Home

Cover Story

Table of Contents

E-Newsletter

Article Archive

Editorial Calendar

Datebook

Writers' Guidelines

Orgs/Links

Opinion Polls

Reprints

Search

For other articles and previous issues click here.

March 28, 2005

A Framework for Outsourcing Coding
By Michael von Grey
For The Record
Vol. 17 No. 7 P. 29

Hospitals that send coding services packing need to investigate the implications before showing them the door.

Until recently, outsourcing of hospital medical coding had primarily referred to the use of contract coders—coders provided by a staffing company on a temporary or semipermanent basis to meet a short-term labor requirement. But, following the trend begun almost 10 years ago in the medical transcription sector, hospitals are now beginning to engage specialist providers of remote, outsourced services to meet their coding needs.

There are several prospective benefits from the use of a remote coding vendor, but the decision to outsource some or all of a coding department also carries important implications for how an HIM department is structured and managed. This article analyzes the different styles of outsourced coding, as well as its potential benefits, and, most importantly, the steps hospitals can take to become more effective consumers of such services.

The Outsourcing Trend
Outsourcing has long been embraced for competing nonclinical facets of hospital operations. It is increasingly rare for a hospital to operate its own catering, janitorial, or linen departments. The logic behind outsourcing in such areas is that a specialist firm can often deliver superior quality at a more competitive price. To become a believer, the casual observer needs only to sample the improved food standards in hospital cafeterias.

Oddly, coding has not been held to this same standard. Because of labor pressures, the contract coding phenomenon has actually raised costs in some instances. Moreover, because contractors are generally engaged as a short-term solution, it is difficult for them to contribute to sustained process improvement—contractors are often a short-term tactical fix rather than a longer-term strategic solution.

By contrast, the adoption of a true specialist outsourcing service can deliver benefits in the following important ways:

• Catalyst for critical process review

When migrating coding services to an outside specialist, the hospital can seize the opportunity to reengineer multiple facets of its operations, including chart workflow, physician education, and quality assurance processes. Several established vendors will offer a consulting capability to assist with such process design.

For example, many HIM departments suffer ambiguity over the definition of a “complete chart” as opposed to a “codable chart.” Or the facility may lack techniques for providing feedback to doctors and nurses about the impact of their documentation quality on coding accuracy and achieved revenue.

• Adopting new technologies

Those outsourced vendors that operate from a remote location will typically wish to use some form of digital imaging and workflow management technology. These technologies afford the opportunity to implement inventory control processes that are materially more effective than the manual techniques they replace. Some remote coding vendors will even implement and manage these sophisticated technologies at their own expense, as a facet of operating their coding service. It’s possible that steps to improve coding may also bring a windfall of technology benefits that can complement wider HIM processes.

• Accessing a larger labor pool

Typically, hospitals are able to hire only from their immediate vicinity—they need access to the paper charts. Remote coding firms, using Internet-based document imaging and workflow technologies, can hire from a much larger pool of talent, both domestically and internationally. A larger labor pool allows such firms to identify and retain highly qualified coders while also offering the prospect of cost savings through regional wage arbitrage.

• Liberating expensive space

Space in hospitals is extremely expensive to build and operate. When coding is moved to an offsite location, the hospital can put the available space to more productive (possibly revenue-generating) uses.

Implications for HIM Preparation
While the prospective benefits from outsourced, remote coding can be high, hospital staff should be aware of the implications that such a move carries for their own operations. Like most business transformations, if the change is not managed in a systematic and premeditated way, the project carries much higher risk.

Pulling from the experience of multiple hospital outsourcing projects, here is a recommended list of topics HIM and other hospital executives should consider and act upon prior to and during the conversion to an outsourced coding vendor.

• Build a credible business case.

What is the coding problem that the change seeks to address? Various hospitals will have different objectives or perceptions of need, such as the following:

- relieving the hospital of recruiting and retention problems;

- lowering coding costs;

- improving coding revenue or compliance levels; and

- improving cash flow by maintaining lower DNFB (discharged, not final billed) levels.

Once the business case is prepared, it is important to secure senior management buy-in. For example, what hospital information technology (IT) resources will be required? Will the change cause friction or concern with various internal staffing functions? It is also crucial to have the vendor agree to fulfill its duties in meeting the business objectives.

• Manage by the numbers.

Your business case should include some key performance metrics that can be used by hospital management and the vendor in tracking achievement. This involves up-front research in understanding the hospital’s current operations.

For example, what have been the hospital’s historical DNFB levels, by service type and seasonally adjusted? What are the true current costs of running the coding department? How do these costs convert into per-chart terms? By agreeing to the metrics and their appropriate “tolerance levels,” hospital staff can transition from managing individual staff (including their personnel problems) to managing a vendor that takes responsibility for some or all facets of the wider coding process.

• Agree on preferred policies for chart workflow.

In most hospitals, chart workflow is handled manually. Incomplete charts might be flagged by use of Post-it notes or by their shelf location.

In migrating to the use of remote, outsourced services, it is likely that inventory will be managed using electronic data analysis tools. For these to work, the hospital should consider its policies for chart completeness, identifying and resolving registration errors, and other inventory-related processes. Having a team member who is accustomed to manipulating or interpreting data trends can also help.

• Consider quality sampling rules.

One facet of remote coding that worries many HIM professionals is quality control—despite the fact that quality control departments in many manufacturing settings routinely monitor inputs from remote vendors. It just takes a different approach. In particular, electronic workflow permits HIM and compliance professionals to sample vendor quality using a number of selection criteria, including random selection, payor class, diagnosis, and specific procedure(s).

It is important to define the hospital’s quality criteria in measurable and achievable terms. For example, is there a weighting of diagnoses that affect medical necessity vs. those that do not? A word of caution: Setting the accuracy threshold unrealistically high can backfire. Most compliance plans recommend accuracy targets of 90% to 95%; choose levels that can be achieved on a consistent basis.

• Place productivity risk on the vendor.

One hassle of managing a coding department is tracking which staff are high producers and which are laggards. In fact, with most “contract coding” companies, the hospital bears the unpleasant task of monitoring coder productivity since such staff are typically paid by the hour.

Moving to an outsourced coding company allows the hospital to shift this management burden to the vendor. Generally, this is achieved by agreeing on a per-chart fee schedule. When agreeing to this fee schedule, be certain to understand what it actually includes. Abstracting? Any other data entry? Inventory management assistance?

• Anticipate the need for IT support.

As most HIM managers will appreciate, hospital IT departments are routinely overworked. Yet the smooth activation of a coding service relationship will invariably require IT involvement.

For example, there may be a need for an inventory file to be sent from the hospital’s registration system. Completed codes and abstracts will need to be uploaded. Scanning hardware will need to be activated on the hospital’s network. The vendor may need remote access to the hospital’s transcription or results reporting screens.

Some of this burden can be overcome by working with a vendor that has the technology know-how. For example, a firm that routinely activates interfaces with hospitals can help reduce the level of involvement from hospital IT personnel simply by doing more of the work themselves. But it is important to secure senior management support to provide access to IT resources, particularly during a project’s earliest phases. A good rule of thumb would be to budget one-half of a full-time equivalent IT person for 30 days prior to and 45 days subsequent to the activation of the coding service. Thereafter, requirements can be modest.

• Be ambitious with process transformation.

The change from an in-house coding department to an outsourced vendor provides a rare opportunity to rethink many facets of the department’s operations. For example, some emergency departments have saved considerable money and have materially streamlined their operations by allowing coded output to directly populate a charging system, thereby relieving the need for manual charge entry staff. Other hospitals have used the introduction of chart imaging and workflow technologies as a catalyst for more ambitious physician education programs.

The range of opportunities for process improvement is large. But here are a few helpful hints:

- Do your homework about how other hospitals have reengineered their departments. The insights from benchmarking the operations of peer organizations can be eye-opening.

- Work with a vendor that has a strong capability for process reengineering. Ask open-ended questions about what a given vendor would seek to change in your hospital’s operations. Allow them to feed you with ideas. An HIM manager will quickly discover through this process whether a given vendor can actively contribute new, creative ideas or will simply look to move existing, flawed processes off-site.

- Prepare your team for change. Many HIM departments resist change because it can be frightening or risky. It is important to foster a culture of openness to new ideas during the transition.

• Consider a phased approach.
It is often prudent to carve out one portion of a hospital’s coding operations and to consider outsourcing that as a proof-of concept. Most hospitals will consider the emergency department, radiology, or various ancillary services as prime starting points because they are high-volume and relatively low-value per case, and keeping current with the workflow can frequently be challenging. A phased approach also creates a useful incentive for a chosen vendor to prove its worth, knowing that any service expansion will be merit-based.

Summary
Outsourcing has brought deep levels of specialization and process improvement to a wide range of industries. In healthcare, one can point to several examples where outsourcing has brought operational improvements—from catering and linens to transcription. In the coding market, outsourcing has, until recently, been largely synonymous with “contract staffing.” This is beginning to change; the trend toward remote outsourcing will likely accelerate as the benefits of such operations become more visible in the market.

While there are many prospective benefits to moving to an outsourced coding solution, such benefits will not be harvested without effort. The HIM manager can take prudent steps at both the departmental and enterprise level to help ensure success with the migration and ensure significant and lasting benefits.

— Michael von Grey is chairman of RevenueMed, a Norcross, Ga.-based company that provides coding, auditing, and consulting services.

Subscribe to For the Record Magazine!