Torrance Hospital IPA, a managed care Independent Practice Association (IPA), was feeling the pain. The hospital, located in Torrance, California, realized its technology infrastructure was inadequate. This created administrative inefficiencies, resulting in financial hardship.
“We had no electronic claims processing or Web-based information connectivity,” says Marc Moser, President/CEO. “We realized we needed to increase our in-house information services department to support our programs. We searched for an ASP data manager but didn’t want to lose the capability to manage our own claims processing.”
There was only one answer for Torrance Hospital, which has 400 doctors and 70,000 enrollees: outsource the data management tasks but keep the support in-house.
Healthcare organizations are under tremendous pressure to cut costs and improve reimbursement, cash flow, and efficiency. Margins are already razor thin.
And California law requires HMO and PPO payments be done through capitation, leaving little room for profits. Capitation is an actuarial-based, negotiated uniform fee where a healthcare provider accepts responsibility to deliver services needed by its members. Insurers make payments at regular intervals, even if the members used no services or less than the contracted amount. In other words, the payment is not relative to the actual amount of services provided, even if they end up being greater than the agreed-upon amount.
Government payments (Medicare and Medicaid) are historically near or below market and barely cover variable costs while non-funded government mandates such as capitation, which can be very speculative if monitored improperly, can take even more resources away from patient care.
So having highly accurate patient and payment data is paramount to making such reimbursement formulas work for Torrance. Delays, mistakes, misunderstandings, and misplaced information arising from such data mismanagement endanger cash flow and revenues. This was Torrance’s challenge as it searched for an outsourcer to cure its ills.
The Numbers Have To Add Up
“In today’s ever-changing technology market, healthcare executives must be confident in their IT data management selections,” says Mark Anderson, CEO of the AC Group, a Houston, Texas-based consulting and technology analysis firm specialized in health care IT. “And a further challenge affects California health providers who face even greater difficulty in realizing profitability due to legally-mandated capitation payment formulas.”
Moser’s search led Torrance to Meridian Health Care Solutions of Woodland Hills, California. “We didn’t have a lot of capital to invest and we only had two people in our IT department. We also wanted to maintain the financial control that continued internal processing of these claims represents. So just ASP data management was an ideal solution,” says Moser.
Meridian provides a full range of support and processing services in conjunction with its ASP-IT data management solution. But even though Torrance chose just the IT portion of the outsourced offering, Joel Weinberg, vice president of Meridian, says there was still some added support.
“Torrance patients are enrolled in seven or eight different managed care plans. We receive eligibility data from the insurers, map it into our system, format it for accuracy, and put it in a “prep” area that Torrance employees can review before downloading (or posting) it as permanent. We also meet data healthcare service reporting requirements from Torrance back to these insurers using HIPAA laws for patient privacy and confidentiality.”
Torrance’s Happy Results Are Astounding and Immediate
Very quickly, Moser and his associates discovered this outsourced solution increased Torrance’s ability to handle time-consuming managed care transactions and administrative functions. In addition, Meridian produced comprehensive data analysis of the group’s overall performance. This eliminated data errors that would certainly have cost the hospital capitation money.
Prior to outsourcing its data management to Meridian, Torrance used a manual system to update patient insurance eligibility information. With the new ASP system, these data updates occur electronically: resulting in more accurate and timely information.
If eligibility information is out-of-date, providers may care for patients who are no longer eligible for services under the health plan and will not collect additional fees at the point of care. In such case, Torrance absorbs these costs.
Moser estimates the hospital saved the salaries of three full-time employees in that department simply because they no longer had to manually input member additions and deletions.
“Because many of our physicians are paid on capitation, accurate membership information is crucial,” Moser says. “An IPA could lose 5% of its revenue through incorrect eligibility information. This system helps us avoid such losses.”
Meridian streamlines claims processing and automates electronic input, contributing further to Torrance’s reduction of administrative staff.
The ASP also assists claims professionals by auto-adjudicating many routine claims, often catching errors that might have been missed before. And though Torrance’s previous system was reasonably efficient in authorizing referrals, the ASP now allows the group to automate the referrals and authorizations, saving more time, money and staff.
“There was an immediate benefit when we converted to the ASP,” says Moser. “The system eliminated redundant data entry in several departments, saving us a total of well over 10 full-time employees,” he reports: around 20% of the hospital’s administrative staff.
“We are 100% capitated because it’s the law,” he adds. “The system helps us with our strategy of aggressive negotiations for more reasonable reimbursements when contracts are up for renewal.”
ACG’s Anderson believes there’s “no advantage to any healthcare provider managing data when it comes to claim processing anymore.” He says outsourcing healthcare data management cuts costs, streamlines processes, and allows healthcare providers to focus on their patients’ wellness programs.
Lessons From The Outsourcing Journal:
- Outsourcing allowed Torrance Hospital to reduce its full-time employees almost 20%.
- An IPA could lose 5% of its revenue through incorrect eligibility information. Outsourcing to an ASP helps avoid such losses.
- Prior to outsourcing its data management, Torrance used a manual system to update patient eligibility information. With the new ASP system, the updates occur electronically, resulting in more accurate and timely information on which to base negotiated capitation reimbursements.