Strategy is to use automation and new informatics solutions to improve productivity of medical lab’s billing and collection departments
Relentless pressure to cut costs is pushing the nation’s clinical laboratories to finally look at back-office functions as a source of important cost reductions. That is a new trend in the medical laboratory testing industry.
“No one should be surprised by this development,” stated Lâle White, CEO of XIFIN, Inc., of San Diego, California. “When it came to cutting costs, for the better part of two decades, most clinical laboratories put priority emphasis on the pre-analytical and analytical stages of their lab operations. This was a good strategy and has produced substantial gains in quality and productivity, even as labs were able to better manage costs.
Clinical Laboratories Give Attention to Back Office Operations
“Now it is the back-office functions that offer the opportunity to measurably reduce costs while improving the productivity and yield of a medical laboratory’s billing and collection activities,” she continued. “This is a natural response to the ongoing decline in lab test reimbursement and ever-tougher compliance requirements.”
Healthcare reform and other legislative trends are putting increasing pressure on the clinical laboratory industry to increase efficiency and decrease costs. One unwelcome consequence of these policies, however, is that it is becoming increasingly difficult for laboratories to sustain required operating margins. This is particularly true as healthcare undergoes the slow shift from fee-for-service to fee-for-value.
Consider the trends: The Patient Protection and Affordable Care Act of 2010 cut medical laboratory test reimbursement by 1.75% for each year from 2011 through 2015. Most recently, the Middle Class Tax Relief and Job Creation Act of 2012 cut an additional 2% from the Medicare Part B medical laboratory test fee schedule. Combine these cuts with private payer efforts to constantly hack away at reimbursement and it is no surprise that profit margins on clinical lab testing are getting squeezed.
“Having spent so much effort to control costs in the core testing operation, there is generally little laboratories can do without impacting services to their clients,” observed White. “This leaves the laboratory back office as a target for cost cutting.”
For Clinical Laboratories, Revenue Cycle Management Is One Key to Profitability
A number of companies are focusing on healthcare revenue cycle management (RCM). This is typically accomplished by automating many of the billing and collection systems. These automated solutions seamlessly communicate with the laboratory information systems (LIS) and the Electronic Health Records (EHR) of the laboratories’ parent institutions.
Companies working in this area include:
In order to automate back office activities, these new systems require interoperability. They connect to the other systems to exchange relevant information in a “digital conversation.” These back office systems must be able to apply rules and analytics in order to interpret that data and make it actionable. In addition, they must be instantaneous to avoid the data synchronization issues that plague legacy systems.
The term “back-office” generally describes two categories: claims processing and eligibility checking. A report issued in June 2011 by the American Medical Association found that almost one in five medical claims are processed inaccurately. Automation and workflow redesign of back-office activities to perform the right checks at the front end of the revenue cycle can result in early detection and correction of many of these problems.
For clinical laboratories, the efficiency of both eligibility checking and claims processing can be significantly improved. As this improvement takes place, there will be a direct increase in the lab’s profitability. This is due to both lower costs and higher collections.
One source of back-office improvement is to force claims that come into the laboratory to be “clean,” which is to say, without errors. Next-generation RCM solutions also optimize electronic order entry and use interoperable web service protocols to provide continually updated claims rules to the EMR or order-entry product.
Order Entry Systems Are a Key Component of RCM
New RCM systems typically act as the middleware that manages the entire process from patient to payment. For clinical laboratories, revenue cycle management solutions will typically communicate between these systems:
- Medical laboratory test Order Entry systems
- Laboratory information system (LIS)
- The Customer Relationship Management (CRM) system used by the clinical lab, if any
- The clinical laboratory’s financial/accounting systems
The Dark Report and Dark Daily have just published a free White Paper that focuses on creating back-office efficiencies through the use of technology that can lead to increased profitability. It is titled, “A CEO’s Guide to Doubling Profitability: Using Technology to Reduce Back-Office Costs.”
RCM Is a Way for Clinical Laboratories to Leverage Information Technology
This White Paper provides specific information on effective approaches to leverage technology and their own creativity in order to realize efficiencies that improve profitability without sacrificing patient care. “This is a time when, because of stricter eligibility requirements at a growing number of health insurance plans, it essential that every clinical laboratory and pathology group use innovative technologies to make sure that they are reimbursed for every test and for every patient,” observed David Lorber, Ph.D., Director of Business Development at XIFIN.
“It is why innovative laboratories are actively working to integrate new informatics solutions into their revenue cycle management protocols,” continued Lorber. “It is smart use of information technology that replaces manual steps, automates workflow, and contributes to a higher proportion of clean claims that payers reimburse at first submission.”
It is for these reasons that back-office operations are becoming a priority for performance improvement projects at leading clinical laboratories around the nation. Having spent years squeezing costs from pre-analytical and analytical workflow, these labs now recognize that their coding, billing, and collection operations are un-optimized, relative to other operational areas within their organization.
Essentially, savvy medical lab administrators will see increased cash flow because their lab is billing payers more efficiently after implementing the latest generation of revenue cycle management solutions. This added cash flow is most welcome at a time when almost every payer is cutting back what it reimburses for medical laboratory tests.
—By Mark Terry