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Where there’s a bill, there’s a way to make clients pay

September 2001
Mark Uehling

For many reasons, a certain percentage of laboratory clients don’t pay. It would be a mistake, however, to assume that lagging accounts are trivial. Which is why Lynn DeGrote always cites the figure $213,300 per month.

DeGrote is general manager and senior vice president at SearchAmerica, a Maple Grove, Minn., provider of online demographic information. The $213,300 per month is the amount a national laboratory recovers using SearchAmerica. Since DeGrote charges the lab roughly $40,000 per month for SearchAmerica’s services, the lab nets $173,000. Which isn’t peanuts in any spreadsheet.

Labs that manage billing and accounts receivable professionally reap significant competitive advantages. In an industry with margins as narrow as pipettes, reducing bad debt even marginally can have a big effect on the bottom line. Which makes it all the more baffling that most U.S. laboratories seem to be uninterested in collections. The contrast with other American businesses is stark.

That was the take-home message at a seminar on laboratory billing at the 2001 Executive War College in May. As the day-long session in Cincinnati made clear, the nuances of billing are so varied—so intertwined with the physicians who order tests, the staff who manage the paperwork, and the multiple means of reimbursement—that generalizations are difficult.

But all of the presenters at the War College agreed laboratories must make their billing procedures more systematic and consistent. There should be no "special cases." Set up procedures, the panelists urged, and stick to them.

As needed, labs can and should turn to outside collection agencies when their newly rigorous procedures leave them empty-handed. But the consensus from the presenters was that many laboratories resort to collection agencies too early in the billing cycle, perhaps out of ignorance about how most businesses do billing—or out of frustration at the complexity of billing in the laboratory environment.

Which is where SearchAmerica comes in. The company makes it possible for labs to recover money on their own-before resorting to collection agencies. DeGrote says five to 25 percent of all laboratories’ mail is returned unopened. Some of that correspondence, naturally, contains bills. "If you asked 10 labs what they do with the returned mail, I venture to say nine throw it in the trash or put it in a file, never to look at it again," DeGrote says. In most well-run companies, that isn’t standard practice.

His customers are different. They e-mail him an Excel or comma-delimited computer file containing the dead addresses. If the lab has other data about the addressee, such clues are included. Then SearchAmerica’s computers query the computer of a leading U.S. credit bureau—an outfit like Equifax, Experian, or Trans Union—which maintains databases on every American business and citizen.

If SearchAmerica finds new address data for a laboratory client, it automatically updates the lab’s information. If SearchAmerica strikes out, it automatically consults another database. When it’s finished, SearchAmerica’s computer e-mails a file of updated addresses back to the laboratory. "This tool will help you get the information you need,"
says DeGrote.

Some training is required to use the service, he adds, but it’s not difficult. "If you’re on the Internet, you can use our product," he promises. "It’s self-teaching. It’s pretty intuitive."

Another plus is that SearchAmerica can adjust the imbalance of power in which labs perennially find themselves. "You’re receiving specimens from your clients-the doctors, the hospitals-but you don’t have the information to collect on those bills. The key issue is that you’re at the mercy of somebody else."

The payoff from using SearchAmerica can be large. For every dollar a laboratory pays for its address-updating service, DeGrote estimates a lab could see a return of $4. It might be twice that. At Cornell University, a billing specialist using DeGrote’s company raked in $94,000 in three days, he says.

"He would get on our system, find the phone number, call the patient, and get almost instant cash returned. He was somebody who understood how to use the tool. The individual has to adopt the attitude that their responsibility is to collect this money for their organization," DeGrote says.

And that brings DeGrote to one of his pet peeves. With 28 years in the health care business, having served as a hospital chief financial officer and a chief information officer, he’s flabbergasted that laboratories and health care institutions are so blasé about money owed to them.

"Health care people have a mental attitude that their responsibility is patient care, and that the financial aspect of it is just a necessary evil," DeGrote says. "They generally don’t want to harangue patients for paying for what they receive."

As a result, DeGrote points out, some experts say more than half of all debt in the United States is related to health care. A staggering $20 billion is written off by the medical industry annually, according to Zimmerman Associates, a health care receivables consulting company in Hales Corners, Wis. Statistics on the total writeoff of the laboratory industry are not available, but annual reports of publicly held labs suggest the sums are sizable.

Given the magnitude of the problem, DeGrote is not a wild optimist. He knows some labs won’t ever take accounts receivable seriously. But he does have a few pointers for those who are starting to understand the stakes.

Labs can use the phone book or directory assistance to get client addresses. But that information is often outdated. It would be better to pay the U.S. Postal Service to provide national change of address information to help with returned letters—a capability many laboratories fail to use. But at the end of the day, he suggests, the accuracy of the data entry on the front end of the lab process has to improve. DeGrote’s dream is to incorporate SearchAmerica directly into laboratory information systems, so that clerks’ typing errors would be corrected instantly.

Until then, he believes labs should help clients ensure that the information that arrives with each specimen is correct. "It’s not just that people are avoiding their bills. We have one hospital that claims that 20 percent of its address problems are just bad typing. Forcing the physician offices to do something they don’t want to do is never fun. But they will do it." Indeed they will, as another presenter at the War College billing session attested. The catch: You may have to make sure your lab’s billing manager served in the U.S. Marine Corps, like Alice Carroll, controller for Genesis Clinical Laboratory, Berwyn, Ill.

Carroll had managed accounts receivable in other labs for 17 years, including a stint at Specialty Laboratories, before arriving at Genesis, which draws 24 percent of its business from nearby MacNeal Hospital.

She soon discovered that her 32-person billing staff was overloaded. As is the case in many laboratories nationwide, parts of the lab’s billing process still require manually reentering information into the computer, and the staff was thousands of requisitions behind on that never-ending task.

In the past, managers may have told the staff to focus merely on moving the paper along. Says Carroll: "They just wanted to get the reqs out the door. But just because the req disappears off your desk doesn’t mean you’re going to be paid." When a particular claim was rejected, for whatever reason, there was no systematic way to know why, much less correct the claim and resubmit it.

Now Genesis takes a different approach. It started with training the billing staff to know when requisitions were complete, not only from a medical standpoint but from a financial one. "When you’re looking at the requisition, the one piece of information that should be on your mind should be: Am I going to get paid or not? If you’re not going to get paid, don’t even send it out," Carroll says.

Her lab will verify whether a patient is eligible for Blue Cross or Medicare. "If a patient is not Blue Cross-eligible, we will not bill it to Blue Cross. We’ll bill it to the patient. Instead of waiting 10 to 14 days for a denial electronically, we’re sending it to the patient."

Carroll has been especially aggressive in insisting that physician offices live up to their obligations to supply the information that allows the lab to be reimbursed. Not surprisingly, the physicians balked. But they did come around.

Even computer-phobic doctors’ offices slowly adapted. The offices that presented problem situations six months ago, she notes, have reformed. "As we bring on new clients, we have to do the same kind of education process," Carroll says.

She also strives to get direct computer links to doctors’ offices. That can be a hard sell, even if the lab supplies the computer and software. "A lot of small doctors’ offices are not computer-literate," Carroll says. "They don’t want another PC in there. They don’t want to deal with it. The nice thing about a direct client interface is, you enter the patient once, the patient is there forever. You don’t have to sit there filling in reqs."

Once the physician office has met its obligation, Carroll’s philosophy is to be proactive with the remainder of the billing equation. "The accounts receivable need to be worked. You can’t just send the claim out. If the claim does not get paid for one reason or another, you’ve got to figure out why."

So at the start of examining a requisition, her billing staff focuses on how Genesis will be paid. The procedure includes checking for complete patient and insurance demographics. "We would go back to the client and ask for this information if it was not provided," Carroll says.

Many rejected claims can be edited or reviewed online, she adds. "You don’t have to wait for the rejection to come back because the Social Security number was wrong. It will tell you right up front. You can correct a lot of things directly online."

And Carroll has focused intently on electronic claims submission. "When I got here, I found that many things were dropping to paper when they truly could have gone electronically. Your turnaround on an electronic claim is seven to 14 days. Your turnaround on a paper claim is four to six weeks."

Among other tactics, Carroll asked her clearinghouse for information on insurers willing to accept electronic claims. She still wrestles with coordinating, or "mapping," billing codes between her lab, the clearinghouse, and insurance payers. But the lab’s rejection rate for electronic claims of late has been only six percent.

Overall, Carroll’s bosses at Genesis are pleased the situation has been turned around. With new billing software and hardware under consideration, Carroll says she might be able to trim her staff by a third simply because the operation is running more smoothly.

Carroll is too modest to be specific, but she admits that the lab’s accounts receivable have been reduced to a level that is more typical of any well-managed, penny-pinching company. "I am very detail-oriented," she concedes. "I’ve been told I’m tenacious." Turnaround is not so far along—yet—at William Beaumont Reference Laboratory. With 1,050 clients near its base in Royal Oak, Mich., the lab urgently needed computers that were year-2000 compliant.

Billing manager Diane Cicchini was tapped to supervise the installation of a new billing system in mid-1999 and, while she was at it, streamline the entire billing process. Most of the new hardware and software is up and running, but kinks are still being worked out.

The existing hospital system, she says, wasn’t able to help the laboratory run its business shrewdly. As Cicchini notes, the lab’s billing system had at least two ways to bill just for nursing home tests. Like many large labs, it also relies on two primary forms, the UB-92, generally the inpatient and outpatient billing form, and the HCFA 1500, generally the physician service form.

Add it up, and you have a complex regulatory and computational challenge. "We needed a billing system that was more suited to our business," Cicchini says. "We needed to be able to measure utilization for certain types of services by certain client physicians that the hospital system could not cough up. We needed a reporting functionality that would be client-specific, procedure-specific, geographically specific."

The UB-92 piece of the puzzle was especially important, and the lab’s vendor promised to deliver a package that could effortlessly burp out that form and the HCFA 1500. Says Cicchini: "Though they indicated to us that they had that expertise, we found that their expertise was—I’m trying to be diplomatic—far less than what we needed it to be."

As an example of one disappointment, she cites the system’s inability to tabulate separately dollars received for technical and professional services. "My system does not clearly distinguish for me when the payment that I receive is for one or the other. I pretty much have to figure it out manually," Cicchini says.

Another glitch: The system went live late in 1999 but could not bill patients directly until almost one year later. Cicchini herself, encouraged by her boss, signed an apologetic cover letter that accompanied the ancient bills. Patients who received those letters were irate, deluging the 25-person billing department with calls.

"People were wondering how an institution this size could dare to send a bill a year old," she recalls. "’Where do you get off, and what’s wrong with us, and your manager must be really stupid.’ Sometimes people are just plain rude." The staff was assured that profane callers could be politely urged to call back when they had calmed down.

All in all, Cicchini survived and maintained a positive attitude, but she has a few psychic cuts and bruises. "These problems we have had have been very painful, very costly in terms of time and goodwill," she says. "They were largely avoidable." Cicchini accepts some of the blame and allots a measure of it to the vendor, with whom she continues to work closely.

As she told the audience at the War College session, there are several ways to automate a lab billing process without such stress. Recommendation No. 1: Allow plenty of time. No. 2: Make your lab’s or hospital’s information systems department your new best friend.

"We were not successful in garnering the type of IS expertise from the vendor and hospital that ultimately we knew we needed," Cicchini says. "I can bill circles around you, but I am not a programmer. I was writing specifications for my billing format and translating those from the language that I know to people at [the vendor] who think in IS language. We weren’t always speaking the same language. They didn’t know that, and I didn’t know that."

The whole ordeal clearly has been trying, but there was a silver lining. Cicchini learned that her staff was able to handle just about any glitch or new problem. She speaks of her staff in almost reverent terms. "They’ve really been challenged," says Cicchini. "We’re still coming out from under implementation and all of the intricacies that our business is asking of them. My hope is that at the end of 2001, I can look forward to operating more like a normal billing department and less like I’m coming out from under a nuclear disaster."

When the lab’s staffing and computer issues have been resolved, and when procedures have been tightened, there will still be clients who refuse to pay. And to hear a savvy lawyer tell it, laboratories of all sizes are often mishandling disputes with their most difficult clients.

Sam Perkins of the Perkins Law Group, Lexington, Ky., works with 50 attorneys in 39 states. He specializes in helping labs with commercial collection. One of his biggest clients: Laboratory Corporation of America.

Though Perkins is aware of the risks of suing, he is not afraid to file a suit he is likely to win. He and his network of attorneys nationwide have taken on some 6,000 laboratory-related matters. The experience has taught him that some of the same clients—after mergers, acquisitions, and other corporate makeovers—delay paying labs again and again.

"After doing this for so long, we have a pretty comprehensive list of who does that," Perkins says ruefully. "As they merge, we’re seeing some of the same names. It’s not something that is entirely new. We’re able to see those patterns and understand those patterns."

Perkins believes that repeated forgiveness of a client’s debt may leave a laboratory vulnerable to prosecution under the Stark Act, a statute that prohibits health care providers from making referrals to clinical laboratories with which they have a financial relationship. Forgiving the debt of a physician office for some tests, while continuing to accept federal reimbursement for other tests, is a potential land mine for labs, Perkins says.

"What if all of a sudden there is a practice in the industry of not pursuing third-party debt? Is that not tantamount to a pattern of allowing nonpayment to keep that government money rolling in?" Perkins asks. "There’s a compliance question now in addition to an economic one. It’s going to be an industry issue. We’ve seen civil litigation already."

Whether they retain his firm or not, Perkins says, labs need to look at the time constraints of their in-house lawyers. Why? Because many of them may be too busy to pursue the $100,000 debts that could be recovered with a judiciously written letter.

Unfortunately, in many labs, in-house counsel typically are uncomfortable with commercial collection work. They are all too aware that suing a nonpaying client could prompt a counter-lawsuit. That could ultimately cost a lab far more than its original loss. So the risks and rewards of litigation must be calculated soberly.

Finally, Perkins says, labs should stop providing services to clients that are egregiously and consistently not paying. "Terminate them if they are not paying. They’re not gonna pay you," he says. "They are just trying to get more services for free until they go to the next lab and do the same thing all over again. Don’t have this balance and then keep on creating additional debt."

He describes one laboratory that was evasive about exactly how much it was owed by a client. The amount had risen mysteriously by $30,000. Perkins kept probing. As it turns out, the abashed client had turned the matter over to a collection agency but continued to provide services. The client finally confessed: "We didn’t cut them off."

Mark Uehling is a writer in Chicago.