Coding and the Third-Party Option

By Selena Chavis for For The Record

As outsourcing models gain a foothold, health care organizations weigh the pros and cons.

Outsourced models are increasingly recognized as an attractive and viable option for a number of operational areas within health care organizations. In line with this trend, many organizations are considering the potential of moving either some or all of the coding function to a third-party service provider.

It’s one of the last areas to be considered for outsourcing on a large scale, says Michael DiMarco, CEO of himagine Solutions, who points to other operational areas—such as transcription, billing, and collections—where use of third-party providers is more mainstream. While the revenue and compliance concerns associated with coding medical records has likely created some reluctance in the past, he suggests that recent initiatives and current industry trends such as ICD-10, a dwindling coder supply, and work-from-home models are creating greater need for outsourced solutions.

“With the [widespread] adoption of EMRs more than a decade ago, coders can now code from anywhere—they don’t have to be physically in the hospital,” DiMarco notes. “This is a major turning point in the industry. Hospitals were able to free up real estate for patient-facing activities, and coders now have freedom of choice for where they want to work.”

Sue Belley, MEd, RHIA, CPHQ, manager of clinical content development for 3M Health Information Systems, points to ICD-10’s arrival as a primary contributor to the increased use of third-party coding services. “HIM departments have used outsourced coding services for many years, but we definitely saw an increase in the demand because of the ICD-10 transition,” she explains. “Organizations ramped up use of outsourcing while their own staffs were training for ICD-10, performing dual coding, and tackling the learning curve associated with the ICD-10 go-live.”

As a result, health care facilities that may not have previously outsourced coding are now much more familiar with these services. For Inova Health System, a five-hospital network in Virginia, outsourced coding was a critical component of the organization’s ICD-10 strategy, says Patricia Jones, MHS, head of coding quality and ICD-10. “I can’t imagine having implemented ICD-10 without contract coding support. The year leading up to I-10 was particularly challenging because we were in dual coding mode for I-9 and I-10,” she recalls. “If you are trying to meet revenue cycle management goals, it was not possible without good contract coding support. I-10 was a game changer for contract coding.”

Staff vacancies and a shrinking coder workforce are also pushing health care organizations to seek outsourced options, says Mike Miscoe, a health care attorney with extensive background as a coder. Acquisitions and mergers further exacerbate the resource problem. “Hospitals are purchasing physician groups left and right,” Miscoe points out. “Many are choosing the outsourcing option because maintaining enough talent in-house to address greater coding needs is difficult.”

Dale Kivi, MBA, vice president of business development with FutureNet Technologies, affirms that industry data point to an increased use of outsourced coding services. “A number of surveys show that only 15% to 17% [of health care organizations] outsourced any coding activities in 2014. However, a full 50% reported outsourcing at least a portion of their work by the end of 2015,” he says. “Now that we’re past six months in under ICD-10, outsourced coding continues to gain momentum, even as productivity issues for in-house staff improve.”

Pros and Cons
Health care organizations are leveraging outsourced models in several ways. Some outsource their entire coding department or even their entire revenue cycle function, while other facilities outsource a portion of their coding function such as emergency department, charging, or facility level. Another trend is the use of outsourced coding services to perform concurrent coding quality review as well as retrospective auditing—both of which are critically important in the post–ICD-10 environment.

Belley notes that value-based health care will continue to elevate the role of HIM, resulting in greater reliance on outsourced coding services. “Hospitals and health systems are using outsourcing so that internal staff can focus on other critical functions that organizations want to keep in-house,” she says, pointing to high-level quality initiatives such as public reporting of patient safety indicators and hospital-acquired conditions. “Or, internal coding staff may need to focus on external audits or bundled payments. The shift from volume- to value-based care will involve HIM professionals in data analytics to support population health and payer-provider risk-sharing agreements.”

When the right vendor is chosen, Kivi suggests that many organizations are realizing improved productivity, solid quality, and lower costs. “In-house staffing models are typically staffed for normal workload levels, while outsourced agreements are bound by turnaround commitments in the contract, so they are typically better equipped to respond to spikes in volume,” he says. “Especially when specifically contracted for per-chart rates, production levels with outsourced vendors are consistently higher than most in-house staffing models, which are not equally incentivized for production speeds.”

While use of outsourced coding services has proven advantageous on a number of fronts, industry professionals caution that transitioning to this model must be approached thoughtfully to avoid costly pitfalls. Irma Coonfield, senior director of HIM at Inova Health System, emphasizes the importance of viewing a third-party provider as an extension of an organization’s internal team. “We have the same expectations for productivity and quality and the same very strict standards of their coders that we have of our coders,” she says. “If we find a contract coder who is underperforming, we have them remove that coder from our account.”

DiMarco says that quality and productivity can suffer when health care organizations do not approach outsourcing as a partnership with a vendor. He explains that many facilities work with a number of vendors at any given time as a means of augmenting staff when a crisis or need arises such as staff turnover, leaves of absence, and initiatives like systems conversions or ICD-10. Because third-party providers do not keep staff on hand for emergent situations, the resulting action is to quickly hire coders to fill that need.

“They don’t always get the best people in the marketplace because the vendor makes no investment into screening, selection, onboarding, active auditing, and performance management of those people,” DiMarco says, pointing out that vendors have no assurance from the client as to how long the revenue stream will continue. “You need a partnership whereby the client and vendor make mutually beneficial commitments to each other resulting in improved consistency and quality. It’s like having another workforce. This approach overcomes the issue of inconsistent quality and productivity.”

Revenue cycle management, compliance, and security are other factors that can throw a wrench into the outsourcing option, Miscoe says, pointing out that there is always risk when an outside entity takes the reigns of an operation as critical as coding. For instance, he explains that while the use of an outsourcer may improve productivity on the front end, the big question is: What happens if quality is poor?

“Consider the time involved in researching a denial, pulling together appropriate documentation, and sending it out,” Miscoe says. “The time vs reward calculus changes big time for a claim that doesn’t get paid.”

Health care organizations get hit even harder if compliance or security issues present. And if a third party must ultimately be eliminated, the costs associated with bringing the function back in-house are often extensive.

When diagnosis-related group (DRG) accuracy is a primary measure, Kivi says quality commitments can be major stumbling blocks. “Although that may be an easier target to measure and report against, that’s hardly the sole definition of quality coding,” he says. “Of course, if you’re only focused on getting the DRG right, that also has a huge impact on individual productivity. But the biggest issue for the industry to overcome, in my opinion, is per-hour or per-chart pricing.”

Kivi further explains that a low cost per hour means nothing if productivity is low. In response to this concern, he says some buyers are adding minimum productivity numbers per chart type to the contract, so they essentially end up with per-chart pricing. “What we really need is industrywide, AHIMA-approved cost, quality, and productivity expectations that equally apply to in-house staff and outsourced vendors,” he says. “Such an effort is presently getting started and will go a long way in leading the industry toward a consistently measurable and competitive marketplace.”

Best Practice Considerations
For organizations considering outsourcing coding, industry professionals recommend the first step be determining when it makes the most sense to introduce the model. Staff vacancies and revenue cycle management are typically key drivers, according to Jones. “If you are understaffed, you are naturally going to consider contract coding. I-10 and other conversion initiatives required a cushion of support,” she says.

Coonfield says that when Inova undertook a large system conversion, requests were made for additional coding support from the organization’s outsourcing partner. “As we have gotten back to normal, we have readjusted,” she says. “It’s a partnership. As long as you let them know what the needs are, you expect them to be able to meet those needs.”

Belley says other telltale signs of the need for additional help may include a coding backlog and a lack of credentialed, experienced coders nearby.

Once the need for outsourcing is established, Miscoe notes that health care organizations must understand present costs. “Try to quantify having in-house folks. Some organizations don’t have the resources to build a coding operation,” he points out.

Vendor flexibility is critical to long-term success, Jones says, pointing out that Inova established specific performance and training metrics for potential vendors to meet. In some cases, vendors opted out due to the evaluation criteria.

“A lot of companies go through self-learning. You don’t become proficient in I-10 by self-learning modules,” Jones says. “We had strict requirements. When I-10 hit, these individuals had to undergo extensive auditing because they were coding live records to I-10.”

Inova requested profiles of vendor staff and insisted on being able to choose and later replace staff if necessary. “That is absolutely essential,” Jones says. “There should be a productivity component built into the contract agreement as well as quality. If you don’t have a company with a data quality framework, I just don’t see how you can do this, quite frankly.”

Belley agrees that verification of outsource staff credentials and training should be a priority. She suggests asking key questions such as: What is the outsource company’s practice regarding continuing education? What is its coding quality audit process? Does it offer domestic and/or international outsource coding support? Does its experience match the health care organization’s specific needs?

Once a baseline is established, Belley says outsource coders must be onboarded in the same way as internal staff. “For example, the outsource coder needs guidance on where specific information can be found in your organization’s EHR. They need to understand your query policy,” she explains. “Educating supplemental coding staff about your facility’s policies and practices takes time, but ultimately is needed to ensure a successful engagement.

Equally important is consistency of staff, Jones says. “We use the same people. It’s not a rotation,” she says. “These are people who are consistently in our records. They know our documentation, our policies and procedures, our coding systems. Consistency is important.”

Miscoe notes that health care organizations should also assess the security infrastructure of a third party. “What kind of technology do they use? What kind of controls do they have? Make sure safeguards and security exist that don’t create breach liability for you,” he says.

Also, ensuring contracts protect ownership and access to data is paramount in case a relationship must be terminated, Miscoe says. If a buyer is unable to get to key data, the revenue cycle can come to a screeching halt, he adds.

Kivi suggests that the shift to competitively bid per-chart pricing can allow for significant cost savings—provided the selected vendor maintains quality and has the ability to provide clear and accurate workflow reporting. “Without proper visibility to the workflow and continuous quality metrics, the risk can be too great,” he says. “Like any other outsourced activity, success has more to do with choosing the right partner who understands your performance expectations and provides you with the appropriate amount of reporting, rather than simply picking the cheapest option.”

Coding’s Future
Current forecasts point to a positive job outlook for coders. That’s good news for third-party coders, says Belley, who believes outsourcing models have the potential to make coding professionals more versatile and well rounded. “Outsource coders have the opportunity to code records for many different facilities, which exposes them to a variety of surgical procedures, case types, and more,” she points out. “They gain experience navigating through different EHRs as well as abstracting systems. There is an opportunity to learn about different natural language processing technologies. All of this makes the coding professional more employable and contributes to a competitive marketplace.”

Kivi says the switch to ICD-10 has been good, in general, for the coding market. “In addition to the added training and technology investments, coder salaries spiked and continue to rise, at least for now,” he notes. “Even more than six months past implementation, there are plenty of services or recruiting firms for in-house staff positions that are offering up to $7,500 sign-on bonuses for experienced inpatient coders.”

Kivi expects the rising pay scale bubble will “inevitably burst,” adding that the industry is seeing more coders start to moonlight part-time with service vendors, even though those hourly rates are lower than what they are paid at their “day jobs.” “Unfortunately, that means they are effectively helping to eliminate the higher-paying in-house jobs and accelerating the shift to a predominantly outsourced industry model,” he says. “Especially as the market matures and productivity increases with vendor-supplied technology, the cost advantages of outsourcing will make it harder and harder to justify the ICD-10 switch-driven, inflated in-house compensation models.”

DiMarco says it will continue to be difficult for health care organizations to recruit staff and maintain in-house coding operations due to their lack of scale and ability to recruit and hire in such a competitive labor market. The nature of the remote workforce, coupled with competition over wages and benefits, education dollars, and broad career paths, will create challenges for hospitals and provider groups, he says.