A Good Rationale for Outsourcing A/R

In my discussions over the last 3 weeks, it is clear that the chorus is getting louder, and the refrain is “enough already with A/R outsourcing."

One revenue cycle leader outlined her frustration of accounts being skipped, to the point where she is the one needing to reconcile the vendor work to determine what is actually being worked. To make matters worse, what follows is a series of telecoms with painful discussions on how the vendor should be changing their workflow to prevent this from happening, with ultimately no ability to influence what happens next.

Another CFO I spoke with cited “loss of control” as the number one pain point in outsourcing A/R, and while it certainly relates to the issue above, it also applies to the quality levels. A key issue is vendors selling a domestic approach presumably with vetted resources, only to find out that much of the work is sent offshore, and even worse, it is being worked by a third-party sub-contractor. In other words, the big, reputable vendor is only the middleman generating a profit by leveraging the brand while the work is being done offshore by a second-tier supplier with questionable credentials. 

Last, but not least: The big issue of skewed incentives.  

The belief that if we pay a vendor a percentage of cash, a commission, it will align our incentives has been completely debunked. In fact, the opposite is true. If we pay someone, for example, an 8.5% commission, they will invest a maximum of $8.50 on a $100 liability for a maximum loss potential of $8.50 for them, while the provider has a loss potential of $91.50, very different incentives indeed, and this is exactly what drives “cherry picking”.

But then, we do have good rationale for outsourcing. Specialization is a reason to outsource, some liabilities like complex surgeries, MVA accounts, or even VA accounts can be cumbersome and require specialty skills that are best concentrated with someone that does this type of work a lot, which is difficult to do for smaller and mid-sized providers due to volume alone.

Another is fundamental cost structure. Provider organizations have an overhead structure associated with, well, a provider organization. This overhead structure is high, way too high for a back-office business operation like PFS.

Then there is the HR policy issue. HR policies for providers often don’t allow using a modern and flexible employment arrangements, much less tapping into the Gig economy phenomenon. 

Then there is the IT speed bump. Technology can enable revenue cycle operation, dramatically cutting cost and improving yield through advanced analytics, RPA/AI and workflow optimization. But this requires engagement by IT.

In the last year alone, I have personally seen many great proposals from revenue cycle leaders being sent to the IT resourcing committee. Almost all them of them died quickly. It wasn’t that they did not have a solid ROI, or that they were cumbersome to implement, it is that they are competing for very limited IT resources, staff and skills. 

Providers are in the business of caring for patients and will prioritize care related projects over “revenue cycle improvements”. There is nothing wrong with that decision, quite the contrary, but there are consequences. This further demonstrates that operating the back-office business inside of the four walls of a provider organization has serious challenges and downsides.

Other industries have solved for these competing dilemmas successfully. On the clinical side, providers have also solved for with arrangements such as clinical JVs and partnerships, but the innovation on the administrative side is lacking.

Basically it breaks down to two choices: 

1. Continue with the current path. Outsource some work, get frustrated, bring it back in house, outsource it again later. Keep swinging the pendulum, keep being frustrated.

2. Create a different business model that addresses the issues. Partner with someone you trust and work in partnership with. Have governance that creates an intersection that meets your objectives in a non-contentious relationship. Create an economic model that makes sense for you and your partner.

We are always developing innovative models with our partners that want to create a solution that makes sense for them. 

For some, this means having access to supplemental capacity that is dedicated to them, that they control, but that they don’t have to “buy” for long periods of time – this is the VTS or Virtual Team Services model. 

For others, it means making the first step of partnering with us on technology by using a wrap-around technology to empower their internal resources to generate cost reductions and yield gains.

And on the most creative path, we are engaging with providers wanting to co-create and co-own a revenue cycle business that lives outside of the four walls of the provider organization, and has a governance and profit sharing model that makes sense.

To expand on this topic, feel free to reach out to me at [email protected] or 623.889.7124