Internet-based technology has been applied effectively to reduce physical therapy and rehab practice billing costs, especially at the stages of claims validity tests (scrubbing) and electronic submission. The decision about the scope of of automation depends on the total cost of ownership, which is often difficult to compute. Quantification of billing quality and its inclusion into price-performance equation of billing service yields more comprehensive financial picture and better decisions about billing service outsourcing and management. It is effective, however, only subject to controlled billing performance levels and process transparency.
Traditional sequence of management steps to rationalize automation of physical therapy billing and reduce its costs requires the practice owner to invest in processes, personnel, and technology:
- Study your denials to eliminate errors by using claims-scrubbing software
- Educate your front-end employees about the billing process and know how to be a part of it
- Investigate tools for electronic submission and take advantage of technology
- Set guidelines for which claims and which dollar amounts merit appeals
- Provide patients with clear policies for payment up-front
ROI in Claim Processing Technology
For illustration, consider a case of a three-office practice with seventeen physical therapists and a patient panel of 20,000, who in 2002 brought their claims submission and practice management services in-house. Assuming three FTE's working the billing and using Vericle's technology, the costs would be about $120,000 for personnel and $36,000 for technology. For reference, Vericle technology performs comprehensive claim validation, patient demographics and eligibility test prior to visit, electronic claim submission, and comprehensive reporting for followup, etc. Additionally, using Vericle technology, 98% of claims are now clean, adding further value for the investment in claims processing technology. In this case, billing costs add up to $156,000 annually. This is a significant accomplishment in terms of billing processing costs, because without advanced technology, the same practice may need at least seven FTE's, at cost of $280,000.
Accordingly, the previous arrangement prior to installing Vericle technology costs at least $292,000 (assuming 1/3 of cost for an alternative albeit inferior billing package). Thus, an investment of $36,000 in superior technology saved at least $136,000, which is obviously an impressive ROI on $36,000. However, this approach does not account for the entire spectrum of costs associated with in-house billing approach. It ignores the total revenue aspect of the billing function, which is its ultimate purpose.
Quantification of Losses Caused By Insufficient Billing Process Quality
But the inclusion of a rough estimate of total losses generated by this approach adds clarity to the total cost of its ownership. Obviously, the likelihood of payment shrinks dramatically with time. With few exceptions, the unpaid claims for more than four months are eventually forfeited. Hence the importance of A/R beyond 120 days. Therefore, to compute the total losses we first compute the total revenue and then use the days in accounts receivable as a proxy for underpayment.
For the case study in hand, we estimate the total practice revenue by assuming average physician revenue of $300,000, which, for 17 physicians, adds up to a total of $2,550,000. Next, since the stated percent of clean claims for electronic submission is about average (98%), we will also assume an average nation-wide A/R beyond 120 days, which currently hovers around 17.7% [R. Lowes, "Practice Pointers: How to Cut A/R", Medical Economics, September 3, 2004]. Thus the losses on the billings of $2,550,000 approaches $451,350. Even if 40% of that A/R were eventually collected, we would still face a revenue loss of $270,810.
Therefore, while the practice saved $136,000 on personnel, it still lost an estimated $270,810 on billing quality despite the newly installed technology.
The lesson of this illustration is that the costs of billing function may be grossly underestimated because of the following common pitfalls:
- Focus on costs of individual components of the billing function instead of computing the bottom line cost to the practice.
- Underestimate the costs of these components such as benefits, sickness, management, replacement, education, and vacations in case of personnel costs.
- Focus on the numbers of claims instead of charged and paid amounts.
An alternative approach holds a better promise for improved bottom line:
- Measure your current percentage of A/R beyond 120 days
- Base your management decisions on total cost/performance metrics
Yuval Lirov, PhD, is author of 