Body shops are a subject that I’m very interested in and something I’ve seen not change tremendously, unfortunately, in revenue cycle management over the course of the last few decades. I can’t say I know the complete history of the origins and the early stages of the revenue cycle management industry. In fact, I’m not even sure I know how long it goes back. It certainly seemed like in the early days, it was office managers and in-house staff that performed some billing functions.
The Rise of Outsourcing
As we looked at the early stages of outsourcing to billing companies and RCM companies, much of that was on a transactional level—meaning a certain amount of dollars per claim line entered in terms of payment posting or charge entry. Whatever those were, they were transactional kinds of things, which effectively is, again, a body shop. You’re charging per person or per individual activity. Even in the mid-2000s, when I got into the industry, I saw a lot of this.
Certainly, with the creation and rapid growth of offshore business process outsourcing organizations (BPOs) from the mid-2000s to now, they all started on a staffing model basis, or body shops, where they charged per person, per month, or per transaction, or something like that. And those are staffing models. That’s a body shop. I’m not trying to knock all of this; we’ll get to a point eventually. But even in the mid-2000s, most of the onshore U.S. revenue cycle management industry was contingent. That means they charged a percentage of collections that they achieved.
Misalignment of Incentives
In theory, their stated belief—and also their marketing—was that their incentives were aligned, meaning the billing company’s incentives were aligned with the provider since the pricing was contingent. Therefore, they weren’t really body shops. Now, that’s not really the case. It isn’t really that the alignments are perfect, or even really well aligned, but that’s another podcast entirely. So, de facto, most of the billing companies at that time, and even now, I believe, are mostly body shops.
The definition of that, in my opinion, is either they’re charging on a per-body, per-month basis, or something like that. Or, more practically, not related to the pricing, but what they’re doing is they’re effectively slogging away at individual claims. You’re effectively paying for staffing, which is: I’m going to pay a company to go and work, to enter charges, to post payments, to work claims. But again, that’s a body shop, not something else, and we shouldn’t confuse those two. And most of those organizations that are slogging away at individual claims are doing so with questionable efficacy.
The Importance of Aligned Incentives
Alignment of incentives really is huge. A billing company CEO that I recently spoke to—a relatively small billing company; I’m in touch with a lot of billing companies in a very large size range—this one is relatively small, doing maybe $50 million in annual collections. They have been trying to build out their executive team to grow more quickly, and they’ve really struggled because they found that too many people come on board and are really just looking for a paycheck. They find that the alignment of incentives is off. So, they’re considering, do we give equity or something like that, or some mix of cash and equity, or even only equity? I think it’s a fascinating conversation, but the point is that incentives really matter.
The Body Shop Model: Legacy or Convenience?
So many billing companies and BPOs charge on a per-head basis still. This could be anywhere from 100 to 5,000 employees. And as I mentioned, others just sort of act de facto that way. The question is, why? Is it because it’s just legacy—that’s kind of how it’s always been done? It could be because that organization’s been around for decades, or it could be that the organization was started by somebody who’s been in the industry for decades, and that’s kind of all they knew.
One of the things I see frequently in this industry is someone relatively new being taught by somebody who’s been in for a while, and they pass down, oftentimes, bad policies and procedures, or even managerial ethos, processes, concepts, ethics, and so on.
The Challenge of Transitioning Away from the Body Shop Model
There’s another reason, though, and I think this may even be the biggest reason, which is that transitioning away from being a body shop is really challenging. It’s really difficult. It takes a totally different kind of management team to do that. And that begs the question: What’s the alternative? If you’re not slogging away at individual claims, if you’re not charging on a per-body basis, and even the ones that are charging on a percentage basis really are mostly slogging away at individual claims, what’s the alternative?
The answer is performance. Make it performance-based. Now, many of you who are billing companies might say, “Wait, we already are performance-based. We’re doing that.” And I believe that that is the case where most billing companies believe, and have been stating for decades to healthcare providers, that they are performance-based and that they are high-performing. I believe they believe it, and I believe they’re really trying, right?
The question is, what does that mean? What is performance?
We’ll cover that in the next podcast.
