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The Pros & Cons of Outsourcing Your Medical Billing

In-House vs. Outsourced Medical Billing

Outsourcing medical billing to a dedicated third-party company can have huge financial benefits for most medical practices. However, what are the specific pros and cons for your practice? Read the article below to find out if you’re in the right spot to switch your medical billing to a third-party.

What is Outsourced Medical Billing?

As an independent medical practitioner with an in-house billing team, you’ve likely dealt with various complications throughout the billing process. Low and delayed payment, administrative and organizational complexity, and difficulty finding experienced locals to hire are common complaints that many practitioners report. The billing process as a direct link to your finances makes dealing with these issues all the more pressing.

Smiling doctor

Outsourcing your medical billing is one way to deal with these complexities. By outsourcing, you let a dedicated third party code and bill your procedures. You send information over, their team finds the best way of coding and billing your claims, they send it out to the payer, and you get paid.

No in-house employees needed. At least, that’s the idea.

Pros Of Outsourcing Your Medical Billing

PRO #1

Higher Revenue, Received Quicker

Outsourcing results in more paid claims, faster payment, and lower overhead costs.

For most practices, outsourcing comes down to revenue. In general, outsourcing your billing will result in higher revenue.

On average, a dedicated billing company will send claims more thoroughly, reliably, and quickly than an in-house billing team. This means a higher percentage will be paid at a higher amount.

Although many in-house billing teams are functional, the nature of medical billing ensures that most teams will gradually lose their accuracy and speed as regulations change, all of which will cost your business, either in hours paid for retraining or revenue lost.

An example cost analysis

Most practices with in-house teams will collect on about 60% of their claims, as opposed to at least 70% when outsourcing.

As a simple cost analysis, consider a case where your practice sends out $2,000,000 of billed claims in a year. This results in $1,200,000 in collections from your in-house team vs. $1,400,000 in collections you’d get from outsourcing. The question is, then, does outsourcing cost more than the extra money you’ll be pulling in? Aside from the percentage of collection, the main differences to consider when doing a cost analysis are:

  • The cost of the billing department itself (equipment, salaries)
  • Claim processing costs
  • Other miscellaneous overhead, like software, hardware, and office space

Dedicated billing services usually charge a percentage of your collections as their claims processing cost, with around 7% being average. You can expect an in-house billing team bringing in $1,200,000 to cost at least $100,000 per year, although there are additional fees that we are glossing over in this simple breakdown. Given these numbers, we have the following values for our analysis:

Outsourced: $2,500,000 charges per year with $2,450,000 in collections (98% on average) minus 5.5% of collected revenue = $2,315,250 in net collections ($30,416 extra revenue per month).

In-House: $,2,500,000 charges per year with $2,125,000 in collections (85% on average) minus $135,000 for three biller employee salaries, $33,750 in biller employee benefits, and $6,000 in biller employee overhead and office space = $1,950,250 in net collections.

In general, the overall cost for collecting payment, whether outsourced or in-house, will be fairly close. There are other costs to factor into a full cost analysis, but they make fairly small changes to the overall numbers.

PRO #2

Easier Recordkeeping for Busy Medical Professionals

Billing departments are highly complex and hard to organize; outsourcing puts that burden on a dedicated third party.

Another significant and concrete benefit to outsourcing is the ease of record keeping and filing. Many practices experience difficulties when it comes to organizing all of their files, whether it is financial records or requisition forms. Throw more complex things like file digitization in, and you can start to have more serious problems.

This is caused by the billing teams not being distinctly trained in proper data organization systems and file organization being underprioritized.

Doctor in office

Audits are significantly easier, whether external or internal. Medical billing companies operate under much stricter organizational principles and guidelines than most offices do. In the majority of cases, you can rest assured that they will be able to access all of the information required for an audit.

You’ll also be able to easily access any other information you may need for compiling reports, or simply data you may want for review.

Follow-up time is also reduced and the likelihood of claims being improperly filed is lessened. Another way that this directly affects your practice is that clinicians and medical staff can have more reliable access to patient information when it is required. Plus patient information that is relevant for billing can be accessed more regularly throughout the practice as a whole.

PRO #3

Reduced Office Management Costs

Billing departments require many office resources and complicate general office functioning. Outsourcing gets rid of these complications.

The last general benefit that you can expect when you outsource is that your office management becomes much easier. With outsourced medical billing, you reap the following benefits:

  • Fewer people need to be accounted for
  • Less payroll data has to be process
  • Less space and technology has to be taken care of
  • Few individual personalities need to be accounted for during interdepartmental proceedings

This will tend to affect your practice at all levels, from office management to custodial fees to human resources. Fewer people under your care means fewer things that can go wrong.

Especially when billing departments get fairly large, the amount of complexity and oversight becomes difficult to manage. Outsourcing very directly gets rid of this complexity and can bring new ease and simplicity to the everyday life of your practice.

It can better relations and streamline the practice at every level. While this effect seems marginal, it shouldn’t be overlooked, and can often have a compounding effect on your practice’s productivity.

Person working on computer

Cons of Outsourcing Your Medical Billing

The main cons of outsourcing are sunk cost and lack of control. Although, there are a few other minor aspects to consider as well.

CON #1

Sunk Cost in Staff Training Makes Outsourcing Illogical

The cost of training your billing team is effectively “sunk” if you choose to outsource.

Sunk cost refers to the fact that you have already spent time training and paying billing staff to do their jobs. This cost is in effect “sunk” when you choose to outsource, it becomes void and irrelevant to the future of your practice.

This can be very frustrating and difficult when it comes to making your decision, but you can analyze it in a straightforward way by looking at the cost. It is useful to consider just how much you have spent in training and bringing your staff up to their current level. As well as note their current level of performance.

Ask yourself – “When will retraining become necessary?”

It may be that in your field, you expect no new technologies or billing changes any time soon. Your staff’s training was at a significant expense but has paid off in above-average collections. If so, it may not pay off for you to outsource at this time. However, few practices find themselves in such a fortunate position.

CON #2

Less Oversight Over Day-to-day Operations Means You Have Less Daily Control

In-House teams allow for easy oversight of every aspect of the billing process; outsourcing requires you to give up some oversight and control.

Oversight can be a burden for some practices due to the resources it requires. But for some, it may be a benefit to be able to clearly oversee their billing departments.

Strict oversight can allow you to get quick feedback on queries related to the billing process and understand exactly where you stand at every stage of the process. For some, this heightened oversight may directly relate to higher revenue. For others, it may simply be a preference to have day-to-day managerial control.

Two people working on a computer

If your office is managed very efficiently and you experience little to no friction when it comes to the day to day operation of your billing department, it may end up being easier for you to retain your in-house team. And, if you simply have a managerial style that favors more thorough oversight, outsourcing may not offer the peace of mind it offers others.

In the end, your decision will have to rely on more than just numbers to determine what’s right for you.

CON #3

Temporarily Delayed Revenue Growth Shown on Net Collections

When you outsource, you start paying immediately but your revenue goes up over time, meaning that your net collections may be lower for a time.

When you choose to outsource, you will be paying for the outsourced billing services from day one. This means your revenue is likely to go down even with your lower overhead costs.

Your gross revenue will, in the vast majority of cases, end up higher within a year of outsourcing. But you may have some time-sensitive concerns that necessitate a steady revenue for a specific amount of time. In these circumstances, outsourcing your billing would cause problems within that time frame, and should be delayed until you are ready to make that commitment.

CON #4

Could Cause Potential Problems with HIPAA regulations

Information changing hands more often means more opportunities for HIPAA breaches.

In theory, if your medical information is going to more places there is a higher probability of HIPAA regulation breaches.

In practice, this affects an extraordinarily small number of practices, as all medical billing practices should be well equipped to handle medical information in a way that follows HIPAA regulations. Nevertheless, this consideration may be relevant for some practices to consider.

Which practices should stay away from outsourcing?

Outsourcing will have at least some benefits for all practices. And so it makes sense for any practice to consider outsourcing at some point or another. However, there are some practices that should absolutely wait to outsource. Central among these are:

Practices With Time Constraints On Comparing Options

Weighing your options takes time, and not all billing services are created equal. If you don’t have time, it’s best to wait.

Choosing an outsourcing service requires that you sift through various options, contact them and fully understand their services, compare prices, and so on. If you don’t have the means or time to do this right now, you should not rush into outsourcing your medical billing without doing research.

It is important to outsource your billing to a company that fully understands your practice’s unique characteristics. Outsourcing to a practice that is sub-par or that simply doesn’t fit your needs can end up costing you in the long run, so make sure you know what you’re getting into. And if you don’t have time to do this, it’s better to wait.

Practices Who Have an Excellent, Well-Trained Billing Team Already

If your revenue is already satisfactory and at a high percentage, outsourcing may offer diminishing returns.

Outsourcing may be irrelevant for you if your billing team is highly trained, up to date in their field, and have a proven track record of high returns with 70% or more of claims paid.

This is especially true if your returns are significantly above 70%. Although even in this case, it would be good to consider outsourcing sometime in the future. Practices in this situation may be at the point of diminishing returns.

Practices Requiring Direct Oversight of Their Billing Processes

Whether due to personal preference or some specific situation you are in, if you need direct oversight, outsourcing will be a problem.

Whether you are involved in office management or are a medical practitioner, some people prefer direct oversight of as many processes as possible. Although most people tend to care more about revenue than minor inconveniences like these, who are we to tell you that you can’t run your practice the way you want?

Although outsourcing will tend to raise revenue, that doesn’t mean it is right for everybody.

Doctor wearing a mask

Which practices should definitely outsource?

Practices With Time to Spend Considering Their Options

If you know outsourcing will benefit you, time is the biggest obstacle. If you have time to weigh your options, start looking today.

Finding someone to outsource with can be a multifaceted, complex process, and there are many things to consider. If you know any other practitioners who outsource discuss with them their experiences so far. Collect insights about who they work with, what works and what doesn’t. It is important to have a good understanding of what you are looking for when you outsource so that you don’t have to deal with any surprises in the process.

In general, it can be useful to approach discussions with medical billing companies the same way you approach job interviews: figure out what they can do for you, balance their pros and cons, and figure out who comes out on top. All of this takes time, but if you have that time, you can expect significant improvements.

You Need a Revenue Boost for Your Practice

Outsourcing is almost guaranteed to boost revenue. If you are having trouble with your revenue, outsourcing may be your best choice.

Unfortunately, it’s not uncommon for practitioners to experience very low returns for their work due to difficulties in the billing process.

In general, it is good for you to try to diagnose why you are losing revenue. Consider which procedures and payers are not lucrative, and what you can do to change that.

Whatever the reasons are, most causes of low revenue can be corrected by outsourcing. If you are finding that your revenue is low due to misfiled claims, clerical errors, untimely filing, or errors resulting from CPT and ICD-10 updates, you can expect outsourcing to raise your revenue.

Making a Decision Between In-House and Outsourced Medical Billing

Outsourcing your medical billing is tailor-made for you if you are seeking to increase your revenue, reduce the clutter in your office, and streamline your filing. On the contrary, if you find that you thrive in an environment where you have a lot of control and knowledge over the billing process, or if you just don’t have time to look through your options right now, you should either delay your decision to outsource or continue handling your practice as it is currently.

Choosing to outsource is complex and you should consider all of your options. The benefits of outsourcing are clear and desirable, but you definitely shouldn’t rush through the process without checking out various practices and understanding exactly what you want to get out of the outsourcing process.

If you are interested in learning more about how we deal with the outsourcing process, or if you have any questions for us, call 1-888-783-7818 to talk to a medical billing professional today.

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