Smart strategies for revenue management

June 5, 2006

Most of the poor revenue performance confronting radiologists and radiology business professionals originates from weaknesses in the overall base design of the billing system. So, although much has been written on the micro aspects of radiology billing and reimbursement, this article takes a macro view. We’ll look at the revenue-generating infrastructure of radiology practices to explain the basic design requirements that should be incorporated into every radiology billing system.

Most of the poor revenue performance confronting radiologists and radiology business professionals originates from weaknesses in the overall base design of the billing system. So, although much has been written on the micro aspects of radiology billing and reimbursement, this article takes a macro view. We'll look at the revenue-generating infrastructure of radiology practices to explain the basic design requirements that should be incorporated into every radiology billing system.

The design process is organized in three steps: process design, quality control and process enhancement, and performance evaluation. Only when these three major functions are in place can we discuss the microelements of radiology billing and reimbursement. The three-part system design approach is organized to cover virtually every issue likely to confront anyone active in (or affected by) radiology revenue generation.

We use the term billing system to refer to either in-house billing operations or billing outsourced to a professional service. The fundamental principles presented can be used to initiate change in your in-house billing operations or function as a requirement for your outsourced billing service. Every radiology billing system has similar inputs (demographic and charge information) and outputs (the generation of revenue and management reporting). What separates the good from the bad is the management approach applied!

During the process design phase, it is important to note that the difference between a remarkably successful billing system and a marginal one is not the software selected, but rather the system design and management philosophy applied to the billing process. The process design begins with the identification and documentation of the system operation segments that make up the billing process. It is from these system operation segments (or components) that all three phases will be developed.

The exhibit includes all nine of the system operation segments that make up the billing process. These nine segments will be assembled to make up the entire billing system. Think of them as the separate systems that are put together to manufacture an automobile. The power-train, air bag safety, electrical, and many other systems are assembled to produce an automobile. If any system is missing, the car doesn't run! The same holds true for a radiology billing system: The nine segments must be assembled properly to make the billing system work well.

Just as the air bag safety system is designed separately before it becomes part of the assembly of the entire automobile, each of the nine segments must be designed as well. The design of each segment entails what we refer to as microelements of the billing process. Development of these microelements will aid in documenting compliance with company policies, governmental compliance laws, and the regulations that we all face in the industry today. This level of detail is beyond the scope of this writing, but it is an essential step.

Once the operational segments of the billing system are established, we need to determine how we will be able to monitor and control the quality of inputs and outputs as they move through the billing system. This capability is accomplished during the quality control and process enhancement steps. Controls and performance monitoring systems should be implemented at specific intervals in the flow of processing to ensure quality.

These management tools serve as an early warning system. They will provide feedback on where to enhance the process to make it more efficient. When the quality controls identify an area where there is an issue, the billing system should be modified to reduce the likelihood of recurrence. This modification can either be retraining for a staff member(s) or the redesign of one of the microelements in any of the system operation segments so that the issue(s) can be monitored on a monthly or daily basis.

The billing process begins once the radiologist signs his or her interpretation. This is when the management of the billing process takes over and where we must begin our critical review of it for quality weaknesses. From here, there are a finite number of courses the billing for any one exam can take. Evaluation of these alternatives identifies inherent weaknesses in the system and indicates where to implement monitoring and quality control reporting.

Once an exam is completed, the system offers four possible outcomes:

  • The exam could be lost and not billed.

  • The exam could be billed and denied by the carrier.

  • The exam could be billed and paid.

  • The exam could be billed, and the insurance company could never respond to your claim submission, and the balance could sit in accounts receivable.

If we design reliable automated systems to monitor and provide feedback on these four areas, then we have addressed the major risk areas in the billing system and have eliminated considerable financial exposure. By monitoring the reporting produced by these quality control reporting systems, we can be confident that claims are moving through the system and being paid at anticipated amounts and time intervals. Because the quality control reporting system identifies any weaknesses, we can evaluate the considerations used during the design of the system operation segment to eliminate or reduce recurrences of the same error.

Given that all radiology billing systems have common inputs and outputs, they also have common weaknesses. For this reason, specific quality control reporting systems should be incorporated into every radiology billing system. You may identify additional reporting needs, but the areas covered below should be mandatory.

The first quality control step is procedure count verification. It should occur after steps 1 through 4 of the exhibit have been completed. At this point, we are still relatively early in the billing process and must confirm that all of the radiologist's charges have been captured for processing by the system. Procedure count verification is designed to verify that no exams are lost before they are billed. This quality control step does not determine that steps 1 through 4 are performed with 100% accuracy. It only confirms that all of the charges are accounted for.

The next recommended quality control step is denial management. This step is designed to monitor steps 5 through 7 for instances in which the carrier denied the claim submitted. The denial management system provides crucial management data for the optimization of income. The system accomplishes this function by tracking, quantifying, and reporting on every claim billed for which any payer denied the service. The reporting should be comprehensive - on all denials and not just selected ones.

This type of reporting is necessary to understand the entire financial situation of the practice. Once identified, these accounts should be assigned to a specific staff member until resolved. The output will allow you to address areas of the billing process that may be causing problems and the denial tactics used by carriers to slow cash flow. The system can pinpoint where refinement in the billing process may be needed.

The next quality control step is fee compliance. This is a required management tool specifically designed to monitor step 6. If the carrier did pay the claim, you need to determine whether the carrier paid the proper amount based on your contract. Almost every major health insurer has now settled class action lawsuits brought by physicians alleging improper payment for physician's services. Your billing system should have the ability to systematically identify and report instances when a carrier has underpaid a claim.

Because radiology billing deals with a large number of relatively small claims, it is crucial to develop management reports that summarize data concisely and clearly. The reporting tools need to identify the suspected managed care companies and the specific claims that are underpaid. The reporting should compare the contracted rate (the rate the payer told you it would pay) with the actual payment received from the payer, for every claim.

The last quality control step is needed to combat an age-old tactic used by managed care and health insurance companies. The tactic is to habitually deny that they ever received your claim submission. The claim is billed to the insurance company, and the insurance company never responds to it. This final quality management function is designed specifically to monitor step 8.

Quality monitors need to be designed to systematically detect and report these unpaid claims. Dedicated staff must be assigned to review every unpaid claim, each month. Many of the billing system functions need to be automated to process large amounts of data. However, once this step has identified and reported the specific accounts that remain unpaid, there is no alternative to spending staff time communicating with payers to resolve the issues.

The last part in the design of the billing system is to establish a concise method to evaluate the performance of the billing process. This performance evaluation step will help reassure you that the system is functioning as intended. This step directs you to potential deficiencies in the system.

There are two broad areas to performance evaluation:

  • regular review of management reporting, including monitoring of relevant modern financial ratios

  • review of the output from the quality control systems discussed previously

Monthly management reporting should include a concise five- or six-page report that includes a running 13-month summary for each location. This report should include the number of procedures billed (by modality and payclass), the amount of charges billed (by modality and payclass), payments in total and by payclass, and the accounts receivable balance. The report should include charges, procedure count, payments, contractual adjustments, and relative value units (by financial class and modality).

Management reporting should also have a year-to-year comparison of these data. It should include a calculation of relevant modern financial ratios, to evaluate the billing process. These ratios include items such as the average payment per procedure and the average charge per procedure (for each month and year-to-year), total days in accounts receivable, gross and adjusted collection percentages, contractual write-off percentage, and bad debt percentage.

The practice infrastructure component used to generate all revenue for the practice frequently receives the least attention and is the area of the practice least understood. Many times this lack of understanding leads to poor revenue performance. A well-managed radiology practice can attest to the essential financial and compliance benefits of a well-thought-out and managed billing infrastructure. The proper infrastructure will optimize revenue when everything is going well and alert you to problems when issues affecting revenue arise.

Quality controls and performance monitoring systems should be implemented to serve as an early warning system. Such systems will provide feedback on where to enhance the process to make it more efficient. Performance evaluation will help reassure you that the system is functioning as intended and direct you to where it might have deficiencies.

Mr.Reinitz is president of Comprehensive Medical Data Management in Powell, OH. He can be reached at kirk_reinitz@cmpminc.com.