Days in A/R
37
Bond ratings
Moody's=AA3
S&P=AA-
PENN Medicine
Revenue
$960.1M Full-time faculty
1,357 Medical students
645 Graduate Students
988 Residents & Fellows
1018 Sponsored research/year
$584.3M* NIH ranking
#3
Patient Revenue
$459M* Full-time faculty
1,147*** Visits
1.41 M NIH Awards
$275.6M *** included in UPHS $2.97B**also included in SOM sponsored research***included in SOM full-time faculty number
PENN MedicinePENN Medicine
University of PennsylvaniaUniversity of PennsylvaniaHealth SystemHealth System
University of PennsylvaniaUniversity of PennsylvaniaSchool of MedicineSchool of Medicine
Clinical Practices of Clinical Practices of The University of PennsylvaniaThe University of Pennsylvania
Page 4
UPHS EntitiesHUP PAH PPMC CPUP CCA HCHS
Particular areas of focus
Transplantation, Cancer, Neurosciences, Radiation Oncology
Orthopedics, Cardiac Surgery, Neuro Surgery, Maternity and Neonatal
Cardiology, Thoracic, Orthopedic specialties
Faculty based clinical practice
Primary Care Network
Home Care Services and Hospice
Annual Revenues
$1.710B(51%)
$515M (15%)
$469M (14%)
$563M (17%)
$86M (3%) $73M (2%)
Annual Discharges or Patient visits
41,436 27,834 16,847 1,405,490 470,066 246,694
Number of Patient Beds
775 456 295
FTEs 6,791 2,456 2,168 2,192 718 455
Medical staff composition
CPUP faculty
CPUP faculty, CCA, Independent
CPUP faculty, CCA, Independent
CPUP faculty
UPHS Employees
CPUP faculty and CCA
Page 5
UPHS Major IT Applications Today
Current UPHS Environment
•15+ years – Inpatient Billing and ADT
•Well established and supported system
•Inpatient Clinical System
•CPOE, Pharmacy, Clinical Documentation
•18 year old legacy technology
•Insufficient to support current business needs
•EMR - Full implementation planned for CPUP, CCA
•Highly Rated, Current Technology
IP EMR IP ADT/Billing AMB EMR
APM
Page 6
UPHS Major Applications Moving Forward
Future UPHS Environment
•15+ years
•Well established and supported system
•Inpatient CPOE system
•Sunrise EMR since 2004
•Single Database system for UPHS
•Outpatient EMR
•Global Registration system
•Scheduling and Professional Billing
IP EMR IP ADT/Billing Ambulatory EMR & APM
Page 7
Key Premise
Providers have limited resources which will be focused on their highest value opportunities. However, every aspect of the revenue cycle must be adequately resourced by both internal and external means or less than optimum results will be achieved
Page 8
(The World is Flat – Thomas Friedman)Ten Flattners
1.Collapse of the Berlin Wall
2.Netscape
3.Workflow software
4.Uploading
5.Outsourcing
6.Offshoring
7.Supply-chaining
8.Insourcing
9.In-forming
10.The Steroids
Page 9
Outsourcing vs. Offshoring
Outsourcing: Friedman argues that outsourcing has allowed companies to split service and manufacturing activities into components which can be subcontracted and performed in the most efficient, cost-effective way. This process became easier with the mass distribution of fiber optic cables during the introduction of the World Wide Web
Offshoring: The internal relocation of a company's manufacturing or other processes to a foreign land to take advantage of less costly operations there. China's entrance in the WTO (World Trade Organization) allowed for greater competition in the playing field. Now countries such as Malaysia, Mexico, Brazil must compete against China and each other to have businesses offshore to them
Page 10
Revenue Cycle Outsourcing Opportunities
SchedulingPre-Reg & Pre-Cert
Insurance Verification
Financial Counseling
Registration
Charge Capture &
Entry
Medical / Case Mgmt
Service Coding
Claims Submission
Denial Tracking
Collection & 3rd Party Follow-up
Payment Posting
Rejection Processing
Denial & Appeal Mgmt
Revenue Recovery Bad Debt
SQUEEZE VS. LEMON
Page 11
Why Outsource?
Temporary Opportunity (1987 – 1999)
– A/R Clean-Up– Self Pay Campaign– Coding Backlog Resolution
Page 12
Why Outsource?
Long Term Strategy (2001 – Present)
– Self Pay Processing– Small Balance Insurance Follow-Up– Coding Resolution
Page 13
Identifying Opportunities
List major activities in each segment of the revenue cycle
Document current level of performance
Assess opportunities to improve resourcing of processes
Page 14
Vendor Selection Process
Key Vendor Qualifications Through RFP
Vendor Site Visit
Specific Vendor Protocols and Capabilities
Reporting Capabilities and Functions
Page 15
Vendor Selection Process
Additional Services
Qualifications of Project Personnel
References
Fees
Page 16
Buyer Beware
Must incorporate O/S vendor into revenue system
Establish mutually agreed upon performance expectations
Investigate Vendor’s specific experiences early on
Page 17
Buyer Beware
Case examples:
– Failure to anticipate IT issues (file layouts, access, connectivity)
– Aged A/R – started project at 90 day aging; should have used 120 days
– Vendor inability to keep processing system in sync with hospital’s system
Page 18
Vendor Performance
Define Performance Expectations
– Specific terms within contract (allow room for set up)
– Mutually agreed upon performance measurements
– Ability to audit results
Page 19
Vendor Performance
Define Performance Expectations
– Requirement to report results on specified timetable
– Conflict resolution clauses in contract with escalation process
Page 20
Vendor Performance
Define Performance Expectations
– Incentive clauses in contract (more bees with honey)
– Penalty clauses in contract (less bees with vinegar
Page 21
Outsourcing Pitfalls
Outsourcing any part of an organization’s business is an important decision and should not be made lightly – specifically in Healthcare
Executives typically spend months analyzing operations and weighing Pros and Cons before deciding to go forward with an outsourcing arrangement
Page 22
Outsourcing Pitfalls (Continued)
The top attraction of outsourcing is the elimination of the daily management of a process and the ability to cut costs or improve performance
A good manager will realize that their work is not done when they hand over the reins – IT’S JUST BEGINNING
Page 23
Outsourcing Pitfalls (Continued)
A successful outsourcing arrangement is one that is carefully managed and worked as a partnership
Page 24
Outsourcing Pitfalls
Example of What Not To Do
– In the Summer of 2000 UPHS began to look at outsourcing opportunities for it’s Patient Accounting Call Center
– Situation was a Call Center that was difficult to recruit because of burn out
Page 25
Outsourcing Pitfalls
Example of What Not To Do
– Existing employees out on FMLA or limited duty – stressed related
Page 26
Outsourcing Pitfalls (Continued)
Example of What Not To Do (Cont’d)– Abandon rate on calls at 30%, wait
times in excess of 15 minutes, low patient satisfaction and even lower Senior Management satisfaction
After months of feasibility analyses, RFPs, presentations and negotiations UPHS selected a firm in Houston
Page 27
Outsourcing Pitfalls (Continued)
Early success due to immediate drop in abandon rate, wait times and calls to Senior Management
Page 28
Outsourcing Pitfalls (Continued)
One month later problems began to pop up with the details of managing the self pay accounts receivableFinancial class changeInsurance verificationRebillingAccount adjudicationTransfers to bad debt
Page 29
Outsourcing Pitfalls (Continued)
Root cause was management’s lack of oversight and ownership of the process which took 3 months to correct by educating our staff on how to manage an outsourced relationship and their staff on how we do business
Page 30
OUTSOURCING
Why
Outsource
In
The
First
Place?
Page 31
Sample Quotes
“Our central billing office was not touching all the claims below
$1000 and we wanted someone to work that AR for us.” : Large
Health System, Philadelphia
“Our billing office had handled the billing internally and we had a
constant shortfall. We needed upgradation in systems and a
larger workforce to tackle our high claim volume – with
significant Medicaid population. This led us to outsource the
entire revenue cycle. ” : Physician Client1, Bronx, New York
“Current vendor’s performance is not satisfactory. He is leaving
a lot of dollars on the table“ : Physician Client2, Chicago
Page 32
Sample Quotes (Continued)
“We were undergoing a new billing system implementation &
needed assistance in liquidating our AR on the old system”:
Hospital Client2, Brooklyn, New York
“Our coding department was faced with constant attrition. We
found that our vendor had a much larger & stable coding team –
with better results.“ : Hospital Client3, New Jersey
Page 33
Key Drivers of Outsourcing Decision
Strategic Intent
• Align the Operating Model to focus on Core Processes and leverage vendor strengths (economies of scale, hardened processes)
• Shift from fixed to variable costs
• Improved Quality, Turnaround time
Tactical Intent• Right-size the cost structure
• Staffing constraints
• Management and Subject Matter Expert bandwidth
Page 34
UPHS Outsourced Initiatives
Have heavily used outsourcing as a tool since 2001
All self-pay accounts receivable from day 1
All accounts receivable follow-up with a balance under $2,000
All Evaluation and Management Coding for Physicians
Page 35
THE FUTURE OF OUTSOURCING
ON SHORE
VS.
OFFSHORE
WHAT’S A HEATLH SYSTEM TO DO?
Page 36
Page 37
Then and Now – About Global SourcingThen and Now – About Global Sourcing
How can we expect
offshore staff to understand US Healthcare
We are veryhappy with the quality of staff, their ability to
learn and deliver
Our vendor commitment to information
confidentiality is second to none. We feel they are our extended
business office.
Will the vendor be able to understand
and manage complex
processes
Delivered quality and cost has exceeded our expectations
Then Now
Can thevendor be trusted with confidential
information
Page 38
Benefits of Global Sourcing
Stability
• Large financially stable vendors
• Vendors with strong processes and outsourcing experience
• Maturing of the outsourcing process
Scalability
• Ability to scale infrastructure
• Access to high quality subject knowledgeable resources
• Strong vendor management teams with significant US experience
Cost
• Significantly lower offshore resources
• Shift from fixed to variable costs
• Greater capital efficiency (multiple shifts are run)
• Partner to share in cost of ramp up
Page 39
Global Sourcing Challenges
Reduced Control
• Global sourcing challenges the hands on management
• Need to bridge gap of cultural differences
• Need for contingency plans if offshore operational issues arise
• Mitigate reduced control by working with vendor that is trusted in local geography and has significant US presence.
Increased Security
• Need additional security for overseas transmission of data
• Need HIPAA compliance
• Increased security required at facility, unit, and terminal
• Mitigate security risks by working with vendor that has data security certifications (e.g. BS 7799) and HIPAA compliance plan.
Page 40
Sustainable Cost Advantage
Annual Wage Cost ($k p.a.)
En
gli
sh S
pea
kin
g G
rad
uat
es (
MM
/Yr)
Mexico 10 20 30
China
0.5
1.0
1.5
2.0
2.5
S. Africa
Philippines
Canada
Ireland
AustraliaUK
USA
India
220 universities
5000+ collegesWage Comparison
USD per annum
USA
2004
India
2004
India
2008
India
2015
60%
• Quality Assurance adds additional cost
• Infrastructure overheads (communication costs) and training costs reduce the overall savings
* Source: GE Analysis, Feb 2005
4400
8800
21400
2800
Page 41
Global Outsourcing: Moving Beyond Cost
Quality– Offshore workers are highly motivated
(and better qualified) for jobs that could be considered low-end in developed countries and hence have the motivation to perform better.
– Similarly better coding accuracy, ensures no loss of revenue through under-coding & better compliance.
– Companies could monitor their operations more closely and increase their audit sample size
Global Institute McKinsey
Page 42
Global Outsourcing: Moving Beyond Cost
Higher collections– Increase in collections as companies can
chase delinquent/ lower value account receivables that they formerly had to ignore.
Faster Turnaround, Shorter Cycle time– Offshore companies work multiple shifts
and are also able to utilize the time difference to their benefit
Global Institute McKinsey
Page 43
Leading Adopters
Financial Services
Transportation/Logistics
Telecom
Healthcare
Technology andManufacturing
VENDORS- GE- Siemens- MiSys
PROVIDERS
[Confidential]
PAYERS
[Confidential]
Page 44
Now Complex Processes are Globally Sourced
1995 2000 2005
Medical Transcription
Parts of Revenue
Cycle
End-to-EndRevenue
CycleProcesses
VendorsIndividual
EntrepreneursEntry of Larger
Organizations
Maturity of vendors
and technology
Customers SmallBilling Cos
LargerBilling Cos
LargeProvider
Organizations
Page 45
Global Sourcing in Healthcare: Vendors have Matured
20062000
Size Matters
Understanding ofIndustry Metrics
Level of formalization
IT Maturity
Page 46
Global Sourcing Strategy: What are the Key Steps
Process Selection
Who are the right vendors to work with and how do we select them?
Vendor Selection
What are the key execution steps?Execution
What Processes will be outsourced and when?
What Processes will be outsourced and when?
Page 47
Selection of Process – What to Outsource
Impact of Outsourcing
Co
mp
lexi
ty o
f O
uts
ou
rcin
g End-to-End RCM
WC/ NF
EMR backlog
Abstraction
Data Entry O/P Coding
I/P Coding
AR Follow-up
HL
L
H
Page 48
Global Sourcing Strategy: What are the Key Steps
Process Selection
Who are the right vendors to work with and how do you select
Who are the right vendors to work with and how do you select
Vendor Selection
What are the key execution steps?Execution
What Processes will be outsourced and when
Page 49
RCM Global Sourcing: Key Vendor Competencies
Business Appetite vs. Business
Competency
Compliance plan, Privacy & Security
policies
Strong domain knowledge– US healthcare knowledge& training
plan– Expertise on applications, such as
IDX, SMS, Meditech, etc.– Expertise on HIPAA transaction sets,
such as 270/271, 276/277, 835/837, 278/278R, etc.
Page 50
RCM Global Sourcing: Key Vendor Competencies
Strong domain knowledge– Ability to develop interface for diverse IT
applications.– Vendor’s automated work-flow applications
for efficiencies in coding and billing work-flow.
True global sourcing capabilities
Financially stable vendor willing to be subject
to US law
Page 51
Global Sourcing Strategy: What are the Key Steps
Process Selection
Who are the right vendors to work with and how do you
select
Vendor Selection
Execution
What Processes will be outsourced and when
What are the key execution stepsWhat are the key execution steps
Page 52
Global Sourcing: Key Execution Steps
Price and Contract
Negotiations
• Ensure local jurisdiction
• Pay for performance
• Build in a pilot and out if pilot fails
Transition
• Transition of process from in-house to outsourcing vendor.
• Includes process mapping, training and quality metrics measurements
Quality Monitoring & Improvement
• Constant monitoring of quality & productivity to measure against established metrics
• Analysis of processes to improve quality and productivity
Single point of accountability for Global sourcing is critical for success of the initiative
Key Learning
Page 53
Phased Approach to Implementation
Phase 2: Pilot
Phase 3: Consolidate
Phase 4: Capitalize
• Pilot a sub-set of work i.e. One Market, One type
• Validate requirements & confirm results
• Consolidate learning's
• Expand pilot
• Continuous Improvement
• Expansion of work
Phase 1: Prepare
• Document Process end-to-end
• Validate internal work and know cost
Page 54
Current Opportunities
Medical Coding
– In-patient (professional component) (over 4,000 discharges per month)
– ED (both professional and technical) (over 7,000 discharges per month)
Page 55
Current Opportunities (Continued)
A/R Follow-Up– Professional (Medicaid, over 60 days,
<$1,000 balance)
(About 2,000 invoices in monthly placement)
– Hospital (Medicaid, over 45 days, outpatient)
(1,000 to 1,500 invoices in monthly placement)
Page 56
UPHS OUTSOURCING INITIATIVES
THE
BIG PICTURE
BENEFIT
Page 57
NET DAYS in PATIENT ACCOUNTS RECEIVABLE
78 78
7476 75
73 74
7977 78 79
77 76
74 7470
74 72 72 71
76 7679 78
7473
354045505560657075808590
Ap
r-0
3
Ma
y-0
3
Ju
n-0
3
Ju
l-0
3
Au
g-0
3
Se
p-0
3
Oc
t-0
3
No
v-0
3
De
c-0
3
Ja
n-0
4
Fe
b-0
4
Ma
r-0
4
Ap
r-0
4
Ma
y-0
4
Day
s
Net Days 90 Days
The McCormick Plateau
Page 58
Net Days in Patient Accounts Receivable25 Month Trend
73 7168
67 68
64
60 60
56
5250
48 47 46 45 44 4341
39 3941 40 40
39 37
71 6966 66
65
6058 58
54
49 48 4744 45
42 42 41 40 38 3840
37 3836 36
30
35
40
45
50
55
60
65
70
75
80
85
90
Jun
-04
Jul-
04
Au
g-0
4
Sep
-04
Oct
-04
No
v-04
Dec
-04
Jan
-05
Feb
-05
Mar
-05
Ap
r-05
May
-05
Jun
-05
Jul-
05
Au
g-0
5
Sep
-05
Oct
-05
No
v-05
Dec
-05
Jan
-06
Feb
-06
Mar
-06
Ap
r-06
May
-06
Jun
-06
Da
ys
Net Days 90 Days
-
The McCormick Slope
Page 59
NET DAYS in PATIENT ACCOUNTS RECEIVABLE25 Month Trend
3840
4241
3837
35
38 3840
3738
37 37 37 3637
36 3639 39 40
4240
38
35
4143
4038
37 36
40 3941
3739
3537
41
45
39 3841
45
48 49
37 3734
20
25
30
35
40
45
50
55
60
Jun-0
9
Jul-09
Aug-0
9
Sep
-09
Oct
-09
Nov-
09
Dec
-09
Jan-1
0
Feb
-10
Mar
-10
Apr-
10
May
-10
Jun-1
0
Jul-10
Aug-1
0
Sep
-10
Oct
-10
Nov-
10
Dec
-10
Jan-1
1
Feb
-11
Mar
-11
Apr-
11
May
-11
Jun-1
1
Day
s
Net Days 90 Days
-
The New McCormick Plateau
Page 60
Bad Debt & Charity Care as a % of NPR
Page 61
Summary
Identify opportunities and document expected results
Disciplined selection process
Teamwork
Communication
Anticipate roadblocks
Celebrate results
Plan the future – continued outsourcing or incorporating activities into ongoing work within your revenue cycle
Page 62
Questions?Questions?
