After 25 years in the business, we still have many people ask us why a provider should outsource vs keeping the billing in house. It is something that new billing services need to understand in order to succeed. If a billing service doesn’t understand their worth then they will never be able to sign up clients. And both new and established billing services need to recognize when a provider’s office has an in house billing system that is working. If they have a billing system that is working and your service won’t benefit them it’s not a good idea to enter into a contract.
In our experience a provider won’t usually agree to sit down with a service if their current system is working efficiently. They usually only meet with an outside service if they have a problem. But it’s important to recognize when outsourcing makes sense. In order to determine if outsourcing makes sense a cost analysis should be done. Here are some things to consider when performing a cost analysis:
1. Billing Department/Staff costs – This would include the salaries of the employees working in the billing department. If there are employees with multiple functions (billing and front desk, etc) then estimate the amount of time spent on billing (50%, 75%) and take that percentage of their salary. It would also include healthcare costs (if supplied), payroll taxes, vacation time, sick time, disability, office space, and supplies (desk, printer, paper, ink, phone, postage, forms, etc). Basically anything that it is costing the office to have the employee in the building.
2. Software/Hardware costs – Practice Management Systems range anywhere from a few hundred dollars to several thousand. This cost also depends on if the provider purchases server software or if they ‘rent’ software monthly. If the software requires updates, or support those costs need to be considered as well. There is also the computer costs, as well as maintenance on the computers. The cost of any printers, scanners and/or photo copiers would also be considered. These items may still be required if outsourcing however the costs will go down because the usage goes down.
3. Claim Processing Costs – This would be clearinghouse fees, envelopes, postage for paper claims and patient statements, and any other costs associated with actually submitting the insurance claims.
Most medical billing services charge a percentage of the amount collected and studies show that the nationwide average is 7%. In some states charging a percentage is considered fee splitting and is illegal. Whether the billing service is charging a percentage or a flat fee, the costs are usually around 7% of the practice’s revenue.
Studies do show that on average the percentage of revenue collected when using an outside service is higher than the percentage of revenue collected in house. In our personal experience we have seen that the providers that switch from in house to using our service have seen increases in their revenue. In some cases it has been a very large increase and in one in particular it was 60 percent.
Studies also show that 25%-30% of medical office revenue is lost to improper billing. $59% of in house billers do not review EOBS and 55% of in house billers do not appeal denied claims. Our experience supports these studies. We find that most in house billers do not run or work regular aging reports and do not appeal denied claims. They simply send out the billing and accept whatever comes in. Most medical offices have a high turnover of staff and the providers are not involved with the billing so they are unaware of the amount of revenue being lost.
If considering outsourcing a provider should look at all of the costs to billing in house, what their current average revenue is, and how much it would cost to outsource. They should also consider how much they are collecting of the amount being billed out to see if there appears to be an issue. If the in house billing system does not seem to be efficient or effective outsourcing may be a good move. Next newsletter we will go over what a medical office should look for when interviewing a medical billing service.