Why would you even consider outsourcing your medical billing? There are several answers to that question. Below you will find an interesting article printed in Physicians News, written by Nicholas Restuccia, CPA, partner at Restuccia & Co., a certified public accounting firm in Lynnfield, Mass.

Relinquishing Control of In-House Billing

A new era has arrived for the medical practitioner – an era that will require a reduction of expenses to insure survival and profitability into the next decade. In an effort to curb runaway costs, many practitioners have begun to explore the outsourcing of traditional office procedures. That is, hiring service bureaus to perform office procedures that would normally be done by in-house personnel.

How common is outsourcing? In a recent survey of businesses with less than $5 million sales, 53% of the respondents said their companies now outsourced one or more traditional office procedures.

The most popular area for outsourcing are payroll, patient billing, administration of employee benefits and maintenance services. Servie bureaus can perform these functions more efficiently and economically because they are specialists in these areas. Why Outsource?

Outsourcing each of these office procedures will save money, but the major benefits of outsourcing are clearly found when it is applied to patient billing.

Practitioners fail to realize the extensive cost associated with in-house billing. This can be a very costly form of neglect. Most practitioners have hired one or two clerks to do the billing. They think that doing so insures that the billing is done accurately and efficiently and that the practice retains greater control over the procedures. Let’s examine each of these assumptions.

Control. Many practitioners are reluctant to let a third party assume responsibility for their billing. They think they will lose control over their receivables. The truth is most practitioners have already lost control. With the bureaucratic intricacies of co-pays, disallowance’s, charge backs, deductibles, insurance company holdbacks and duplicate payments, who really has control?

Speed. Practitioners instinctively fear that using a service bureau will slow down the billing process. They think a lag in billing will create a delay in collections, thereby creating the dreaded cash flow problem. However, this does not have to be the case. Most medical billing services invoice within 24-48 hours of receiving the documents from the practitioner. Therefore cash flow should not be impaired. In fact most practitioners report that the opposite is true. Gross billing increase and accounts receivable time is shortened because the billing service is paid on an incentive basis. The higher the gross billings, the more the billing service is paid. In-house staff, who are paid weekly salary, may not be as motivated.

Efficiency. Medical billing services are more familiar with coding than the practitioners own billing department. They are cognizant of the latest trends in coding, while relying on office staff to be well versed in the latest coding techniques is unrealistic, naïve and can adversely affect profit. Service bureaus also have more sophisticated hardware and software than the typical physicians office because of the volume of transactions they handle. Since computer hardware and software on constantly changing, the in-house staff and the computers must be constantly updated. The practitioner must pay for all the hardware and software updates as well as the expensive “learning curve” while the employees struggle to master the new techniques and programs.

Cost. Some practitioners think that using a service bureau is more costly than doing the work in-house, this depends on what you include in the term “cost”. When compared to base payroll costs, the billing service charge is more expensive than in-house billing. But beware. Hidden costs are incurred when in-house people do the work.

The following analysis can help illustrate how saving can be obtained through outsourcing. Assume that a medical practices billing $1,000,000 per year and needs three billing clerks to handle this level of activity. Service bureaus traditionally charge 5% to 9% of gross billings for this kind of service, so the cost of billing for this practice would range between $50,000 and $90,000. If one billing clerk earns between $22,000 and $25,000 yearly salary, three would cost the practice between $66,000 and $75,000. This figure represents the base cost of payroll. Payroll taxes, which include the employers share of social security and federal and state unemployment taxes, add approximately ten percent to the -base cost. Fringe benefits, which include pension and profit sharing plans, medical insurance, disability insurance, educational reimbursement, sick pay and personal time, can add another ten to thirty percent to payroll cost in sum, the cost of payroll could jump to a range of $79,200 to $105,000 when these additional charges are added.

Other Expenses. What about other expenses? In-house billing clerks need space to work. Assume the billing clerks occupy an area that is 150 square feet of space. If you are renting a space for $15 per square foot, you are paying an additional rent of $2,250 just for those employees. This is just the base cost. Usually there are add-ons for increase in property taxes and maintenance services. Additional costs include utilities and office supplies. Postage is an expense, which is commonly overlooked. Some service bureaus, but not all include this in the cost. These expenses increase the cost of doing business and reduce your bottom line.

Finally, when you have someone performing an in-house function, that person needs supervision. If you hire an office manager to supervise billing staff you must still monitor the office manager. This will take away from the time you have to see patients. Outsourcing the billing function allows the practitioner to be more focused on the core business, providing patient care.

Using a service bureau may not be the answer for everyone. A neurosurgeon might have a relatively small number of patients and corresponding caseload. But before you dismiss the idea of outsourcing completely, figure out how much it is costing you to do the billing in-house. You may be in for a surprise.

We have all heard horror stories about billing services. There are good and bad services everywhere, just as there are good and bad employees. The secret is to find the ones that fit with your business and those that want to see your practice financially succeed.There seems to be more horror stories associated with in-house problems: drawers full of problem billings that went untouched and are now uncollectable due to insurance policy filing requirements; personal injury cases that went unpaid because no one had a tracking system for following up on old cases; workers' compensation cases that no one in-house knew what to do with - cases that were easily collectable by someone with the proper experience. 

Switching to an outside billing service will not necessarily give you better control, but it can provide some of the following benefits:

1. You would not have to worry about your biller quitting and leaving you high and dry.

2. You would not have to worry about retraining and hiring if your in-house biller leaves.

3. You would not have to worry about the transition on problem accounts from one biller to the next.

4. You would not have to worry that a new biller will ask you to make an investment in the software that he or she uses.

5. You will have more space, time and energy to treat patients.

6. You would not have patients overhearing office staff arguing with an insurance company or another patient regarding claims. Conversations would be more private.

7. You would not see any breaks in your service or cash flow, as long as you choose a billing company that is dedicated to providing excellent service and has the expansion capabilities necessary to grow with your business.

8. You will save on the many expenses associated with inside billing, such as, payroll, benefits, taxes, software updates and maintenance, postage, paper, and various office supplies, sending billers to seminars, etc.

9. You would have piece of mind knowing that the billing service is dedicated to your billing needs, for that is why they are in business.

10. You would have less personnel to supervise or worry about.

Don't let one bad experience keep you from outsourcing. Use that experience in a positive way to find a new one and one that caters to your practice's billing needs.

Stokes Certified Medical Billing would love to be the missing piece to that puzzle.