Drawbacks to Outsourcing Billing

May 1, 2006

Can you please list the cons of outsourcing billing?

Question: Can you please list the cons of outsourcing billing?

Answer: A Roughly 17 percent of medical practices outsource their billing, but only 5.66 percent of "better-performing practices" do, according to the Medical Group Management Association's "Performance and Practices of Successful Medical Groups." To decide whether you should outsource or not, you must determine how well your current, in-house billing operation is performing and what it is costing you.

Measure your performance by tracking age trial balance, days in accounts receivable, and total accounts receivable over the past three years. Compare these trends to national benchmarks available from the Medical Group Management Association at www.mgma.com.

Measure your billing costs by tallying your expenses related to telecommunications/phone bills, information systems, space allocation, support staff benefits, and billing supplies. Divide your total revenue by these combined costs. Generally, billing costs eat up from 4 percent to 12 percent of your revenue.

If you have high costs and low performance, you should certainly consider outsourcing. However, if you have low costs and low performance, your needs may be best served by spending more on your staff and support tools. Don't outsource just to boost performance; the cost may be too much.

Remember that if you do outsource billing, you are still responsible for regulatory compliance. Billing services have been known to change codes to boost collections.

Some other drawbacks to outsourcing to keep in mind include:

  • Less-expensive billing companies may be happy to have inexpensive staff file claims, but they aren't really interested in having high-paid staff appeal denials. On the other hand, your in-house staff may not be appealing denials either. Someone at a billing company may have better contacts than your staff - but they may also not care to use them. Similarly, some physicians feel that a billing company will never care as much about your income as your staff does. Conversely, I do see plenty of in-house billers who don't exactly seem enthusiastic about their work.
  • Some billing companies won't give you the data and skill set you need to improve your billing processes. Remember that billing starts with pre-verification at the front desk, not when claims get filed. You need a partner who can help you determine why your claims are getting denied and help you establish processes to fix the problems that occur on your end.
  • Most people seem to feel this is ultimately a wash - you hate to pay a billing company, but otherwise you'd have to pay staff and benefits. You have to do the analysis to determine what works best for you. Remember, you can't just hand the whole thing off. You still need some staff.