Payroll — Many firms provide routine payroll services that include generating paychecks, direct deposit, preparing routine payroll tax filings, and annual employee statements (W-2s and 1099s). Many now accept direct downloads from practice accounting systems such as Peachtree, QuickBooks, and others.

Larger practices can also get time clocks that are directly integrated with the payroll system.

For smaller practices, outsourcing payroll can help you address privacy concerns. You don't want staff members to know what others (or the physicians) earn. It usually costs more to outsource payroll than to handle it internally, but the hassle factor is lower.
Pricing typically includes a minimum charge per payroll plus a per-check fee. Direct deposit options add to the cost. Generally, the vendor automatically transfers money from the practice's checking account to cover the payroll, tax deposits, and vendor fees.

General management — You can select any number of management options, from a monthly visit from an experienced practice management professional to a full-time on-site manager who is actually on the payroll of a management firm. Fees are typically tied to some form of cost-plus approach using the salary of the manager as the base for the computation. If you already employ a manager, but need support from someone more experienced, consider a monthly retainer that would include a minimum number of hours of support.

Outsourcing practice management can also provide your practice with access to specialized professionals such as certified professional coders and billing experts.

If you decide to outsource these services, be sure to check references to find out if client financial performance improved as a result of their efforts and if the advice the clients received was beneficial and realistic.

Information technology —  If you don't want the headache or capital costs of buying and maintaining new software systems, a growing number of practices are turning to application service providers (ASPs). These vendors charge a monthly access fee, typically tied to the number of users, which allows the practice to use the software via the Internet. The vendor maintains the database and the typical tasks, such as server maintenance and daily backups, are no longer your practice's to handle. You'll still need someone on staff, however, to keep your tablet PCs, laptops, wireless network, and other practice-owned equipment running smoothly.

Outsourcing IT may seem more attractive as the deadline for compliance with the HIPAA security rule approaches in April 2005. The rule requires system backup and disaster recovery, password protection, and encryption.

Apart from ASPs, practices also are using IT consultants on an hourly or retainer basis. Some vendors sell time blocks, which include prepaid hours of effort. While the cost per hour decreases with the size of the block, be sure not to overbuy.

Making a decision

The critical points that must be considered in making the decision between internal and outsourced are price, accountability, and flexibility.

Are you willing to pay more for better results? For example, the practice might be spending 5 percent of its revenue on its billing operation, but its collection rate may be 4 percent below what is typical for the specialty. Spending a few more dollars on a billing service may result in far more revenue. Typically, any outsourced service will cost you as much, if not more, than it would if handled internally. You need to see enhanced performance or cost savings to make it worthwhile.

When evaluating price quotes from various vendors, practices can use data published by the Medical Group Management Association (MGMA), that indicate the cost for various practice operations on a dollars-per-physician basis. You should be able to duplicate the service internally for the amount shown on the MGMA report. The Cost Survey: 2003 Report Based on 2002 Data can be ordered directly from MGMA.

In addition to making sure you get a fair price, you'll want to make sure that you get what you pay for. Some questions to ask vendors include:
• What information will be provided to the practice leadership?
• What assurances will the vendor offer related to performance, and what standards will they use as a measure?
• What termination options are available if performance is not as expected?
• Will the vendor modify their service to match the way that the physicians want their practice to operate?
• How frequently will your practice have access to senior consultants or managers?

Identifying vendors