My father attended Hampden-Sydney College in the 1950s. There was an older man who used to cut wood for the students to keep warm during the cold Virginia winters. He was known as Francis the Axe Man. My father, along with his roughly 600 classmates, would often offer Francis a choice between a nickel and a dime. They were always amused when Francis chose the nickel because it was physically larger. This small trick was repeated numerous times, much to the students' delight.
I always smiled when my father recounted that story, wondering how many nickels Francis accepted from those unsuspecting students. As soon as Francis took the first dime, his seemingly endless supply of nickels would have ceased. In essence, the pranksters were the ones being outsmarted.
Billing companies have been taking "nickels" from radiologists for years. They offer increasingly lower rates, which initially pleases radiologists who don't realize they are the ones being played.
Consider this: in my 25 years in this business, billing costs have consistently decreased, yet uncollected revenues have remained stubbornly stagnant. Even today, approximately 15% to 20% of the money owed to hospital-based radiologists goes uncollected.
Like moths drawn to a flame, radiologists are often enticed by the lowest billing rate. However, billing companies don't typically calculate their rates based on maximizing your collections; instead, they offer what they believe is necessary to secure the business. Consequently, after a few years, practices often become dissatisfied with their collections and seek a new billing company, again prioritizing rate as the primary selection criterion. This cycle repeats itself – a clear example of the adage about the definition of insanity.
I have been advocating for a more effective approach for years. I even persuaded the Radiology Business Management Association (RBMA) to incorporate a new metric I created into their annual A/R survey a few years ago to specifically address this issue: the True Cost of Billing.
The True Cost of Billing KPI encompasses your direct billing expenses plus the revenue left uncollected. Billing expenses are not the sole cost associated with billing; in fact, they often represent only a fraction of the total cost. The significant amount of uncollected revenue is radiology RCM's often-overlooked secret. While a low billing rate might seem like a great deal, it can actually be a costly illusion.
Dollar-for-dollar and percent-for-percent, uncollected revenue and billing costs represent the same financial impact. Logical reasoning suggests that we should aim for these two billing expenses to be equal, or a one-to-one ratio. However, the reality is that they are typically closer to a 4:1 ratio (uncollected revenue to billing costs).
Let's illustrate this with a representative example. Suppose your practice's annual billing costs are $250,000, and your uncollected revenue amounts to $1,000,000. This scenario is quite common. A sound businessperson would analyze this and ask, "What if we invested an additional $50,000 per year in actively pursuing that $1,000,000? What would the return be?" They would then examine denial and write-off trends to identify areas where focused attention and investment could yield the greatest returns.
The theory appears sound, but how can you determine if this strategy is effective?
My company, Dexios Radiology Billing, does not determine our rates based on what we think it will take to win an RFP. Instead, our rates are structured based on what is required to minimize the True Cost of Billing for our clients. Our primary objective is for our clients to invest the necessary resources to maximize their collections, ultimately achieving the best net revenue for their practice. Consequently, many Dexios clients effectively achieve "free" billing. By "free," we mean that the additional revenue we collect, compared to previous collection levels, often covers our entire fee and generates additional profit for the practice. This is what focusing on the True Cost of Billing metric can do.
In conclusion, minimizing your True Cost of Billing should be the paramount goal for any radiology practice or imaging center. It is not just another RCM KPI; it is the RCM KPI that truly reflects the financial health and efficiency of your revenue cycle.