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October 2016

A Call for Common Sense Coding Standards
By Dale Kivi, MBA
For The Record
Vol. 28 No. 10 P. 6

Industry surveys suggest that the percentage of health care organizations that engage outsourced coding services has jumped from 15% to 60% over the past two years (with an average of 30% of each site's volume being outsourced). Given such rapid industry growth and the continuing market momentum, there's no time like the present to define ground rules that enable apples-to-apples comparisons between vendors.

About a dozen years ago, there was a lack of standards for transcription services, which led to many contracts being written for lower line rates. The end result was some creative line counting and higher bills. With some prodding, the Medical Transcription Industry Association and AHIMA released "A Standard Unit of Measure for Transcribed Reports" to better educate the HIM buying community on transcription quality and turnaround time (TAT). Now, clear transcription process measurement standards for volume calculations, quality, and TAT can be applied to direct staff and outsourcing efforts, contract language, and subsequent vendor management.

Unfortunately, today we are still in an uncontrolled, prestandards market for outsourced coding services with no organized vendor community to drive common cost, quality, and TAT measurement tools for the benefit of service buyers. And even though there doesn't seem to be the rampant manipulation of billing rates that existed in transcription years ago, it's almost impossible to directly compare the cost, quality, and TAT of one coding service vendor against the next without a common set of contract expectations and performance reporting criteria.

Some coding service vendors bill by the chart, while others charge by the hour (with or without minimum hourly productivity expectations). Quality is typically defined as identifying the proper diagnosis-related group (DRG) 95% of the time—a reasonable expectation but far from the full definition of quality. And discussions about TAT expectations seem to fall into extended deliberations about individual productivity, the ongoing real or perceived hangover of the ICD-9 to ICD-10 transition, and all the other variables that can influence expected results (EHR, encoder and computer-assisted coding [CAC] platforms, onshore/offshore labor source, physicians' documentation habits, coder experience, etc).

Instead of falling into the trap of analysis paralysis (I participated in two back-to-back industry workgroups dedicated to transcription quality standards that spanned three years before a final document was released), here are several common sense recommendations to bridge the gap between today's uncontrolled coding services market and the eventual thorough and more precise measurement standards that certainly will follow.

Coding Costs
With minimal effort, potential buyers of outsourced coding services can find vendors that will sell labor at hourly rates, ranging from $12 per hour for 100% offshore resources to $100 per hour for 100% domestic resources. Common sense suggests the quality and productivity expectations at both ends of that scale should be calibrated accordingly.

But given such a wide range of available per-hour pricing, buyers understandably need to ask additional questions to ensure they are getting the best value for their money. Are the coders certified through AHIMA or AAPC? How experienced is the team that will be assigned to the account? What are the defined quality assurances (and penalties for noncompliance) included in the contract? What type of productivity can be expected for the different case types?

Similar to the early stages of the outsourced transcription service industry's growth 20 years ago, more coding service vendors are switching from hourly rates to a volume-based pricing model. Per-chart pricing, based on chart type, eliminates the individual productivity variable and makes it easier for buyers to budget. Not only have major group purchasing organizations insisted on such per-chart pricing, some vendors have already extended that business model to their staff, paying based solely on productivity with bonuses (or penalties) for meeting quality expectations prior to inherent quality assurance stages.

When coding services are purchased per hour instead of per chart, the buyer assumes the full risk of the vendor's staff productivity. If the buyer tries to add per-hour productivity expectations, it essentially ends up being per-chart pricing. On the other hand, if services are purchased per chart, the vendor assumes all risk for individual productivity. Consequently, per-chart pricing should be the expected standard for such a business process outsourcing activity.

Fewer financial variables for the buyer, more measurable responsibility for the vendor: Isn't that why organizations outsource?

Coding Quality
Just like transcription services, coding quality must be measurable, clearly defined in the contract, and consistent with industry expectations. If quality expectations are not met, there should be appropriate penalties incorporated into the contract.

Clearly defined quality expectations, such as achieving 95% or better accuracy for DRGs, 95% or better identification of complications and comorbidities (CCs) and major CCs, and limiting rejected claims to a specified total, should be standard. Any additional quality targets should comply with industry standard key performance indicators such as those defined by the Centers for Medicare & Medicaid Services.

And as with TAT expectations, hitting strict quality targets with new clients can take a bit of time as vendors come up to speed on technology configurations, individual physician documentation habits, and any other site-specific conventions. Prelaunch training, evaluation of measurement tools, and a thorough review of historical performance against defined goals will go a long way toward managing a successful transition.

Coding TAT
Defining TAT expectations is a sticky subject for buyers and sellers alike, especially for vendors that are still selling their services by the hour, an approach that makes it impossible to break away from discussions about individual productivity and all the other inherent environmental conditions that impact coder efficiency. (No one would expect a coder working with an antiquated low-budget EHR and a $299 encoder with no CAC to have the same productivity as an equally experienced coder working with an efficiently configured Epic EHR and a fully blown, integrated 3M encoder and CAC product package.)

Again, per-chart pricing models eliminate those discussions and place the TAT burden in the hands of the outsourcing vendor. Once the outsourcing decision has been made, individual productivity should not be a concern of the buyer. As long as the charts are processed within the defined discharged not final billed (DNFB) targets and meeting the quality expectations, it shouldn't matter whether the vendor has a single shift team of five or three shift teams of 15 making it happen.

At the same time, DNFB levels clearly matter to the overall process and should be clearly defined and easily measurable by both the vendor and the buyer, allowing for requests for additional information or missing documentation.

But switching to a per-chart pricing model doesn't mean the outsource vendor should ignore individual productivity. In fact, just the opposite should occur. Individual productivity needs to be rewarded—provided quality is maintained. That's why some forward-thinking vendors are already compensating their staff based on production. Staff who are both good and fast deserve to make more money, and vendors that are able to recruit and retain them should expect to earn better business margins.

Future Expectations
To remain competitive, vendors will begin to consolidate their operations onto their own technology to drive greater workforce efficiencies and gain true economies of scale. As a byproduct of this strategy, they'll also eliminate the service buyer's encoder and CAC costs, dropping market prices even further.

That same transition occurred in transcription over a 20-year period (hourly based pay with client-owned technology to production-based pay and vendor-owned technology), resulting in a dramatic drop in market prices and the vast majority of the market being outsourced due to the dramatic cost savings enabled by vendor-owned technology that delivers economies of scale. Given the two-year 15% to 60% growth in the use of coding services driven by the switch to ICD-10, that same evolution will likely occur in coding over the next three to five years.

And also just like the transcription industry of years gone by when there were nearly 400 dues-paying firms participating in the industry association, today's coding services market is dominated by small- and medium-sized firms. As the industry evolves with stricter comparison tools and a greater reliance on vendor-owned technology to improve individual productivity and exploit economies of scale, the number of vendors that survive and the competitive market prices will inevitably decrease.

As providers evaluate potential vendors, identifying those willing to let the customer define how to measure cost, quality, and TAT is more likely to lead to a successful outsourcing relationship. Now that the panic associated with the ICD-10 transition has subsided, it's time for buyers to take control and begin writing their own contract conditions. If they wait for vendors to organize and agree on a set of standards to help buyers measurably differentiate between them, they'll be waiting for a long, long time.

— Dale Kivi, MBA, vice president of business development for FutureNet, is a 20-year veteran of the clinical documentation industry and frequently published author and conference speaker on cost, quality, and cycle time management issues for transcription and coding efforts.