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June 6, 2005

Selecting the Right Offshore Coding Vendor
By Michael von Grey, BSc, MBA
For The Record
Vol. 17 No. 12 P. 39

You’ve made the decision to outsource. You believe a vendor with offshore capabilities is worth investigating. How do you analyze options and make the right selection?

Like transcription before it, coding has witnessed an increase in the number of U.S. healthcare providers opting to ship work to offshore locations such as India. Users of such services perceive benefits from a more stable workforce, a high educational level, complementary time zones, and better value.

There is no doubt that offshore coding is gaining momentum and increased market visibility. One simple metric is to look at the membership make-up of the American Academy of Professional Coders (AAPC), which now boasts more than 300 members who live outside the United States. In India alone, 10 local AAPC chapters have been established in the past three years to enforce professional standards, provide a “community” for continuing education, and promote a recognized credential (CPC or CPC-H).

If a hospital chief financial officer, physician practice manager, or HIM director accepts that offshore coding is a credible option for meeting coding demands, how can these executives best approach the identification, selection, contracting, and management of an offshore vendor?

Recognizing the Need and Forging Consensus
A number of circumstances may give rise to the decision to outsource coding. Has your facility or group used contract coding labor in the past? Have you suffered recurring instances of uncoded backlog? Has the wage level for coders in your area been steadily rising? Have you specifically considered and discarded the possibility of growing your own pool of coders?

If any or all of these factors exist in a given facility or group, then the outsourcing decision probably makes sense. Exploring offshore options is particularly useful to achieve the following specific objectives:

• New processes. Coding offers rich opportunities for process redesign. For example, incomplete documentation may be reviewed and released more frequently. Doctors and nurses can be given educational feedback about ways to improve chart completeness. Procedure coding may be mapped more thoroughly to chargemaster items. Offshore coding staff can often absorb these “value-added” new duties without raising coding costs. And the high educational level of staff in places such as India means they can adopt new, more sophisticated processes relatively quickly.

• Volume variations. As a rule, coding manpower is less expensive and can be retained more reliably in offshore locations. This allows vendors to staff an account with more people than would be economical in the United States. Higher staffing levels allow greater flexibility to meet volume peaks, reducing unbilled backlog.

• Quicker turnaround. One benefit of offshore services is that they are generally not based in the same time zone as the client. “Normal” working hours in locations such as India or the Philippines coincide with overnight in the United States. Therefore, coding can be done once charts are assembled and ready.

It is important to generate consensus about the merits of these various business objectives, plus their relative priority. If your objectives can be more readily achieved by using offshore manpower, then the offshore outsourcing decision can be approached based on business logic and reason, rather than emotion or hearsay. Since few hospital executives have experience in working with vendors operating outside the United States, the offshore service concept may be new to many members of your team.

Identifying Potential Vendors
Once you agree on the prospective benefits of outsourcing, the next logical step is to identify potential vendors. There is no “official” list of vendors, so the search will depend on your resourcefulness. Here are some tips:

1. Search the Web. The list of vendors offering offshore coding is growing. Some will be more mature and established than others. The Web is a useful starting point to build a large pool of candidates.

2. Contact the AAPC. The AAPC has been progressive in working with offshore vendors to promote high educational standards and recognized credentials (CPC and CPC-H). It can make introductions to coders or organizations that employ credentialed staff.

3. Look for thought leadership. Offshore vendors with a strong commitment to the U.S. market will periodically speak at conferences or publish in HIM journals.

Use Referrals Liberally
It can be valuable to harness the experiences and wisdom of other healthcare providers that are using an offshore vendor. They can describe the vendors they considered, their reasons for choosing a given vendor, and their experiences since launching. Do not simply ask “Are you satisfied?” Instead, seek project specifics.

It is particularly useful to identify common themes between another provider’s experience and your own organization’s priorities. For example, if your priority is inpatient coding and another organization has used a vendor for only radiology work, its experience may not be directly transferable.

Internal Preparations
While building a list of potential vendors, there are several steps you can take to ready your organization for the project. An earlier For The Record article (“A Framework for Outsourcing Coding,” March 28, 2005 [Vol. 17, No. 7; p. 29]) described several steps you can take to prepare your organization for successful outsourcing. Remember that forging consensus within your hospital can take time because benefits will generally result from operational changes—a behavior that does not always occur naturally in hospitals or physician practices.

It may be easier for the organization to accept offshore outsourcing if the decision is delayered into its more tactical components, such as the following:

• What facets of the operation should be outsourced first? Look for areas where you have traditionally used contractors or suffered labor turnover. Is there a history of uncoded backlog? Or are there coding quality problems?

• What business benefits are being sought? Cost reduction? Revenue gain? Lower administrative hassles? Greater staffing continuity?

• Think about how you will measure progress against your objectives. For example, accounts receivable may be monitored through weekly discharged, not final billed (DNFB) reports. Coding quality can be measured with periodic audits.

• Highlight success stories from elsewhere. When you encounter case studies of other providers that have successfully used offshore vendors and delivered solid improvement, make sure to share this information with colleagues.

Vendor Screening and Selection
You want the vendor selection process to be objective and auditable—it helps ensure a higher-quality outcome, while also making the process more transparent to your organization. Try the following approach:

1. Prepare a matrix of selection criteria. Weigh each component to reflect its relative importance. The criteria should be based on attributes that are most likely to deliver your intended business benefits.

2. Generate a short list of qualified vendors. Constraining the list to two or three vendors makes the process more manageable, while still offering choice.

3. Request proposals. Generate a request for proposal that deals with the core issues facing your organization. This should be a way for qualified vendors to explain their capabilities relative to your selection criteria. In most circumstances, key criteria will include volume capacity, accuracy, turnaround times, and technical integration.

4. Ask vendors to reply in writing. Firms will frequently be more precise in writing compared with allowing a freewheeling sales person to “ad lib” a reply.

5. Conduct interviews and request demonstrations. For example, explore what technologies the vendor will use. Understand its approach to project management. Is the vendor able to quickly diagnose the nature of your operational challenges? Does the vendor have proven expertise in your specialty areas? Do you perceive that it will provide thought leadership during your project or instead use it for on-the-job training?

6. Request bids from vendors. Bidding should be conducted against a set of concrete criteria, including volumes, service levels, technical integration, etc.

7. Select a preferred vendor based on this evaluation. Once you select your preferred vendor, you can begin detailed planning and work out final contractual terms.

Common Pitfalls
When navigating the vendor selection process, be aware of several potential traps. First, the lowest price is not always the best value, particularly in the offshore world. Experience from the transcription industry suggests that some offshore vendors will propose unrealistically low prices to try to win an initial project—aiming to learn at your expense. In the coding sector, if the price appears too good to be true, it probably is.

In many circumstances, higher service quality (which can lead to cash flow acceleration or higher billable revenue) may offer greater financial rewards than simple cost savings. As an illustration, saving 50 cents per chart in emergency department coding cost is inconsequential if a competing vendor’s superior processes might generate $10 in new revenue from such charts. Think about overall financial gain rather than simple cost savings.

Don’t overlook the impact that improved workflow can bring to coding efficiency and managerial peace of mind. This can be tricky because HIM staff generally have little experience in managing workflow technologies or electronic tools for inventory reconciliation. Don’t look just for assurances about turnaround time or chart deficiency reporting—try to understand the concrete tools the vendor will use for this purpose to confirm their viability.

Be careful not to shift old, broken processes to your new vendor. Moving the coding function to a new vendor can be a catalyst to invent new processes. If you have selected well, your vendor should be able to contribute to the design and implementation of these improvements.

Contractual Considerations
Having selected your preferred vendor, it will be important to design a contract that helps guarantee the project’s success. The use of a vendor with offshore staffing adds an extra dimension to the range of issues. Here is a brief checklist of items to consider when negotiating the contract:

• Performance targets. Since your original business case for this project included the pursuit of specific objectives, make sure the contract describes those in measurable terms. Examples of key performance metrics include turnaround time, coding accuracy, and revenue per case. How will these be measured? Who will measure and report them? How frequently?

• Activation sequence. Both the provider and vendor organization will learn during the early deployment stages. For this reason, it is wise to consider a phased activation—such as one chart type at a time. Ensure that each rollout phase is predicated on success in earlier phases.

• Termination clause. Request the right to “terminate for convenience” without penalties. In other words, if the provider concludes that the service is not meeting expectations, it should have the right to organize an orderly exit from the contract.

• Risk-sharing. Where possible, structure contracts so each party bears both risks and rewards. For example, if turnaround time and DNFB reduction are key objectives include a bonus for reaching these objectives or a penalty for failing to reach them.

• Clarify the “chain of trust.” In any outsourcing arrangement, it is important for the provider to understand how access to protected health information will be controlled. Standard business associate addendum language is generally appropriate, but you should also consider a requirement for the vendor to brief you periodically on the specific flow of information within its organization.

Managing the Project
Once the vendor is selected and service contracts are signed, the rewarding work begins. The first step is to select an appropriate person to be project manager. Consider identifying someone who is a strong communicator, respected by peers, technically competent in coding, and familiar with topics such as registration, chargemaster, or compliance. If your vendor expects the project manager to deal with foreign staff, select a manager who is culturally sensitive.

So both vendor and client have shared expectations, map the project’s deployment plan into a structured format such as a Gantt chart. (A Gantt chart is a graphical representation of the duration of tasks against the progression of time.) Describe objectives at each phase, along with key dependencies. Have a mechanism in place to correct problems as they arise and adjust plans quickly as you absorb more data about what is and is not working.

An outsourced coding project of any sort will require technology assistance. This will frequently involve document imaging and workflow software, plus integration with the hospital’s registration, abstract, and charging systems. The provider’s project manager should be given formal access to information technology (IT) manpower to assist with specification, testing, and deployment processes. Since provider organizations are frequently stretched thin, try to get IT manpower scheduled fairly early in the project. Also find ways for your vendor to minimize the impact on internal IT manpower, where possible.

Anticipate timescales by which key objectives can or should be achieved. For example, by what date will the vendor seek to achieve a given DNFB target? Similarly, once the service appears to be running smoothly, don’t forget to “harvest” benefits that accrue from no longer managing the project in-house. For example, can office space be redeployed? Can encoder licenses for provider staff be curtailed? Might in-house coders be trained to perform different functions?

Allow the relationship to evolve. The main business objectives that exist at the point of launching a new offshore service won’t remain static over time. For example, your organization may implement a new information system that requires process changes by the vendor. Or the vendor’s portfolio of services may evolve, allowing you to consider integrating their services with other functions such as transcription or chargemaster reviews. One way for your vendor relationship to evolve over time is to require in-person review meetings periodically—perhaps once per quarter.

Conclusions
The growing shortage of coders is being felt by providers across the country. In this labor-constrained market, providers now have access to a growing array of vendors with non-U.S. manpower. This affords the opportunity for more continuous staffing levels, plus new process design. If a provider starts its project with an agreed set of business objectives, selects its preferred vendor using logical, auditable criteria, puts into place prudent contractual terms, and manages the project thoroughly, the results can be both positive and lasting.

— Michael von Grey, BSc, MBA, is chairman of Atlanta-based RevenueMed, Inc. He can be reached at mvongrey@RevenueMed.com.

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