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RX for Healthcare Outsourcing Success: Abandon Traditional Roles

Outsourcing Excellence Award – Best Healthcare – Brigham & Women’s Physician Organization Dept of Surgery and McKesson Provider Technologies

For the first year the Department of Surgery at Brigham and Women’s Hospital (BWH) in Boston worked with McKesson Provider Technologies, the supplier handling the department’s billing, in the stereotypical buyer/supplier mode. “We followed conventional methods and got conventional results,” reports Chip Duke, Executive Director of Physicians Services, McKesson Revenue Management Solutions.

But that wasn’t good enough. The two partners took a scalpel to the relationship and carved out a new one that is an Rx for relationship success in healthcare outsourcing.

The multi-specialty department has teaching affiliations with Harvard University Medical School. US News & World Report ranked it No. 11 in 2006 and No. 10 in 2007. With nearly one hundred surgeons operating at BWH, the department recognized it had a problem with its revenue cycle. Fortunately, it was a problem easy to diagnose: the department didn’t have enough staff to handle growing volume or the budget flexibility to add more staff.

At the time it outsourced in 2002, it took insurance companies 129 days to reimburse the department for its services, according to Francis.

He recommended to the CFO and department administrator to either increase the staff or consider outsourcing. “My recommendations matched what my bosses had already been talking about. So we moved forward with an outsourcing recommendation to our Executive Committee,” he recalls.

Outsourcing would address other problems the department was facing: rising business expenses, employee turnover, and retention issues.

Supplier Selection

The department wanted to find a supplier using its billing system platform, GE/IDX, and had three main considerations in mind:

  • A quick, turnkey transition
  • More people to handle the volume
  • Reduced cost

Size mattered. “We didn’t want a mom-and-pop operation that couldn’t match our volume and growth needs,” says Francis. The department also wanted the supplier to have a technology background so it could bring other business offerings the department might find advantageous like greater custom reporting and data-mining capabilities.

The department issued an RFP and considered five suppliers, including a local one. The Physicians Organization suggested a supplier, but it was small and had high start-up costs. The department was working with another supplier in another area and hadn’t seen great results, so Francis crossed it off the list. Another didn’t understand the IDX platform; the fourth “clearly didn’t have the surgery specialty coverage we needed,” says Francis.

That led to McKesson, which uses its own platform. “McKesson didn’t come to us with with GE/IDX platform background. But its own platform wasn’t that much different from ours; we were convinced its employees could train quickly on our platform. McKesson had the surgery specialty experience and great IT resources. We thought McKesson was the best fit,” Francis notes.

Tight Timeframes Make a Tough Transition

“Going in, we knew there might be trouble,” says Francis. Duke says the tight timeframes in the first 12 months “put a ton of strain on the relationship.”

But right out of the gate the partnership did several things right. The outsourcing partners explained to the surgeons up front that year one was going to be tough. “We didn’t know if this would be the reality or not,” says Francis. “But we felt McKesson would need a bit of time to get familiar with our system and, more importantly, our market.”

McKesson had to learn the idiosyncrasies of doing business in Massachusetts, a state in which it had limited experience. “Each region has its nuances,” says Duke. For example, each payer has little things that help get its bills paid faster.

The supplier also had to learn the IDX platform. It brought in a group from the department for back-office training tips.

Trouble arrived early. Initially, McKesson was light on staffing. Duke brought in a team from Chicago to assist until McKesson was able to hire more permanent staff. “The Chicago team really helped move things along. McKesson had the back-up resources to get us going until they were able to staff more appropriately,” Francis reports.

The hospital executive says the department’s revenue cycle “took a hit” the first six months. Its days in accounts receivable (DAR) crept upward. Fortunately, they had “a big bounce” in the second half of the year, recalls Francis.

“Year one was a tough year, but there wasn’t a great deal of panic because we did a lot of prep work,” says Francis. “We did a lot of training and targeted early in that year what we needed to teach McKesson, what we wanted them to focus on. We weren’t worried despite that difficult transition.”

During the first year the two parties had management meetings every week. When things calmed down, they met on an as-needed basis.

Things Changed in Year Two

Francis says he realized in the beginning of the second year that the department needed to work with McKesson more as a partner than a supplier. “We wanted them to understand we are in it together. We realized we needed to treat them as if they were an extension of the Department of Surgery,” says Francis.

Both sides changed their approach. “We forged a partnership by abandoning the ‘us-versus-them’ mentality. This helped them learn our business better. They then understood our surgeons and their expectations,” says Francis.

“It was a new way of looking at things,” says Duke. “We stopped pointing fingers and just decided to fix things. Then the dominoes started lining up.”

The newly committed partners broke down the traditional barriers of front office versus back office, providers versus billers, even Red Sox versus Yankees fans. (McKesson is based in New Jersey.) “Well, two out of the three anyway,” Duke says with a grin.

“Once we addressed issues together, we were able to fix the broken processes, develop monitoring tools, and drive performance to levels we thought were unreachable in the first year of the engagement,” says Francis.

The new spirit of cooperation made it possible to talk about needed knowledge. Francis says the McKesson team thought it understood managed care. “Massachusetts is a much more unique managed-care environment compared to other parts of the country. Once they understood that they didn’t understand the environment, they came to us and asked for more meetings so they could pick our brains and really understand our market better,” says Francis.

The partners developed an issues list. They enjoyed crossing off items one by one. The groups celebrated each time an issue disappeared. “This created a great sense of camaraderie,” says Duke. They also created scorecards to track their progress.

First Impressions of Outsourcing

There were pockets of resistance to outsourcing from surgeons with past negative outsourcing experiences who experienced revenue disruptions and loss of practice control.

Duke says there was an idea that billing was a “black box” where you submit a claim and it goes somewhere with the hope you get paid.”

The first big problem the partners tackled was the department’s fatal edits, which were outside of expected ranges. A fatal edit causes the payer to send the bill back to the physician’s office for correction before it will pay. The policy number or the Zip Code may be wrong, for example. Duke says an insurance company will pay a clean claim in 14-45 days. If a claim has the wrong policy number and the wrong Zip Code, the insurance company may take 90 days or more to pay. “The doctors were giving their insurance companies a free 90-day loan,” says Duke.

So the partners focused on helping the department’s surgical practices provide better billing information to reduce fatal edits.

“I pointed out we were generating the problems contributing to the denials,” says Francis. “We were really holding McKesson back from doing a better job. I had to point out it was the practice’s responsibility to get the information if there was a denial so McKesson could do its job more effectively. Sometimes McKesson would have to ask numerous times before it got a response.”

Francis and Duke developed a strategy to document the problem to get buy-in from the physicians and their staffs. They used each doctor’s own claims to teach the surgeon’s staff how to improve their accuracy so McKesson received the correct data on the first pass.

Together, the outsourcing partners assisted the physicians in running the business side of their surgery practices more effectively. (They always went to these meeting together.) “We put together a best practices document. We promised if they followed those practices, they would have better accounts receivable performance,” says Francis. They also created an AR boot camp.

Duke says the GE/IDX software had many tools to help the practices, but they simply weren’t using them. “We helped them utilize the tools they already had,” he says.

“Once we got better insurance information from the practices, McKesson was able to do its job more effectively,” says Francis.

Duke reports the physicians themselves and their staff began to take pride in the fact they were cutting the number of fatal edits and positively impacting their respective days in aged receivables.

Handling Disputes

Francis says he and Duke “had plenty of conversations where tough things were said” and that was possible because “everyone understood the reason we were having the discussion was to improve.”

The department executive says McKesson senior managers are “on the plane the next day if we say there is a problem.”

The partners deal with all issues “honestly and swiftly,” according to Francis. The goal is to find the root cause of the problem so it won’t happen again.

However, there is an escalation clause in the contract. “We can ultimately go to the chairman if we don’t get satisfaction on either side. To be honest, we haven’t had a disagreement since the contract negotiations,” reports Francis.


The Department focused on a small number of items that demonstrate success or lack of it when it selected its service level agreements (SLAs). “We put in incentives and penalties based on days in AR and the net collection rate. The other component we measure is credit balances as a percentage of total AR. We don’t want any liability for overpayments or duplicate payments; so we work these as aggressively as the remainder of the AR,” says Francis. To date, McKesson has hit at least one of its incentive performance measures every quarter, he reports.

The partners have quarterly meetings with the chiefs of each specialty division. McKesson meets with each physician at least annually and more frequently as schedules allow. Francis meets with the liaisons every day. “Nothing ever slides by without discussion. We’re always on top of what they are doing and can offer ideas,” he says.

Business Benefits

Francis says outsourcing improved the revenue cycle by changing the way the department did business.

The department finished the last fiscal year at 50 days in AR. It was at 94 days when McKesson took over the business. “When we started the business, our goal was 66 days, but our former benchmark was 72 days. So we’re very happy with reaching 50,” says Francis. Now the partners want to make a few technology changes to improve to 47 days.

Since outsourcing, the MD retention rate has ratcheted up. This helps BWH protect its reputation as one of the nation’s premier hospitals.

Since partnering with McKesson, the department has reinvested any savings in patient care and quality-improvement initiatives and produced industry-leading performance metrics, according to Francis

Why This Relationship Is Successful

  • It had an executive champion. Francis says an executive committee member, who was open to outsourcing, followed the best practices and quickly started to have results. “He opened the door for us and reset expectations,” says Duke. Together Duke and Francis or members of their team jointly shared this doctor’s results to the other department surgeons. “That’s how we got buy-in from the surgeons: they started seeing a lot of improvements from our joint effort,” says Francis.
  • McKesson quickly made personnel changes. “They knew when to pull the trigger on employees when they weren’t working out. Early on, we recognized they had hired a couple of managers who really didn’t get it. They wasted no time in getting those people out and getting new people in,” says Francis.
  • McKesson changed its hiring approach to attract the right people. Francis says McKesson changed its hiring approach after “listening to our expectations.” Now, McKesson actually involves department staff in the interview process. “We’ve created a hybrid model for hiring and it’s really improved our business,” says the Department executive.
  • The supplier is onsite. The department found space in its building for McKesson. “I don’t think the relationship would work nearly as well if we didn’t have that,” Francis says. He sees the McKesson employees every day. “It’s like they are my employees since I’m managing them on site. This encourages communication; that’s why this relationship is successful. We’ve eliminated surprises.”
  • Both sides continually work to improve the process. “We’re never satisfied with the process as it is; we always think we can do it better,” says Francis. Each side is responsible for innovative thinking. He says McKesson “brings a lot of technology to the plate. They also have business around the country and are able to draw on that knowledge and share it with us.”
  • They arrive at solutions cooperatively. “Each side has a strong management team that is willing to make tough decisions and fight the tough battles. Both sides can say the things that need to be said,” says Francis.
  • The buyer is willing to back up the supplier when necessary. “When people are pushing back, we’ll go out and fight the battle with McKesson. We do this because we know they need to be supported to be successful. McKesson will always tell us when they need help,” says Francis.

Duke says at the outset the surgeons were wary of the outsourcing arrangement. “Now they see we are part of their team,” he reports. The department discharged its back-office work successfully.

Lessons from the Outsourcing Journal:

  • When an outsourcing relationship is just achieving average results, the two parties should step back and reassess. In this case, the changes in the buyer and supplier made in year two created a winning relationship.
  • Co-locating allows close interaction between employees of the buyer and supplier.
  • An executive champion is crucial to sustain an outsourcing relationship over time, and especially at the outset if there is strong resistance. In this case, the champion used the successes to win over his colleagues.
  • Things work when the buyer plays an active role: it admits when it is creating a problem and backs up the supplier when necessary.
  • Outsourcing transitions are tough. Preparing the stakeholders for rocky times in advance makes it easier to navigate when the choppy waters arrive.
  • Communication and monitoring tools are essential. The tools track progress, accountability and help to manage expectations.

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