In-house vs. Outsourcing

 Erika Regulsky Medical Billing, Most Popular, Most Recent


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Ask any medical practice owner or a healthcare provider, what are the key components of running a successful medical practice as their business, 9 out of 10 will tell you medical billing/ RCM is the most crucial component, it is a lifeline that keeps their revenue cycles up and running.

As new technologies evolve, and government regulations mandate medical practices to adapt them, financial limitations are proving to be the greatest hurdle confronting owner-practitioners. They are constantly looking at options that will save expenses and boost revenue. Medical billing is one such operation that offers them the leverage for cost saving options.

No matter how the billing operations of the facilities operate, whether in-house or outsourced, professional medical coding practices are a must for the medical-practitioners. The efficacy of billing operations is absolutely dependent on billing and coding skills, and if these operations are mismanaged, the revenue cycles of the practices will have severe repercussions. Most importantly, an evaluation on whether the billing operations need to be in-house or outsourced have to be carefully deliberated.

First let us look at In-house billing options:

An average billing department is manned by two trained billers assigned to either one or three providers. Apart from the payroll expenses, the initial cost of setting up a billing section will include computers and revenue management applications, a clearinghouse registration, space for record storage, a small library for coding books and study material for courses.

An overview of an in-house billing team does make it appear as an administration burden costing overheads, however having an in-house billing team has its advantages, you can closely monitor the day-to-day billing operations. Any queries can be addressed instantly, and options on any changes can be put into effect in real time. It also provides more leverage and control on account receivables.

Advantage of Lowest Dollar Outstanding Balances

Another advantage of having an in-house billing staff is that you can have lowest dollar outstanding balances followed up for settlement, unlike outsourced billing companies that do not apply themselves pursuing small outstanding accounts, because the returns from these accounts would be negligible in line with the time and effort spent. None-the-less, outstanding of hundreds of patients with low dollar amounts can erode revenue earnings of many practices.

Besides, if a practice has been in existence for a long period of time, and has experienced long-term employees that are efficiently executing billing and medical coding responsibilities, the administration has better control of financial operations running in house billing operations.

In House Billing Operations Through A CoManaged Arrangement

In situations where practices experience an  increase in the volume of medical billing and medical coding workloads, and staff deficit is stalling the process, they can look at co-managed options. This arrangement will have  a 3rd party billing company share the billing responsibilities, the primary aspects of the operations processed in house, while secondary responsibilities outsourced to the 3rd party billing company. 

This arrangement entails practices retain key overall control of billing operations, while partially outsourcing secondary aspects of the billing process. It leverages the administration to ease the workload of the inhouse billing team, without recruiting additional billing staff.

It saves practices the expenses of paying billers salaries and employee benefits, besides the cost of purchasing expensive systems, comparatively third-party billing solutions cost less, and can be seen as viable options. 

Advantage Outsourcing

The outsourcing blueprint for billing is a perfect fit for small practices that do not want an extra load of administrative duties or hire an administrative team. The billing functions are outsourced and administered by a remote team of certified billers, who know the intricacies of filing claims.

In fact small practices outsourcing billing services to large medical billing companies  save on buying  expensive specialized medical billing tools  and technologies, that otherwise would cost them a fortune. It also alleviates small practices from the responsibilities of records retention.

Medical Billing Companies Oversee Data Entry & Claim Submission

Besides, medical billing companies oversee data entry and claim submissions, and do all the ‘dirty work’ related to the billing process. They follow-up on rejected claims, pursue delinquent accounts, plus send invoices to patients directly.

Additionally, if EHR software is used by a practice, it makes the process even easier; having a patient’s super bill stored in the EHR enables it to be electronically transmitted to the billing service. It does away the need of sending paper records to the billing service. Since the EHR software will not require an additional step of data entry, accuracy of data entry is maintained.

However, it is essential that data stored in EHR software of the practice, integrates with the billing company’s applications, or else data will have to be converted to a format that is compatible with the software of the billing company. 

It makes financial sense to outsource billing operations when a practice is a startup or when the billing office of a thriving practice is transitioning, following the sudden resignation of key billing staff.

Billing Companies With Reporting Capabilities & Denial Management

Having performance reports facilitates practices to oversee billing operations. However, micromanaging the reporting operations by  engaging knowledgeable staff entails costly investments in staff salaries and specialised software. It is prudent to have outsourced medical billing companies  fill the gap, and provide performance reports. 

Denial management is another aspect of billing operations requiring considerable knowledge, experience and specialised coding capabilities. Having an inhouse dedicated denial management team may not be viable for small or medium practices. 

The inherent cost maintaining  specialised staff can only be justified if the practice have large volume of denials to be appealed, otherwise outsourcing it from a billing company that guarantees a level of success is a better prospect  than retaining an inhouse staff for the process.

Billing Companies Share a Better Rapport With Payers

When medical billing operations are contracted to a professional billing company, practices  drive home the advantage of working with experts that understand every nuance of medical billing and coding. Just as medical specialist deal with specific medical conditions of patients, physicians need the services of a company that specialises in medical billing. 

Processing billing accounts of multiple specialties leverages a billing company to better understand insurance companies perspectives in meeting their billing and coding guidelines. This contributes to the accuracy of claims being processed and submitted, and payments getting paid in a timely manner. The trained staff of a billing company are better placed handling phone calls or addressing any issues arising out of coding or documentation inconsistencies. 

In a Black Book survey, 80 percent of hospitals were considering outsourcing full revenue cycle management by 2019. The survey also revealed that the demand for revenue cycle management outsourcing was significantly growing, according to 709 C-suite executives that were a part of the survey, including board members, and senior managers at hospitals and other inpatient organizations.

Despite 18 percent of hospitals executing or implementing a full revenue cycle management outsourcing in 2018 in comparison to 11 percent three years earlier, many more hospitals and inpatient organizations may consider partnering with a third-party vendor to perform full RCM functions  by 2019. Between 2015 and 2019, the survey pointed out that the demand for full revenue cycle management outsourcing increased 86 percent.

The survey also added that as more hospitals were seeking to outsource full revenue cycle management, there were some hospitals and inpatient organizations, that would be  seeking to outsource key clinical functions as a cost reduction measure, with emphasis on value-based care initiatives. By 2022, the average hospital costs have to be reduced by 24 percent so that they can break even, the survey determined.

Almost 98 percent of hospital leaders, according to the survey are deliberating to work with third-party vendors for cutting cost expenditure in both clinical and nonclinical areas. This would leverage them to focus on value-based programming.

According to Dough Brown, President Black Book Research, hospitals are under pressure to decrease inpatient volumes, achieve outcomes goals and provide cost-effective care, as part of value-based care reform. He feels struggling hospitals would be looking at immediate alternatives, and clinical services outsourcing would be their main focus.

In-House vs Outsource Costs

Cost cutting measures are one of the major concerns of health administrators. The  debate whether to outsource their medical billing to third-party medical billing services or using medical billing software do it in-house is unceasing. An analysis of in-house billing and outsourced billing in terms of cost is worthy of review, before determining an approach.

A speculative cost analysis of in-house billing versus outsourced billing will give us an insight into the feasibility of which options will fit the needs of an organization The industry averages have been used  for the analysis to provide the estimated numbers. 

Assuming, a health facility has three primary care physicians, two medical billing specialist, and the volume of insurance claims filed is 80 per day,  or total claims filed are 20,000 per year, if each claim had an average bill value of $ 125 it makes it $2,500,000 per year, consider that the billing company has a superior claim collection rate.

In-House Billing Staff Cost has been factored, taking into account the median salary of two billers ($80,000), the health insurance cost for the two billers has been considered ($9000), while federal and state taxes for two would cost ($12,000), while $11,000 would be the overhead costs, including stationary, office space, and other utility expenses.

Outsourced: The outsourced billers would seemingly need five hours of time every week to support the billing initiatives of the three physician  practice, paying $15 per hour, plus other miscellaneous cost approximately will cost $3,600 per year. 

In-House Software Cost: The approximate cost for the software has been considered as $6,800 for practice management software, taking into account the approximate subscription cost of $ 200 per month, per physician. No upfront costs have been added for software system.

Outsourced: The cost is associated with the computer and printer the practice would need interacting with the billing company for printing documents.

In-House Claim Processing Cost: An approximate $262.50 per month has been considered as clearing house fees, and  for submitting 20,000 claims per year the practice would be paying $3,150.

Outsourced: The claim processing charges varies from company to company, the  charges are based on the percentage of the total amount of collections processed by the billing company, which is deemed as their fees, in this case 7% is the considered value as the collection cost.

Percentage of In-House Bill Collections: The percentage value of revenue collections of a practice can be known by the total amount of bills generated. We’ve factored it as 65%, which can be described as average collections in industry parlance.

Percentage of Outsourced Bill Collections: An outsourced billing company can improve collections by 5% to 15% over inhouse collection initiatives. In this case, 10% has been factored as average improvements.

Billing & Coding Errors Hurting Practices

Revenue cycle can have worrying outcomes if a practice does not use certified coders for their billing operations. Inaccurate coding results in claim denial, being a lifeline of a practice, if claims are filed using incorrect codes, payments are likely to be delayed, denied or limited. In fact the majority of claims are denied during their initial submission. 

Failing to identify and correct the  inaccuracies in a timeline has the potential of  practices losing valuable revenue, which can be detrimental to their growth.

Practice owners have to be doubly certain that the billing operations of the practice are being administered with efficacy by certified and qualified billing staff, with the most current billing software. Should this not be the case, then outsourcing billing operations would be the most cost-effective way to accomplish it.

Exploring Remote Billing/Coding Options

Partnering with a remote billing company leverages a practice to comprehensively focus on patient care. As soon as the surgical procedure is accomplished by the  clinic, medical charts are electronically sent out to the remote billing company. Using their billing software, certified coders read, code, and send it for audit.  

Once the audit determines the veracity of the codes and compliance, the billing staff review payer guidelines, before bills are processed and claims are electronically filed with insurance companies for reimbursement. There are multiple advantages partnering with a remote billing company, foremost the practice will have fewer denials, remittance from insurance companies will be faster, and compensation often better.

Managed IT Lowers Technology Cost

What does a healthcare organization look for when they hire managed IT services? A blend of services that will include security, scalability, reliability and flexibility. With a tighter budget environment, it is difficult for health organizations to maintain their own IT services, and the only way to move forward is to look at ‘managed IT services’.

Going by a recent poll by Black Book that had 1,600 hospital executives participate, including 807 CIOs, the results determined that 34 percent organizations that responded were likely to increase their IT outsourcing through 2019, yet another 58% were satisfied with maintaining their current level IT sourcing through 2019. A greater majority (81 percent) that were already into outsourcing IT operations are experiencing a return of investment.

Nearly 84 percent respondents reported that outsourcing operations that included hosting of mission critical applications and patient data, contributed to better efficiency and reduced costs, which has proved to be a turning point in their business.

Adopting managed services in particular helps smaller healthcare organizations doing away the need to invest in expensive equipment and staff. 

Rob Havasy, senior director of health information systems at the Healthcare Information and Management Systems Society (HIMSS) speaking to Healthcare IT News maintained that even if organizations wanted to setup their own data center, setup EHR servers and manage them, makes it difficult and expensive to hire IT staff. 

Although it’s not a problem hiring IT staff in bigger cities like Boston or many places in California, Rob asserted that overall in large areas of the US, the labor costs are extremely expensive, making it difficult to have qualified staff come around and keep critical applications up and running. It is also difficult to have organizations spend for the applications. In his view, for much of the country outsourcing was a viable strategy..

The organizations outsourcing IT services have the benefits of staying current as new technology evolves. Since managed service providers have a large client base, and considering their size and scale they have the potential to invest in new technologies or upgrade existing technologies. They also  have the advantage of implementing new techniques expeditiously in comparison to an in-house team. 

Reflect on a scenario, where an IT team has been deployed in a mid sized hospital, which has 30 staff members. The responsibilities of the IT department would entail them to operate 100+ technologies. Wouldn’t it be difficult and possible for the team  to maintain subject matter proficiency on every technology deployed in the organization?

In comparison, an outsourced service provider has the resource capability of having multiple staff members with mastery over each technology to ensure that the IT structure of the organization stays operational.


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I’m a multi-certified revenue cycle management professional and compliance officer with 20+ years of experience. I contribute articles to leading healthcare publications and journals. I am currently working as Senior Transition Manager, in BillingParadise headquartered at Diamond bar, California. BillingParadise offers Medical Billing Services that intersect perfectly with the EMR/Practice management system you use.BillingParadise has offices in New Jersey, New York, Florida, Georgia, Minnesota, and Texas.


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