Laboratory Outreach Financial Considerations: Billing-Part 5 in a Series

After IT, billing is the second biggest challenge of outreach programs. Laboratory billing is the most complex, regulated, and risk-prone of all medical billing. Laboratory claims are also often perceived as a nuisance since they are small-dollar compared to other hospital bills (think inpatient stays, surgery, sophisticated diagnostic testing, and interventional treatments). The average laboratory claim of $45 is often less than the write-off amount for hospital bills! It is not uncommon for us to encounter hospital billing departments that do not follow up on laboratory denials. Here are some facts from our 2014 Comprehensive National Laboratory Outreach Survey to substantiate these statements:
 66 percent of outreach programs do not know their bad debt rate.
 77 percent do not know their days sales outstanding (DSO).
 Only 23 percent are confident that they are collecting everything they can.

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Every single day, hospital billing departments leave money on the table that is critical for a business based on a large volume of small-dollar claims. For this reason, it is strongly recommended that outreach billing be outsourced to a company that specializes in laboratory billing. One note of caution: do not confuse outsourcing with abdication. You can have laboratory billing experts perform the billing for you, but you still have to manage their performance.

Beware of skimming from less-than-stellar companies. They submit claims and take the easy money without following up on denials or chasing down claims with incomplete or inaccurate information. That’s your problem. Your responsibility is to submit “clean” (complete and accurate) claims. The billing company sends out the bills and collects the money. A good specialty (laboratory) billing company will provide upside in collections merely by chasing down bills of a much smaller balance than a hospital billing department (down to the $3 to $5 range). The one caveat is that the billing company must be good, and you have to manage performance. You can’t be profitable if you pay seven percent of collections on average to outsource billing and have unworked denials and aged accounts receivable. This results in a triple whammy: lower than expected collection rates, subsequent write-downs, and lower profitability. I know this seems like common sense, but remember the quote from Thomas Greeley: “Common sense is very uncommon.” Based on my experience, this definitely applies to billing.

There are two additional advantages to outsourcing billing: it is a great way to segregate outreach revenues from hospital business, and it allows you to determine a specific collection rate for laboratory. Most payments are bundled. Laboratory might be paid as part of a bill covering other hospital services. It is possible to do line-item posting of payments, but very few hospital billing departments take this cumbersome step. As a result, collection rates are an aggregated rate for the hospital overall and may not accurately reflect laboratory collections. Segregation of revenues and knowledge of actual collection rates are key building blocks for the profit and loss statement (P&L).

Stay tuned to this blog series for information on additional financial issues that laboratory outreach program leaders must consider. You can also learn more in my book, The Profit Machine in the Hospital Basement.

Kathleen A. Murphy, PhD
Senior Growth Advisor
Chi Solutions Inc.