By Marge McQuade PAHCS |
The Pros and Cons of In House vs. Outsourced Billing


The Pros and Cons of In House vs. Outsourced Billing

Date Posted: Tuesday, March 05, 2019


A whopping 25 to 31 percent of total health care expenditures in the U.S. are administrative costs, according to a time-driven, activity-based costing study published last year in the Journal of the American Medical Association (JAMA) . Researchers studied a large academic health care system with a certified electronic health record system. They concluded that at least 62 percent of their costs were for billing and insurance-related activities. That’s about $20 per primary care visit.

These are obviously huge margins for healthcare providers already squeezed by insurers and increasing costs of care. Providers need every dollar they are entitled to for reimbursement, so it is tempting to think that you could solve billing problems and remove administrative challenges by handing your claims over to a service. If you are contemplating this or you are presently working with a billing service and want to make a case to bring it back in-house, a cost analysis can help you conclusively tip the scale one way or the other. 

Convenience is the number one reason that independent providers outsource their claims processing. New providers often outsource billing to lessen the burden on setting up the office. Areas to review include personnel, training, and technology.

When analyzing which option offers the best return on investment, there are advantages and disadvantages to consider. What is in the best interest of your practice? Who needs to be involved in the decision? What are the expectations for the change? Even when outsourcing proves to be more economical, be prepared for pushback from your providers. Providers that participate in the decision-making process are more apt to be satisfied with the result. Their comfort level with in-house billing may outweigh the cost savings. 

One office I spoke with a few years ago was drowning in denials, but the providers wanted to keep claims management in-house. It can be difficult to find skilled outpatient billing staff, especially if your practice is in a rural area. In-house staff training may provide the least disruptive solution. 

Some types of billing operations that can be outsourced include: insurance verification, coding/charge entry, pay posting, claims submission, following up on unpaid claims, tracking claims, AR/denial management, appeals and reconsideration/redeterminations, and patient statements/collections of remaining balance. 

Pros and Cons

The case for or against outsourcing billing will boil down to cost and speed. Look at the net of costs to make a case for or against outsourcing billing. Billing services can vary widely in their efficiency and accuracy when processing claims.

The scale may tip in favor of keeping your billing operations in-house if your providers prefer to take an active role in claims management. Claims issues, rejects, denials, and requests for documentation can be addressed faster onsite, and there is a go-to person in the office to handle resolution of claims.

The downside is that billing staff shortages and backlogs can really slow your revenue cycle. If your billing staff answers phones, checks out patients, makes collections calls, etc., billing and denial management may not receive enough attention. 

New providers have plenty to learn and worry about aside from their billing. Outsourcing reduces the day-to-day stress of launching a new practice and may bring more consistency and regularity in your processes and revenue cycle. Most physicians prefer to work with a U.S.-based account management team and call center for patients. 

When performing a cost analysis for in-house billing processes, you can review things like software and hardware, processing costs like man-hours, postage, paper, the percentage of billing collected, and outstanding collections. Factor in the benefits package for employees: wages, medical insurance, sick time, paid vacation, training, etc. How healthy is your revenue cycle? Stalled collection efforts and process inefficiencies may point to outsourcing. 

The cost of a billing service will be dependent on the type of services they will perform and the volume. This can make budging more difficult. Most have a standard list of services and fees are based on claims sent. Benefit verification services and administrative costs such as postage will be variable. Collections services vary based on a percentage of dollars recovered. 

Check references and choose carefully. If the service has poor performance reviews, the headaches surrounding your billing issues will not improve.  A billing service should be contractually obligated to follow-up on unpaid and denied claims. Otherwise, there may be no financial incentive for follow-up, and there may be a higher up-front fee to get the lowest cost per claim rate. 

Compliance Concerns

Common risk areas to consider when hiring a billing service include failure to obtain a business associate agreement, using unsecured email and/or fax, non-HIPAA compliant file sharing, selling off accounts without proper disclosure to client, outsourcing their services to an independent off shore company, upcoding services without authorization, and no internal compliance training or compliance program. A billing service needs auditing reports to fulfill requirements of their compliance plan. The Office of the Inspector General (OIG) allows only up to a 5 percent margin of error. 
A cost analysis will help you weigh the benefits and drawbacks for your unique situation. Your reports should provide a clear picture of financial performance whether working claims in-house or outsourcing. 

When you have good processes, communication, and accountability in place, you can be successful in either model.

Outsourcing Your Billing: Is it For You? 
Get your questions answered by billing expert, Lisa Maciejewski-West, during her live webinar March 14. Reserve your spot: https://www.pmimd.com/audio

Nancy Clements is Director of Marketing Communications for Practice Management Institute, a leading provider of training and continuing education for medical office staff. For more information, visit pmiMD.com.  

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Questions to Ask a Prospective Billing Company

1.What certifications or association memberships do their employees have? 
2.Do they have experience in your specialty and how do they maintain annual updates?
3.What type of technology/software do they use to process claims?
4.Can your office review a full set of sample reports?
5.Will there be a dedicated contact for claims and receivables, and to help solve problems?
6.What processes are in place to address common challenges like down-coding, denied claims, and aging receivables?
7.What benchmarks are used to evaluate their performance/success?
8.Will you have ongoing access to reports, billing, and collection information on demand?
9.What protections are in place to protect clients from fraud, theft, or errors by their employees, and do they indemnify clients against any of these?
10.Can they provide references?

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Marge McQuade

Director of Education





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