Managing MTs and other HIM Workers – The Risks and Benefits of Using Independent Contractors

This posting also appears on Excellence in Health Information – but I thought it an important enough message to post here as well…

This week, we are pleased to have Linda Yaniszewski as our guest writer. Linda is President and CEO of ExecuScribe, Inc., founded in 1989 with corporate offices in Rochester, NY and Charlotte, NC.  ExecuScribe has a completely USA based workforce of 160 transcriptionists.  Linda is a board member of the Clinical Documentation Industry Association and a founding member of the newly formed Bayscribe American Transcription Network.

Under Linda’s leadership, ExecuScribe has seen continuous growth and was recognized for its growth by inclusion on the prestigious Inc 500 – the 500 fastest growing privately held companies in America – in both 2003 and 2004.  Linda has also been recognized for her leadership and community efforts as an Athena nominee, Rochester’s Small Businessperson of the Year, and a finalist for the Ernst & Young Entrepreneur of the Year.

Linda has seen firsthand the evolving role of the medical language specialist and its value to patient care and their new role in the world of electronic health records.

Thank you so much to Linda for contributing an experience that could be so helpful to so many…please allow me to introduce Linda Yaniszewski.

I had my ah-ha moment in the spring of 1989.  Having been a medical malpractice defense paralegal for ten years, I saw that there was a need in our community for administrative help.  I left my job and hung my shingle on a 200 square foot office in downtown Rochester, New York in April of that year.  While we began by offering all kinds of services – word processing, database management, resumes – it did not take long to identify that the need in our community was in medical transcription.  We were given a small opportunity in a large medical center in Rochester.  Our performance on that small opportunity led to our being awarded the contract to service the entire 1100 bed medical center, as well as all of its outpatient clinics.

As part of my due diligence I found that the standard hiring methodology for most MTSOs was independent contractors.  We decided to build our recruiting model around the use of ICs.  Adhering to published IC rules, we were careful to explain the various benefits and limitations to the independent transcriptionists we employed:

  • ExecuScribe did not control their time (they could work for other companies).
  • There was no required work schedule (flexible time schedules were permitted).
  • ExecuScribe provided no training or continuing education.
  • There was no direct deposit of paychecks. IC submitted invoices and ExecuScribe paid them directly.

In addition, the limitations to the IC and cost-saving benefits to ExecuScribe were clear:

  • No FICA would be paid.
  • No health insurance would be paid.
  • No paid time off (PTO) was available.
  • No 401K programs were offered, or funds matching provided.
  • No unemployment taxes were paid.

Categorizing our MTs as ICs was working well for ExecuScribe until the State of New York Unemployment Commission requested a full audit of my company, contractors and practices. I had been aware that the a Task Force had been created to address the incorrect classification by employers of individuals, up to 10% of workers in New York State were identified as having been misclassified. ExecuScribe’s team of ICs were some of them.  The audit changed our IC strategy forever and served as fair warning for many well-intentioned MTSOs.

ExecuScribe produced all the contractor files that auditors requested, including all demographic information for our ICs. The company, not to compromise patient care, kept quality assurance (QA) results for each IC. To our surprise the demographic information was considered a legal “employee file”. Furthermore, the QA information was looked at as employee training. Before the company knew it, ICs were declared employees by New York State.

Although when utilizing an IC model, MTSOs achieve major savings in taxes, benefits and insurance, ExecuScribe learned the hard way that the benefits did not outweigh the risks. Initially, we were required to pay back FICA, unemployment taxes, penalties and interest. And as if the state audits weren’t enough, there was also a risk of the federal government getting involved. If the federal government audited my company and also reclassified ICs as employees, it would have cost ExecuScribe more than a million dollars in penalties and fines.  While most entrepreneurs pride themselves on being risk takers, this was a risk I was not willing to take. It was time to make a change.

We decided that the only solution was to transition to an employee model. We announced our intentions and successfully converted ICs to employees within 90 days; an impressive feat as 95% of the ICs became employees. The tradeoff for ICs was that ExecuScribe would pay them a lower line rate for transcription, but give them complete benefits, a policy the company still continues today. In addition, we required minimum production commitments and set hours were assigned and enforced.  We could now track and measure each transcriptionist’s QA and hold them accountable for meeting our QA standards. We could now use their retrospective QA reviews as a coaching and mentoring tool to help them improve their skills.

As with most changes, the first and most important step was communication.  We informed ICs of the need to transition them to employees, and why. ICs were provided with frequently asked questions, company documents, webinars and face-to-face meetings. It was explained that the decrease in line rates would be more than offset by the benefits they would receive as ExecuScribe employees. In fact, the benefits worked as a recruiting tool and minimized turnover.

The few transcriptionists who remained ICs were also educated as to the New York state requirements for an IC:

  • Form an independent corporation.
  • Have multiple clients.
  • Advertise in some media (e.g. telephone book).
  • Carry workers compensation insurance.

Federally, there is an IRS 20 Factor test on employment status that further defines whether an individual is an employee under the common law rules. MTSOs should check to ensure they are compliant and be aware of the risks in their organization.

Following the conversion ExecuScribe experienced surprising results. Productivity went up, way up. Transcriptionists had assigned work to do and designated hours to perform their work. We were able to deploy three shifts, giving us 24/7 coverage and significantly improving turnaround times. In the past, my management team was required to manage 40 ICs doing the work of 20 employees. Because full time employees are easier to coordinate, the same managers could now manage 50 to 75 full time employees.  While we had anticipated a drop in profits, that did not occur.

Results were communicated back to the entire team:

  • Morale improved.
  • There was a new sense of company loyalty.
  • MTs began “fighting” for work.
  • Company profits increased.
  • Everyone was able to do more with less.

While using only ICs may be tempting from a cost-savings perspective, MTSOs need to be aware of the risks.  If ICs are given any training, receiving any benefits, are being assigned specific work hours, or are getting paid via paychecks, they will be considered employees. MTSOs need to be aware, analyze their risks and prepare.

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