If you have your own medical practice, you have most likely questioned whether your billing processes should be completed in house or outsourced to a third party. Factors, such as practice size, number of staff, patient volume, available budget, etc., can all influence your decision on whether to outsource or keep billing in house. 

Billing and revenue cycle management are two of the most important factors in ensuring your medical practice is secure in the long run.

Your cash flow is dependent on efficient billing which is why determining the best billing model for your practice is crucial. You must take into account your operational costs, patient volume, and staffing to determine the best fit for you. 

In this article, we will discuss the costs and qualitative factors associated with in-house vs. outsourced billing, and we will use examples to cover the pros and cons of both types of billing to help you determine what the best option is for your practice in Chicago, Illinois.

Cost Analysis of In-House vs Outsourced Billing:

For smaller independent medical practices, there are many factors to consider when making this decision, but efficient billing and steady cash flow are the key components to consider for a successful practice. 

Let’s view a hypothetical cost analysis to help you compare the costs of in-house and outsourced billing, for a typical medical practice. Here are the main characteristics of this practice:

  • Four primary care physicians
  • Two medical billing specialists
  • $2,500,000 of billed claims per year

Here is a cost and revenue example for a typical practice.

Breakdown of costs for medical billing services

Billing Department Staff Costs:

  • In-house: This cost is comprised of the median salaries of two medical billing staff members including their health care costs, federal and state taxes, training costs, and other related costs such as office space, statement paper, and office stationery.
  • Outsourced: For this illustration, we will assign a staff member to dedicate at least 52 hours per year to follow up with the third-party billing company and undertake administrative tasks of managing all the information.

Software and Hardware Costs:

  • In-house: Software costs for practice management software are about $200 per physician per month, totaling $7,200, and another $800 for computer hardware costs.
  • Outsourced: This cost would include the cost of operating a computer and printer to communicate with the third-party billing service and print important documents.

Direct Claim Processing Costs:

  • In-house: The clearing house fees for operating billing in-house  is approximately $375 per month (for four physicians) or $4,500 per year.
  • Outsourced: A seven percent fee of the collected claims is the industry standard for medical billing providers.

Percent of Claims Collected: 

  • In-house: Although each type of practice may have a different percentage of revenue collected, the average practice collects 60 percent of what it actually bills.
  • Outsourced: For this illustration, a collection average of 70 percent of billing is used. With proper training, many medical billing service providers could increase the collection rates even further.

Collections:

  • In-house: Sixty percent of the total collections of $2,500,000, which is $1,500,000.
  • Outsourced: Seventy percent of the total collections of $2,500,000, which is $1,750,000.

Collection Costs:

  • In-house and outsourced: These are total costs associated with billing, software, and hardware as well as direct claim processing.

Net Collections:

  • In-house and outsourced: “Collections” minus “Collection Costs” are the net collections.

This hypothetical cost analysis shows that in the outsourced billing model, the net collections are higher than that in the in-house one. This is due primarily to the billing service provider’s ability to collect 10 percent more (70 percent) of the billed amount. Therefore, the outsourcing model comes out on top ONLY if they improve collections by this 10 percent.

However, cost analysis does not always give you the full story. There are other factors that can adversely affect the success of a medical practice, like lack of expertise, staffing issues, or updating of technology. These are all items that an independent practice must consider while making the final decision.

Now, let’s take a look at the pros and the cons of both processes to better understand the options.

Pros & Cons of In-House Billing Process:

Outsourcing billing can be faster and more efficient than in-house billing for medical practice staff. They have the ability to scan and email superbills and all related documents to the medical billing service provider. 

Most medical billing service providers charge a specific percentage (the industry average is approximately 7 percent) of the collected claim amount.

The major reason that medical practices choose to outsource their billing is one of convenience. A provider can handle all the data entries and claim submissions on behalf of the medical practice and then follow up on rejected claims and even send invoices directly to patients.

If a medical practice is using electronic health records (EHR) software, this process becomes even simpler. Practices can store information from a patient’s superbill in the EHR and securely transfer data to the billing service provider using the interoperability feature. With this feature, there is no need to manually scan and send documents.

outsourced medical billing services

Should You Outsource Your Medical Billing?

Now that you have seen a comprehensive view of the billing types, let’s look at other factors that would influence independent medical practices to consider outsourcing their billing. Here are some questions you could ask to seek out your needs:

  • Is your billing process inefficient? If your collections start to decrease, your in-house billing department may be having issues. Outsourcing your claim submittals to a third-party provider could significantly reduce the number of rejected claims and increase the percentage of collections.
  • Do you have high staff turnover? Having a qualified and reliable person in the billing department is crucial for most small or independent medical practices. If you are continually having to add or replace personnel, your acceptance of claims and cash flow will decrease. Those are the two most vital needs of most medical practices: high claims acceptance and cash flow.
  • Are you tech-savvy? Keeping your billing in-house will require work that some medical professionals just haven’t learned or know very little about. You will have to invest in a software package that may have updates or annual costs that you must absorb. Your personnel will have to keep updated and trained for any new requirements in the industry. Will you have the time to be involved with all these issues that do not require medical knowledge? All these costs can escalate which makes outsourcing your billing a smart move for all involved.
  • Are you a new medical practice? New medical practices need to focus on patient care and building a clientele for long term survival. Having to deal with billing issues will only take away from the cornerstone of the business, patient care. With limited appointment hours, there is not enough time to dedicate running the business side in the office. For newer medical practices, outsourcing your billing right in the beginning will free up your time for all the other needs of your practice and enable you to know that your collections will be handled by a professional with little or no supervision.
  • Do you have different priorities? Many solo physicians and small medical practices have not been schooled in the business side of things. If you want to help patients and not undertake administrative tasks and office issues, outsourcing the billing process eliminates this daily hassle and allows you to focus on your main goal-providing patient care.

Having said all this – picking a third-party medical billing service still requires some initial homework. All of these providers may not be the right fit for your practice. It is in your best interest to consult other medical practices and do background checks before you choose a provider. One size does not fit all. 

Allocate enough time for this selection process upfront and hopefully avoid making a mistake and picking a provider that will not perform to your expectations.

It is important for each independent practice to consider what their needs and preferences are, along with their budget, when deciding whether to outsource their medical billing process. In our hypothetical scenario, we found that the outsourcing model had higher net collections than an in-house model, but that can vary from practice to practice.

However, don’t let cost be the only parameter for medical practices to consider whether or not to outsource. Consider all the factors that you will need to run a successful business and do not be afraid to consult with professionals that can alert you to issues you may not have accounted for. You may find out that money spent upfront will save you more in the end and leave you with fewer problems to resolve at a future date.

For any questions related to different medical software, such as EHR, practice management or billing software, call Physician Revenue Solutions at 847-595-1633 for a free consultation with a medical software advisor.

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