Simplifying the Billing Process:

1

• Simplifying the Billing Process
• Still an Opportunity for Significant Cost
  Efficiency
• Presented at the Administrative Simplification
  Summit
• Healthcare Administrative Simplification
  Coalition
• November 13, 2008
• James Heffernan
• Massachusetts General Physicians Organization
  (MGPO)
• Includes results of a project made possible by
  the
• the Robert Wood Johnson Foundations Changes in
  Health Care Financing and Organization (HCFO)
  Initiative,  with co-funding from the
  Commonwealth Fund
• Research by Gregg S. Meyer, MD, MSc, James
  Heffernan,
• Brad Osgood, and Bonnie B. Blanchfield, CPA, ScD

2
Consider three questions

• Is the cost of administration in the revenue
  cycle too high?
• Have we avoided industry standardization and
  relied on system integrators?
• Is there a cost savings worth going after?

3
Mass General Physicians Organization

• Largest multi-specialty group in Massachusetts
• In FY07, a total of 1,099 physician clinical FTEs
• Contracts on behalf of an additional 600
  physicians who work in health clinics or
  specialties that are not at the MGH
• Non-physician employees
• 1,630 FTEs
• Operates a physician
• billing office that is
• one of the countrys
• largest

4
The MGPO applies its goal of achieving new
standards of excellence by participating and
piloting new cost containment and quality
initiatives

• Partners High Performance Medicine Initiatives
• All physicians utilize EMR
• Patient Safety, Consistent High Quality, Care
  Coordination
• Efficiency and Cost Control
• Quality Incentive Bonus Program
• Individualized physician incentive program
• AHRQ recently published Meyers, The Use of Modest
  Incentives to Boost Adoption of Safety Practices
  and Systems
• Pay for Performance
• Over 12 million at risk annually
• High Cost Case Demonstration Project
• Practice-based case management with promising
  results to reduce the cost and improve care to
  the highest cost patients

5
MGPO revenue cycle results are excellent within
the industry but fail to measure up when compared
to other industries

• Cost of Billing Office as a of Collections
• MGPO 3.76 vs. FPSC 6.06
• Collections
• of Net Collected in 30 Days
• MGPO 30.5 vs. FPSC 27.0
• of Net Collected in 60 Days
• MGPO 81.1 vs. FPSC 64.0
• Claims
• Cost per Claim
• MGPO - 7.40 vs. FPSC - 8.18
• Staffing
• Billing Personnel per 1M in Collections
• MGPO 0.48 FTEs vs. FPSC 0.77 FTEs

Source Faculty Practice Solution Center (FPSC),
2007 Survey
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A Sobering Thought

• Healthcare trails the field when it comes to
  benchmarking revenue cycle
• Cost is several magnitudes higher than other
  industries
• Back end 4
• Other billing related 2.5
• Other practice costs 8
• Yet other industries report 0.25 to 0.5
• Error rates would be unacceptable in any other
  industry
• First time reject rate 10-15
• Level 1 of six sigma would have an error rate
  less than 10
• Level 2 of six sigma would have level errors less
  than 1

7
Another look at Industry Performance

• Hackett Group
• Industry corrects 3 of remittances for errors
• Healthcare has improved to 10 of claims not paid
  correctly the first time
• Industry spends 0.034 of revenue on the A/R
• Physician practice surveys indicate 4 is a best
  practice and 6 is the norm

8
Revenue Cycle Productivity by Industry
Physician Billing Staffing Compared to other
Industries Faculty Practice Solution Center
Survey, 2007
Sources Other Industries - RCM Metrics - web
page FPSC 2007 Survey
9
Literature on Administrative Costs Focuses on
Macro Estimates

• Noted research conducted by Woolhandler and
  Himmelstein
• Two studies reported
• Administrative costs exceed 31 of U.S.
  healthcare expenditures, up from 22 in 1983.
  (1994)
• From 1969 to 1999 administrative personnel grew
  from 18.2 to 27.3 of the U.S. healthcare labor
  force, a rate outpacing Canada. (2004)
• These studies were macro analyses. MGPO study
  is a micro- analysis

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Overall Study Objective

• To identify the MGPOs Administrative Complexity
• Burden resulting from the extra cost incurred
  in the
• system that is a direct result of compliance with
  the
• multiple sets of payers and their numerous
• administrative requirements for seeking payment
  for
• services.

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Defining Burden

• We define Administrative Complexity Burden as
• Expense Side
• The no value added time (labor costs) required
  to comply with the administrative requirements of
  payers in the Professional Billing Office,
  physician practices, quality and P4P group, and
  by MGPO Executive Staff
• Infrastructure (capital and operating costs) that
  are added to the system to accommodate the
  additional staff time and their processes
• Revenue Side
• Denied/lower reimbursement due to rejected
  claims

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Approach Used

• Identify MGPOs cost to bill under one set of
  payer rules subtract this cost from actual
  costs to find burden.
• Use Medicare physician billing processes as a
  standard. Identify the tasks and staffing
  required to bill for services using Medicares
  billing requirements.
• Use flow charts created for tracer technique and
  interviews of staff to assess tasks and staffing
  requirements for gold standard processes.
• not meant to imply that CMS is the ideal payer!

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Why Use Medicare Physician Payment as the
Standard?

• Efficient payer
• Rules apply to all so a model could be
  generalized nationally
• Easy to translate results into policy/action
• Explicitly recognizes that there is the need for
  some administrative burden related to fair and
  accurate payment

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Specific Methods Tasks

• Identify administrative functions in MGH/MGPO
  that relate to billing and other payer-related
  processes develop flowcharts/organizational
  charts
• Using FY06 data, identify actual costs and FTEs
  for each function
• Interview MGPO Exec staff, Professional Billing
  Office staff, clinic admin staff, and physicians
  re time spent on compliance with billing
  requirements
• Apply Medicare rules to each administrative
  billing function in Professional Billing Office
  (as applicable) and estimate revised cost of
  staffing and revised non-labor costs
• Calculate the cost of physician, nurse and office
  staff time learning and performing burdensome
  administrative tasks required for billing
• Calculate the cost of the MGPO executive staff
  time identified as burden
• Calculate the staff time and infrastructure costs
  to measure and report quality as required by P4P
  contracts
• Calculate the change in revenue reduction due to
  rejected claims if Medicare rules applied

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How could Administrative Burden be Reduced if
Single Set of Rules were Used?
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ResultsAdministrative Cost Burden in the
Professional Billing Office

• Group Practice Mgt 1.61 M
• Third Party Billing 1.26 M
• Coding 0.32 M
• Production 0.27 M
• Administration 0.22 M
• Payer Relations 0.09 M
• Information systems 0.08 M
• Customer Service 0.05 M
• Outside Programming 0.57 M
• Department Overhead 1.15 M
• 5.61 M
• Burden as of Professional Billing Office Total
  Costs 24

The Professional Billing Office ranks among the
lowest in cost nationally over the last 5 years
and has very low days in AR!
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ResultsAdministrative Burden in Physician
Practices

• Physician Time ¹ 28.2 Million
• Admin Nursing Staff Time ² 4.9 Million
• 33.1 Million
• ¹ Average of 4 hours per MD per week. Similar to
  findings of recent MGMA studies
• ² Average of 5 hours per staff per week

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Results Cost Savings of Reducing the Rejection
Rate?

• What is the value of if the overall rejected
  claim rate paralleled the Medicare rejection
  rate?
• Assumes all payers reject claims at same rate as
  Medicare rate.
• Less staff would be required to handle rejected
  claims.
• Decreases in rejections seen in filing limit
  rejections and non-covered service denials.
• Estimated at 6 Million (29 of PBO Staff).

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Summary of the Administrative Burden of Net
Patient Revenue
20
Put another way the potential cost saving to
collect claims exceeds 50
Increase electronic encounter claim processing
Reduce administrative denials
Use of consistent standard rules by all payers
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Consider our three questions

• Is the cost of administration in the revenue
  cycle too high? Yes, comparison to other
  industries show significant potential
• Have we avoided industry standardization and
  relied on system integrators? Yes, the direct
  billing costs could be reduced 24
• Is there a cost savings worth going after? Again
  yes, the saving 45M a year at the MGPO
  translates to 26B applied just to the commercial
  payments to physicians

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The Massachusetts General Physicians Organization
would like to thank the Robert Wood Johnson
Foundation and the Commonwealth Fund for their
support of this project through the Robert Wood
Johnson Foundations Changes in Health Care
Financing and Organization (HCFO) Initiative.