Revenue cycle outsourcing may not be the financial answer hospitals are looking for, according to a recent analysis from the public accounting, consulting, and technology firm Crowe.
The analysis of data from more than 1,000 hospitals across 45 states showed that hospitals outsourcing their entire revenue cycle reported higher claim denial rates and longer patient collection times than their counterparts who handled revenue cycle internally.
“Early adopters determined the benefits of outsourcing, including consistency of performance, ability to scale and access to technology, made the investment worthwhile. However a lack of precise performance data has often inhibited other organizations from following suit – until now,” Brian Sanderson, Managing Principal of Crow Healthcare Services, stated in a press release.
“Looking at the financial data, the benefits of outsourcing the complete revenue cycle seem to be marginal on some metrics, and nonexistent on others,” he continued. “The decision to outsource any core function is complex, with considerations of access to talent, scalable technology and focused expertise – but performance should always be the key driver.”
Hospitals with outsourced revenue cycles had a 10 percent initial denial rate, whereas 9.09 percent of patient accounts had an initial denial at hospitals with insourced revenue cycles.
For an average 400-bed hospital, the impact of a ten percent initial denial rate equates to an additional $22.7 million of revenue that requires extra effort to secure payment, researchers added.
While outsourcing the entire hospital revenue cycle may require additional work to secure payment, the hospitals may also be facing less revenue overall from claim denials. Hospitals working with a third-party to manage their revenue cycle had greater final denial rates compared to their peers with internal management.
Hospitals with insourced revenue cycles had a 1.65 percent final denial rate, while hospitals with outsourced revenue cycles reported a 2.56 percent final denial rate.
Researchers noted that a portion of the final claim denial rate difference may stem from an “inappropriate use of transaction codes.”
Additionally, researchers found a difference in patient collections performance among hospitals with outsourced and insourced revenue cycles. Outsourcing the hospital revenue cycle led to a boost in patient financial responsibility collections, but collections took significantly longer.
For point-of-service patient collections, hospitals managing their revenue cycles internally reported a lower rate as a percent of total patient collections (16.45 percent) compared to hospitals with outsourced revenue cycles that collected at 19.68 percent.
Hospitals with revenue cycle management off-site also collected a greater portion of patient financial responsibility from self-pay after insurance patients, the data revealed. Self-pay after insurance collection rates were two basis points greater for outsourced revenue cycles than for insourced revenue cycles (38.72 percent versus 36.73 percent).
Despite collecting more patient financial responsibility, hospitals with outsourced revenue cycle management took substantially longer to see that revenue in-house. The uninsured and self-pay collection cycle for hospitals with revenue cycle management off-site was 109.4 days versus 76.3 days for hospitals managing their revenue cycles internally.
The data reveals that revenue cycle management outsourcing may not be the solution for all hospitals.
Outsourcing is on the rise, with 80 percent of hospital leaders considering or vetting full revenue cycle management outsourcing by 2019, a recent Black Book survey found.
Surveyed hospital executives, board members, and senior managers said they would partner with a third-party vendor to help manage their revenue cycles, so they could focus on decreasing costs and value-based care implementation.
With more hospital interest, the healthcare revenue cycle management outsourcing market is projected to see significant growth. One market report estimated the global market to increase at a compound annual growth rate of 11.9 percent from 2017 to 2023, with the market reaching a valuation of $23 billion by the end of the period.
Crowe researchers advised hospital leaders to consider how outsourcing the revenue cycle could impact their organization’s financial performance. Hospitals may face greater claim denial rates and longer patient collection cycles, but their organizations could also realize greater efficiencies through outsourcing, they explained.
While financial performance is a key factor, hospital leaders should also consider the following benefits of revenue cycle management outsourcing:
- Lower overall cost structure (while achieving similar performance)
- Access to consistent, advanced revenue cycle technology
- Ability to scale operations, such as adding new facilities
- Access to centralized talent pools versus geographically disparate talent pools
“The decision to outsource any core function (such as revenue cycle) is complex and should involve several management disciplines – finance, human resources, information technology, clinical operations, and managed care,” the report concluded. “The key management principle should be precise, transparent measurement of performance (sometimes validated by third parties), financial benefit, and progress toward organizational goals.”