College of American Pathologists
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  When billing systems offer labs rich rewards


CAP Today




May 2011
Feature Story

Laura Hegwer

It’s not an official motto of laboratories that are profiting from their choice of revenue cycle management systems: You get out of something what you put into it. But for the laboratories featured in this article, it might as well be.

With a lot of research, a little elbow grease, and some forward thinking, these laboratories took their client billing to the next level. Here’s how they did it.

Not fully satisfied with its homegrown billing system because the product could not be modified easily, DaVita Laboratory Services, in Deland, Fla., decided to shop for a new RCM system. That was in 2007. The laboratory, a wholly owned subsidiary of the Fortune 500 dialysis company DaVita, had complex revenue cycle needs due to the special rules pertaining to its dialysis laboratory billing. Before billing Medicare, for example, DaVita needed to examine the frequency of certain tests to make sure the lab met the qualifications for reimbursement. The laboratory also required a system that could be customized to accommodate its pool of nearly 4,000 payers. “We had every combination of fee schedule,” says Michael Hahn, DaVita’s vice president and general manager of laboratories.

After a thorough search, DaVita’s management team selected Lawson’s MediAR system because of its flexibility. To help them through the implementation, management designated “super users” to test each of the revenue cycle functions—registration, billing, collections, and cash posting—as well as to address compliance. These super users worked side by side in a converted conference room, dubbed the “war room.” Once they were comfortable with the system, the super users trained their teams on the software. The super users are still the go-to source for ongoing testing and training, Hahn says.

Unlike some RCM systems, MediAR is transaction based, and it can manage 300 million to 500 million transactions. All transactions are posted at the CPT code level, which allows DaVita to run reports by CPT code. For example, the system can report the average reimbursement for a complete blood cell count. Down the road, such ad hoc reporting will help DaVita staff review resource utilization and cost of care under Medicare’s prospective payment system, says Caylon Cannon, the company’s director of revenue cycle.

The transaction-based system also allows staff to rework denials of individual tests on claims. For example, a claim might include three tests that have been denied for different reasons: The first test may be denied for eligibility, the second because the ICD-9 code isn’t right, and the third because it’s a duplicate. All three transactions can be corrected simultaneously by staff members with the expertise to fix these specific issues, Cannon says. Other systems, he adds, might send the entire account to one staff member at a time, which slows the process.

Being able to predict net receivables based on contractual terms with payers—what Cannon calls the “holy grail” of accounting systems—has also improved operations. “If we expect to get $100 in reimbursement from that payer, the balance will be $100,” he says. “That truly was an operational insight for us because we saw we had ‘netting’ issues. We were expecting to get paid more because we didn’t have the starting point right.”

From a contractual standpoint, the system’s reporting ability gives the lab’s executives an ad­vantage when negotiating, since they can value each payer’s business over a period of time.

The system paid for itself in less than 11 months, says Cannon. And it led to the laboratory reducing its days sales outstanding by two-thirds. The laboratory was also able to cut its full-time equivalent staff from 126 to 88 while increasing patient volume from 109,000 to 127,000.

While DaVita needed a financial management system that could adapt to the dialysis market, Regional Medical Laboratory, in Tulsa, Okla., also had a specific need: to find an RCM solution that would work with its data warehouse.

RML is a regional clinical laboratory that provides inpatient services for St. John Health System, also in Tulsa, as well as outpatient laboratory services for sites in Oklahoma and Kansas. The laboratory, which receives 3,500 requisitions a day, uses one centralized billing office and a data warehouse to store its laboratory and billing information, says Lorinda Wear, MT(ASCP), director of sales, marketing, and business operations.

Upon deciding, in 2005, that they needed to take a more comprehensive approach to revenue cycle management than what their laboratory information system offered, the company’s management team members began shopping for an RCM system. They struggled for nearly two years to find one that could pull laboratory data from their LIS and then feed financial data into their data warehouse. But, in 2007, they found a software solution from Telcor that fit the bill.

It took about nine months for the laboratory to go live with the new system, which launched in October 2008. Soon RML was able to process charges more quickly, going from 96 hours to 24. Claims were also much cleaner, Wear says. The laboratory set up teams on work queues to adjust claims, and they corrected most errors within 48 hours. Furthermore, RML has seen its costs per bill drop by 16.6 percent, while productivity has increased by 33.7 percent. And the company has cut in half the number of accounts considered to be bad debt.

As RML grew comfortable with its new RCM system, the laboratory began working closely with Telcor to develop new services to meet its needs. To speed payments, for example, RML collaborated with Telcor to offer online bill payment on its Web site. There, patients can access their bills with a personal identification number and pay with a credit card, which posts automatically within the RCM system. The service, called iLab, is available to Telcor users that have a dedicated Web site.

RML is also working with Telcor, and is in negotiations with another vendor, to set up patient payment kiosks at outpatient laboratory sites and other locations. Patients can use the kiosks, which offer instructions in English and Spanish, to make payments to RML by check, cash, or credit card. “We have a large population that likes to pay in cash,” Wear says. “The goal is that we’ll print a receipt with a bar code [at the time of service] that patients can use to access their [billing] information in the kiosk, which will communicate with Telcor and bring up the patient’s account information.”

RML will kick off the endeavor using existing payment kiosks in food store chains in Oklahoma and Kansas and by deploying a few test kiosks in its patient service centers by the end of summer, Wear says.

Sometimes it’s a key event that fuels the need for new technology. At North Coast Clinical Laboratory, an independent central laboratory in Sandusky, Ohio, a dramatic shift in the payer mix sparked the decision to move to a fully electronic RCM system. Three years ago, North Coast acquired a division of another laboratory, a change that increased its population of third-party payers from 15 percent to 75 percent.

Until then, most of North Coast’s revenue cycle processes required hands-on intervention. Laboratory staff printed HCFA/CMS 1500 claim forms, as well as patient statements, and then mailed them.

Jack Runner, the laboratory’s administrative director, realized the lab couldn’t continue to operate in this manner. “Because reimbursement goes down every year, you have to find ways to be more effective and efficient,” he says. “You have to be able to cut costs because you’re working with smaller margins.” Given that a more automated system would allow for a lower cost per claim—and get the laboratory paid faster—a fully electronic billing and accounts receivable system seemed like a good investment, he continues.

As longtime users of products from Computer Service and Support, the North Coast management team felt comfortable with CSS but wanted to consider other products. Runner spent nearly a year investigating other systems before deciding to stick with CSS because of the vendor’s ability to accommodate different levels of automation.

North Coast purchased CSS’ AR-2000 billing system and implemented it in three steps over the course of a year. The first phase focused on filing claims electronically. Within 30 days of going live, the explanation of benefits from payers came back at least a week faster. Claims were also cleaner because the software included prompts that allowed order-entry staff to key in missing data, such as an approved diagnosis code. “Before then, we didn’t know what was missing until the EOB came back,” Runner says. The second phase centered on the electronic remittance advice process and permitted insurance companies to send their payments electronically. The third phase involved electronically posting EOBs, a process that Runner estimates cut keystrokes by 50 percent to 75 percent.

Since moving to CSS’ AR-2000 software, North Coast has reduced the workload in its billing department by one-third and eliminated 1.5 full-time equivalent staff members. The lab has also accelerated the turnaround on claims by more than seven days and sped payment by more than 10 days.

Runner credits North Coast’s success with its CSS system to having a good project team to guide the process: “You need people who can see the whole project conceptually and think about the impact at different levels,” he says. “You also need to put together a good implementation plan, and if you don’t shortcut it, you’ll do much better.” CSS was critical in this effort, Runner says. “They helped us write a better plan—that is what it really comes down to.”

From its beginning in 2005, Clarient, a start-up molecular diagnostics laboratory in Aliso Viejo, Calif., outsourced its billing. But by 2007, laboratory management at the rapidly growing, publicly traded company realized they needed to bring the function in-house. “Because we didn’t have access to data around billing, it became difficult to project our financials and gain clarity on how we were collecting against revenues,” says Ronald Andrews, president and CEO. “I was never 100 percent confident that everything was perfect.”

To handle its insourced billing, Clarient selected Xifin’s RCM application service provider solution. The laboratory chose Xifin based on the vendor’s experience in the laboratory arena and the cost of its RCM offering, Andrews says. “We were growing at 50 to 60 percent a year, and managing our working capital was important to us,” he explains. “So the Xifin ASP model was very attractive to us.”

Since going live with Xifin in June 2008, Clarient has expanded its financial staff to include a 42-person billing team that processes about 700 to 800 accessions per day. The laboratory has a better grasp of its receivables and has improved collections, says Glen Fredenberg, vice president of finance and corporate comptroller. The company, he reports, took its cash collections from $53 million on $73 million of revenue (72 percent) in 2008 to $77 million on $91 million of revenue (85 percent) in 2009, its first full year using Xifin’s RCM system. Clarient was also able to drive down days sales outstanding from 101 days at the end of 2008 to 87 days by the end of 2009. More recently, DSO have ranged from 80 to 90 days.

Perhaps just as important, the RCM system has helped Clarient reduce its bad debt from as high as 19 percent to nine percent. “We were always plagued by the inability to explain our bad debt expense to the investment community,” Andrews says. But by gaining better insight into its financials and improving its bad debt, Clarient was able to court a $40 million equity investment during the recession, when the capital markets were all but frozen.

Using its Xifin RCM system, Clarient was able to comply with the Sarbanes-Oxley Act of 2002 and with generally accepted accounting principles, or GAAP, which may have helped boost the company’s stock price, Andrews notes. In October 2010, GE Healthcare acquired Clarient for approximately $587 million.

To other laboratories interested in bringing billing in-house, Andrews offers this advice: “Don’t underfund the resources needed to bring it in, and don’t try to do it too quickly. Give yourself six months of concurrent operations with your outsourced billing and the new program to make sure all of your issues are worked out before you go live. After you go live, make sure you have monthly reviews of the data coming in.”

Today Andrews has greater confidence in the financial health of his business. As he puts it, “It’s about being able to sleep at night.”

Laura Hegwer is a writer in Lake Bluff, Ill.

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