Brian K. Morton
Marc D. Halley


At a Glance

  • A central processing office (CPO) is an alternative to the traditional central billing office that can substantially improve the revenue cycle performance of a hospital's owned physician practices.
  • A CPO's primary advantage is that it assigns accountability for results at each revenue cycle step, particularly to those individuals in the practices who have the best access to patients and their information.
  • Empowering the practices to solve their own errors gives the CPO team more time to devote to managing claims and payers.

In the mid-1990s, on a fateful afternoon in Chicago, several hospital executives and consultants gathered for an annual management retreat. The afternoon session was dedicated to addressing a pervasive revenue cycle management challenge that the hospitals were encountering with their owned medical practices. Their stories were consistent: Those hospitals that had acquired practices and had taken over the practices' billing process were experiencing increased days in accounts receivable (A/R), terrible point-of-service collections, poor collection rates, and more billing errors than the practices had experienced when they were independent.

The improved scale economies and the hospital billing expertise the hospitals had hoped to leverage did not materialize. Even when the central billing function was controlled by a separate management services organization instead of the hospital central billing office (CBO), results were suboptimal when compared with effective private practice models.

An analysis of these hospital CBO experiences disclosed a number of factors that were consistent contributing to the suboptimal results:

  • Many of the errors that CBOs were dealing with were occurring at reception desks in medical practice network offices.
  • Often, these errors were repeated, even after the receptionist was made aware of the issue.
  • Medical practice personnel were less likely to request copayments and payment of other patient due balances because "money" was now seen as the CBO's responsibility.
  • Because there were few electronic medical records (EMRs), CBO staff lacked ready access to the information they needed to understand and correct challenged claims.
  • CBO staff had to rely on busy medical practice staff to research and forward to them the information they required from the physicians and the medical charts.

In short, once the CBO took over billing, many medical practice staff members were delighted to divorce themselves from the billing and collections process and focus only on patient care and caring. The result was constant finger pointing, with the CBO blaming the medical practices for errors and the practice staff insisting that the CBO team was not doing its job.

During the discussion of these factors at the retreat, it became apparent that structure had as much to do with the problem as the people involved. Many questions that were raised pointed to structural considerations:

  • What are the major causes of rejected claims, and where do those problems originate?
  • Who possesses the information needed to yield a clean claim?
  • Who should be responsible for each aspect of the revenue cycle process?
  • Who can hold individuals accountable for each aspect of the revenue cycle process?
  • Who has control over issuing credit to patients (e.g., those allowed to make payments over time?
  • Who has the best opportunity to collect cash from patients?
  • What performance standard should be established for each step in the revenue cycle management process?

Key Revenue Cycle Considerations

As an exercise, the participants decided to list each step in the revenue cycle management process, and then ask the question, "Who has the access to patients and the information needed to complete the task effectively and efficiently?" This exercise yielded the first two columns of Exhibit 1.

Exhibit 1

exhibit-2-Does Your Organization Have a Central Processing Office

These results showed why the concept of "central billing" does not work in a hospital-owned medical practice network setting. The central billing manager had control of the information only for one-third of the steps necessary to effectively manage the revenue cycle. In fact, the central billing manager really controlled only the processing function (e.g., claims and patient statements).

It was only a short step to arriving at a central finding of this effort: The effectiveness of the receivables management process will always be hampered if, at any step in the process, the individuals who have access to patients and information lack accountability for performance measurement and reporting. And, indeed, subsequent experience has demonstrated that this consistent alignment between access to patients/information and accountability for performance measurement/reporting is the most critical factor in ensuring the highest level of receivables management performance-even more important than factors such as choice of practice management software and approach to training.

A New Model

From this experience emerged a new model for organizing revenue cycle management: the central processing office (CPO). With a CPO approach, accountability for revenue cycle management falls to the practice manager in each practice setting. The CPO and the CPO manager exist to provide practice managers with processing support that helps them accomplish their tasks. The practice manager is accountable to ensure compliance in exhibit steps 1-11 and 19-22 of the revenue cycle management process.

When put into practice, the benefits of the CPO model quickly become apparent. Front office errors can be monitored and feedback sent to the practice manager, who can ensure that adequate training is provided, that performance is measured, and that those who consistently fail to perform their duties are replaced. The practice manager can also monitor how effectively (and with what frequency) the appointment clerk communicates copayments and patient due balances to those who call for appointments. Point-of-service collections can increase dramatically when receptionists and cashiers are held accountable daily to report their success at collecting over the counter, which is the most efficient (least costly) and most effective way to collect. The CPO also supports the practice manager in all these activities by providing training in the use of the practice management software, and by providing feedback on rejected or denied claims by reason.

Coding experts have long advised that physicians and others providing the services are the best qualified individuals to identify the procedure and diagnosis codes and to document the services performed. The practice's cashier can play a pivotal role in accessing and verifying this information. Ideally, the cashier can be a second set of experienced eyes working with the practice management software and EMR to ensure a clean claim. If questions arise, the cashier can preempt problems by communicating with the physician. Meanwhile, the practice manager works with the physicians to monitor the coding index (work relative-value units per patient visit) by provider each month.

Outside of the practice office, the CPO supports effective coding and documentation by employing one or more coding experts who provide at least annual training updates, a coding help desk (used most often by the cashier), and quarterly audits of charts for each physician with follow-up training provided individually. As an important step, the CPO also documents coding and documentation-related reasons for denied claims and feeds that information to the coding experts and back to the practice manager and physicians.

In addition to offering expertise in coding and training for and maintenance of the practice management system, the CPO is the expert insurance claim processor. To fulfill this role, CPO team members must be skilled in managing claims according to contract. And they need to be able to facilitate processing of claims outstanding and quickly resolve denials.

The CPO typically produces patient statements monthly or more frequently based on date of last activity. The office supports the precollections process by sending approved dunning notices and recommending a list of patients whose payment delinquency merits a more formal collections process and termination from the practice. It is the responsibility of the practice manager and physicians to review and approve all such hard collections/terminations.

In addition, as part of the precollections process, the practice managers must make telephone contact with all patients/guarantors before implementing formal collections and service termination procedures. Obviously, if errors (which usually occur on the front end of the revenue cycle management process) can be solved at their source through training, measurement, and proper accountability, CPO team members will have more time to devote to managing claims and payers.

Performance Measures

Wise managers know that anything they measure improves. Changing the structure of the revenue cycle management process to better align access to patients and information with accountability for results can dramatically improve those results. But structural change alone is not enough to guarantee optimum performance. If performance is not measured at every step of the revenue cycle management process, outcomes will be suboptimal, because failure at any step can derail or delay the entire process.

In most instances, the party responsible for a given step is the best one to measure and physically report results for that step, even if the performance data are accessible in the practice management system to the practice manager and the CPO manager. The daily or weekly return and report gives the practice manager an opportunity to motivate improved performance, to understand the barriers to performance, to identify training opportunities, and to improve processes or support systems.

Suggested measures for each step in the revenue cycle management process, and the persons responsible for reporting on them, are included in Exhibit 1, above.

Case Study: Bon Secours HealthSource

The benefits of adopting a CPO are well represented in the experiences on Bon Secours HealthSource in Richmond, Va., part of the Bon Secours Richmond Health System. In 2004, executives at HealthSource had already decided to replace their organization's antiquated practice management software, when they began to see the promise of the CPO model.

The organization was providing billing and receivables management services for nearly 60 employed physicians through a traditional CBO, as well as for other Bon Secours employed physician networks in other states. The executives noted many of the classic CBO challenges. Employees at the practice sites were disengaged from the process. Point-of-service collections beyond copayments were dismal. Front desk errors contributed significantly to delayed processing and payments, and accountability for these errors varied by practice manager. Coding for services by physicians was inconsistent. Days in A/R were running at more than 80 for most practices in the system, despite having more than 50 employees in the CBO. Finger-pointing was common, and results were declining.

HealthSource executives decided to implement the CPO approach to revenue cycle management. They pursued a software option that would support central processing while providing outstanding management information to improve accountability all along the revenue cycle. They ultimately selected a web-based system with an outstanding track record of efficient and effective claims processing and real-time performance management capabilities. The new software was installed, transferring capability and accountability to those with greatest ability to affect results.

The results were significant. From FY05, prior to the initiative, through FY06, when the CPO was operational, HealthSource realized the following improvements:

  • Bad debt dollars dropped from $780,414 to $273,083.
  • Bad debt as a percentage of net revenue was reduced from 4.7 percent to 1.5 percent.
  • Net revenue per visit rose from $83 to $88.
  • Days in A/R declined from 81 to 40.
  • The coding index climbed from 0.83 to 0.98.
  • Billing costs as a percentage of net revenue declined from 13.8 percent to 8.7 percent.

Overall Benefits of a CPO

As the HealthSource results show, the benefits of transition from a traditional CBO to a CPO revenue cycle management model can be significant. Those results for Bon Secours have been sustained over time. As of Dec. 31, 2009, the CPO model at HealthSource was billing more than 200 physicians. Average days in A/R were 28, with several practices below 20 days.

In other actual cases, transitioning to a CPO has helped hospitals reduce days in A/R from more than 100 days to 40 days or less, while also increasing collections as a percentage of charges. These hospitals have seen practice managers take the reigns and dramatically reduce errors on the front end of the process.

CPO managers are delighted to be accountable and focus only on those portions of the revenue cycle management process within their control. The finger-pointing is a distant memory and the bottom line results are obvious. Moreover, because CPOs help to substantially reduce errors systemwide, they demand fewer resources and can therefore be much smaller than the former CBOs, without adding significantly to the medical practices themselves.

Looking back at those early days in Chicago, no one knew what eventually would come from an idea that started with hospital executives sharing their stories of revenue cycle challenges in hospital-owned medical practices. Participants in that management retreat little knew how the CPO approach would grow into a truly exceptional opportunity for hospitals across the nation. In a difficult economic time for hospitals, when improving processes is a critical part of ensuring an organization's survival, the CPO model also presents a welcome and, in fact, sorely needed opportunity.


Brian K. Morton is region executive, Halley Consulting Group, Westerville, Ohio, and a member of HFMA's Central Ohio Chapter (bmorton@halleyconsulting.com).

Marc D. Halley is president and CEO, Halley Consulting Group, Westerville, Ohio, and a member of HFMA's Northern Ohio Chapter (mhalley@halleyconsulting.com).

Publication Date: Monday, March 01, 2010

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