Is Medical Billing Right for You?

Outsourcing Medical Billing
In-House Billing Department

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, and the centrality of 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 are letting a dedicated third party code and bill your procedures instead of having a team of in-house employees deal with this task. 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.

At least, that’s the idea. As in all areas of medical billing, outsourcing is far from simple, and our goal here is to discuss the pros and cons of outsourcing versus having your in-house team take care of your billing needs. We’ll discuss some common problems you may run into, some benefits you can expect, and you’ll hopefully come out with a better understanding of how you want to deal with your billing and coding needs, whether or not you choose to outsource.

Pros Of Outsourcing Your Medical Billing

Increased Revenue

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

For most practices, outsourcing comes down to revenue, and in general, outsourcing your billing will result in higher revenue. The reason for this is that, on average, a dedicated billing company will send claims more thoroughly, reliably, and quickly than an in-house billing team, meaning that 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: $1,400,000 in collections, minus $100,000 in processing costs and other fees = $1,300,000 in net collections.

In-House: $1,200,000 in collections, minus $100,000 in billing department costs = 1,100,000 in in net collections.

In general, the overall cost for collecting payment, whether outsourced or in-house, will be fairly close, although outsourcing can easily end up costing more as your earnings increase. However, even then, your collections will tend to significantly increase when outsourcing, commonly around $200,000 per year for the average practice. There are other costs to factor into a full cost analysis, but they make fairly small changes to the overall numbers.

Improved Organization

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 due to a multitude of factors: the billing teams are often not distinctly trained in proper data organization systems, file organization tends to not be as highly prioritized as other tasks, and file organization systems tend to be relatively complex, which especially impacts new organizational system implementation, as staff have difficulty keeping up with the new regulations.

DOctor in his office

Outsourcing medical billing provides benefits in two regards when it comes to organization. On the one hand, audits are significantly easier, whether external or internal. Medical billing companies operate under much stricter organizational principles and guidelines than most offices do, and in the majority of cases you can rest assured that they will be able to access all of the information required for an audit, as well as any other information you may need for compiling reports, or simply data you may want for review. In addition to this, higher organization correlates to higher revenue, as claims can be reviewed faster. This reduces both follow up time and the likelihood of claims being improperly filed. Another way that this directly affects your practice is that clinicians and medical staff can have a more reliable access to patient information when it is required, and patient information that is relevant for billing can be accessed more regularly throughout the practice as a whole.

Reduced Office Management Costs

Billing departments require many office resources, and complicate HR and general office functioning and dynamics; outsourcing gets rid of this as a whole.

The last general benefit that you can expect when you outsource is that your office management becomes much easier. Fewer people need to be accounted for, less payroll data has to be processed, less space and technology has to be taken care of, and fewer individual personalities need to be accounted for during inter-departmental 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 a new ease and simplicity to the everyday life of your practice, bettering relations and streamlining 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.

Man using computer

Cons of Outsourcing Your Medical Billing

The main things that are worth considering when it comes to the cons of outsourcing are sunk cost and lack of control, although there are a few other minor aspects to consider as well.

Sunk Cost in Staff Training

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 noting their current level of performance and thinking about when retraining will become necessary. It may be that in your field, you expect no new technologies or billing changes any time soon, and your staff’s training was at a significant expense, which has paid off in above-average collections. If so, it may not pay off for you to outsource at this time, but few practices find themselves in such a fortunate position. When you find that your staff’s performance is diminishing, or that retraining is becoming necessary, your evaluation may be quite different from how it is now, so it is important to keep these factors in mind throughout the life of your practice. For some, outsourcing is irrelevant now, but may become increasingly relevant several years down the line.

Less Oversight Over Day-to-day Operations

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

The second most central con relevant to outsourcing is the lack of control. Although oversight can be a burden for some practices due to the resources it requires, 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, and for some it may simply be a preference in managerial style that creates more peace of mind.

Two professionals smiling together looking at a computer

Either way, when you outsource the billing process becomes less transparent and less quickly accessed. We mentioned above that records and file-keeping tend to be a lot more consistent when billing is outsourced, but this is at the cost of speed and accessibility. 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 as opposed to outsourcing. And, if you simply have a managerial style that favors more thorough oversight, outsourcing may be too big of a headache to be worth it. In the end, your decision will have to rely on more than just numbers to determine what’s right for you.

Delayed Revenue (Temporarily)

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, meaning that your revenue is likely to go down even considering your lower overhead costs. Although your gross revenue will, in the vast majority of cases, end up higher within a year of outsourcing, 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.

Problems with HIPAA regulations

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

HIPAA regulations are strictures on the spread of medical information. If your medical information is going to more places, in this case, your new medical billing service, then there is, in theory, a higher probability of complications resulting from 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?

Generally speaking, 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 or outsource under unique conditions. Central among these are:

Practices with no time to explore 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 your research. It is important to outsource your billing to a company you feel confident in and who you understand, as well as one who fully understands your practice’s unique characteristics. Outsourcing to a practice that is sub-par or that simply doesn’t fit your needs or working style 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 that already have an excellent, well-trained billing team

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

If your billing team is highly trained and up to date in their field, and have a proven track record of high returns with 70% or more of claims paid, then outsourcing may be irrelevant for you. This is especially true if your returns are significantly above this percentage. 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. If you find yourself in this situation, (1) consider yourself lucky, and (2) keep outsourcing in the back of your mind, it may be beneficial to your practice in the future.

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’s personal management style prefers 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? If you truly feel that it would not be worth it to give up that control, then that is a consideration you have to deal with. Ignoring personal preferences and managerial functioning could cause you indirect difficulties that we wouldn’t want to wish on your practice. Although outsourcing will tend to raise revenue, that doesn’t mean it is right for everybody.

Doctor looking at camera

Which practices should definitely outsource?

Practices with the time to weigh 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.

If you have a serious interest in increasing your revenue, and have the time to weigh your options, then you should definitely be looking to outsource somewhere down the line. The main hurdle that all practices have to go through is finding the right people to outsource to, and this can take some time. Because outsourcing isn’t location-specific, you can expect to find a good practice to partner with eventually, as long as you know what to look for.

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 their experiences so fair to gain 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.

If you are extremely focused on file organization, make sure to ask potential billing companies about how they would deal with various issues you may run in to. Conversely, if your main interest is simply increasing revenue, make sure to discuss specific areas where you aren’t bringing in as much as you would like, and ask for concrete answers about how they expect to deal with these issues. 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 find 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 boost in revenue

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: which procedures and payers are not lucrative, and what can you do to change that?

Much of the time, even after running this type of analysis, you will find that the implementation that will increase your revenue is either too difficult, too expensive, or too time-consuming to offer easy returns. Alternatively, there may be changes you can make that will promise good returns, but which are not implementable due to some aspect of your billing team. The makeup of your local billing team depends on who is available around your practice, and for some practices the choices are just not good enough. Although it isn’t easy, trying to diagnose why your revenue is low can go a long way towards correcting it.

Whatever the reasons are, most causes of low revenue can be corrected by outsourcing, although as stated above it may take a bit of time to reap the benefits. 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.


If you are seeking to increase your revenue, reduce the clutter in your office, and streamline your filing, outsourcing your medical billing is tailor-made for you. 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.

No matter what situation you are in, the intended takeaway here is that 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 practice or understanding exactly what you want to get out of the outsourcing process. Although either decision may be right for you, the most important thing is to make an informed choice based on thorough assessment.

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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Is Outsourcing Right For You?

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Use our free, online calculator to see how much money your practice could save by outsourcing your medical billing. Get your results in 3 easy steps.

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Is Outsourcing Right For You?

Calculate How Much You Can Save

Use our free, online calculator to see how much money your practice could save by outsourcing your medical billing. Get your results in 3 easy steps.

Calculate Your Savings

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