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When outsourcing works (and when it doesn't).

Outsourcing any part of the revenue cycle is not something many CFOs enjoy doing. It means losing control. But for some overloaded finance departments, many of which may have lost employees to layoffs, outsourcing may be inevitable.

In fact, according to the 2009 HealthLeaders Media Industry Survey, 45.71% of healthcare finance leaders said they were considering outsourcing their self-pay collections and 56.19% were considering that option for their bad-debt collections. (See www.healthleadersmedia.com/industry_survey/.)It seems that these CFOs have found that outsourcing can get the job done better, faster, and for less—but that's not always the case.

When to outsource
If the numbers add up. John Winfrey, vice president and CFO at DCH Health System in Tuscaloosa, AL, decided it was time to outsource the 900-bed system's self-pay collections because he determined the cost would drop to 8 cents on the dollar from 14 cents on the dollar.

"These systems that these outside companies have set up are quite sophisticated," he says. "They're expensive, but they can spread their costs over a large base of hospitals so they're able to operate these systems a lot more effectively and efficiently than we can."

The four-hospital, community-owned system is projecting to collect $4 million more in self-pay revenue this year than last year. The health system was collecting 15% to 16% of the self-pay dollar in 2008, but now the vendor is collecting 27% to 28%, Winfrey says.

If they can do it better, faster. One of the reasons sending self-pay collections out saved DCH so much money is because the vendor is much more efficient. The company has an automated-dialing phone system, incentivizes employees, and operates for longer hours and on weekends.

"It's costing us half as much to collect a dollar because we're able to get outbound a lot more and be much more proactive with the outside company," Winfrey says.

If it's based on expertise. Kimberly Boynton, CFO at Crouse Hospital, a 439-staffed-bed facility in Syracuse, NY, decided to use a billing service for the professional component of the hospital's employed physicians because of the service's technological advantages and specific expertise.

"We chose to outsource the physician billing because it is such a different bill than a hospital bill, and it has different rules and regulations," she says. "We weren't able to do it on our IT system, but this outside company has the expertise and the IT systems available to do the professional component."

When not to outsource
If you'll lose too much control. Of course, outsourcing part of your revenue cycle means you're more vulnerable if something goes wrong. Perhaps this fear is the reason just 5.71% of respondents in our survey of finance leaders said they were considering outsourcing their entire revenue cycle.

"I'm very dubious about outsourcing [other parts of the revenue cycle] because especially when you're talking about revenues and accounts receivable it's our largest asset and I'm very cautious about outsourcing anything that has to do with collecting," Winfrey says.

Outsourcing a significant portion of the revenue cycle is an act of desperation, says West Johnson, vice president of healthcare revenue consulting for Huron Consulting Group's Stockamp revenue performance improvement division based in Lake Oswego, OR, "unless you have some really tight guidelines on effective AR management before you get through the outsourcing process to make sure the level you're getting in return is improved service at a lower cost."

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