Medical Billing: Outsourcing vs. In-House Here Are Some Tips for Making That Decision

Virtually every medical practice, at some point, finds itself at a fork in the road, having to decide whether to outsource its billing and collection function to a professional billing service or to do this in-house.

This is a very critical decision because cash flow is the life blood of a medical practice. A sudden interruption in the billing and collection function, or even inadequate management over time, can have serious consequences to the health of the practice. The following are some points to consider when you find your practice at this crossroads of decision-making.

Why Outsource?

Startup practices may consider outsourcing as an alternative to the large capital outlay, as well as the intense man hours, required in setting up in-house billing. Hiring a billing service at this point can dramatically reduce the burden associated with starting a new business, including staffing, training, space considerations, etc. Leaving medical billing to the experts can allow a new practice to focus its energies on patient care and building up a patient base rather than billing.

Existing practices may consider the move to outsourcing for many reasons. Among these may be poor in-house performance, staffing and related overhead costs, overwhelming administrative burdens, inability to find and retain quality staff, the need to invest significant dollars to upgrade hardware and software, and lack of available office space.

One advantage to outsourcing the medical billing function is that it allows a practice to focus more on patient services. A good medical billing company can improve the quality of the billing cycle, as well as reduce in-house staffing costs; minimize cash-flow problems due to staff turnover, absenteeism, or computer problems; free up space for additional exam rooms; and provide continuously trained billing and coding expertise.

In addition, billing services can more cost-effectively keep up with the ever-changing government and private payer guidelines and regulations, coding changes, and other requirements than an individual medical practice can. Practices also need to keep up with the latest technology in order to stay competitive.

There are some disadvantages, however. Of greatest concern in outsourcing of any kind is the loss of management control. However, if properly arranged with the right billing service, management can stay in control without certain day-to-day burdens. Other concerns include a possible loss of quality, hidden costs, and the risk of fraud. Each of these can be minimized or avoided altogether by doing adequate research in the decision-making and selection process.

What Services Are Available?

Among the services provided by medical billing companies are:
• Posting of charges, payments and adjustments;
• Electronic submission of insurance claims;
• Generation and mailing of paper claims, when applicable;
• Generation and mailing of patient statements;
• Handling of all patient and insurance billing questions;
• Follow-up on insurance denials and slow payments;
• Follow-up on slow patient payments;
• Generation of standard monthly reports;
• Web-based records and reporting;
• Deposit of payments into the practice’s checking account.;
• Coding review;
• Coding training and education;
• Chart auditing;
• Credentialing;
• Assistance with third-party payer audits and compliance issues;
• Complete practice management systems; and
• Integrated electronic medical records systems.

Services will vary depending on the individual billing service provider selected and may vary from contract to contract. Be sure to adequately assess your needs and expectations before choosing a provider and finalizing your arrangements.

What Are the Costs?

The most common methodology used is a percentage of collections. In most of these agreements, the medical practice pays the billing company a percentage of net collections on claims it has assisted in collecting. This methodology is good in that the revenue of the billing company is directly tied to the collections of the practice, thus providing a direct incentive for maximizing practice revenue. Rates generally vary anywhere from 5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 10{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, depending on the level of services requested, practice specialty, claim volume, average dollar amount of claims, level of follow-up provided, patient invoicing arrangements, etc. Usually, capitated revenues are carved out and handled separately.

Be sure to read the fine print and understand what is and is not included. Rates may or may not be charged on co-pays, patient payments made at the time of service, deductibles, or managed care withholds subsequently recovered. They also may or may not include costs of postage, envelopes, statements, telephone, etc.

You should perform a cost analysis of what it currently costs (or would cost) to do your own billing and collection and compare that to the total cost of engaging an outside service. Be sure to include all direct, incremental costs including but not limited to staff payroll and benefits, space requirements, equipment, software and technology needs, maintenance fees, upgrades and service fees, training costs, compliance audits, communication lines, postage, and office supplies. Keep in mind that, while this analysis is important, there are also less measurable intangible benefits and costs, as mentioned above, to consider.

Choosing a Billing Service

A good medical billing company will have indepth knowledge of insurance industry practices, medical practice management, and government regulations. Its staff should be well-trained to stay on top of coding changes, claim submission requirements, and industry trends. The company should have up-to-date software and continually invest in the latest technology.

Make sure you will be provided with meaningful and timely reporting. Review the format of standard monthly reports to be sure they meet your needs, and inquire about the costs to generate customized reports. Be certain they provide the quality of customer service you would expect from your own staff. Ask for references, check them out, and make independent inquiries of other practices that use or have heard of the billing company. Inquire specifically of how many clients the billing company has that are in your specialty of practice, and ask for names to call.

Finally, consider engaging your CPA or another outside consultant to assist you in this decision-making process and to review proposals. Finally, as with any contract, you should have an attorney review the billing services agreement before signing.

Lisa A. Patenaude, CPA, is senior manager of the Health Care Services Division of Meyers Brothers Kalicka, P.C., certified public accountants and business consultants, in Holyoke; (413) 536-8510.