Outsourcing Your Billing

February 1, 2010

Considering outsourcing the business side of your practice to a revenue cycle management firm? Let someone deal with the claims and collections headaches … right? Maybe. We examine the pros, cons, expenses, and benefits.


Do you enjoy the daily business of medicine? Not the world of patients and symptoms, but the domain of claims, collections, receipts, and reports, for which there is woefully little training in the medical school curriculum.

If you don’t, you are not alone. Thousands of practices have effectively delegated their entire financial operations to third parties. Should you? Let’s take a look at the pros and cons.

First a quick description. The in-vogue name for these financial third parties is “revenue cycle outsourcers,” also known as billing services. Instead of hiring staff to do your billing, you delegate it to the revenue cycle outsourcing firm who manages the entire operation, including coding and review, electronic claims submissions, collections, and financial reporting. The revenue cycle outsourcer’s fees are based on a percent of collected receipts. The more you make, the more they make.

The pros of outsourcing

What’s the case for revenue cycle outsourcing? Here is what the outsourcers would say:

  • Medical billing is complex and best handled by experts. Most offices have to deal with multiple plans and therefore multiple payment schedules, different benefits, and variable rules. Medical billing is also a moving target - plan rules change frequently and even CPT codes are updated annually. It’s hard to keep up. The implications of doing this job poorly are significant. Over-coding (or coding at a higher level than the documentation supports) is a polite term for fraud. Under-coding (or what some docs will call defensive coding) can cost practices millions of dollars in lost reimbursements that they have legitimately earned. There is also the time consuming rework required for claims that are denied because your billing clerk made a mistake on the original claim. A core benefit to outsourcing is that you are dealing with a bank of professionally managed experts who are focused solely on billing. Because billing services are paid on a percentage of collections, they are strongly incentivized to perform well.

  • In-house billing is time consuming for physicians and clinical staff. Dealing with insurance companies takes both physician and other clinical staff time. According to a study by Lawrence P. Casalino, MD, PhD, of Weill Cornell Medical College, physicians spend three hours a week or nearly three weeks per year on these activities, while nursing staff spend more than 23 weeks per physician per year. There also appears to be a disproportionate burden of these tasks on the smaller practice. The same study noted physicians in solo or two-physician practices (particularly primary care) spent “significantly more hours interacting with health plans than physicians in practices with 10 or more physicians.” Moving to a billing service won’t eliminate practice interaction with health plans - but it should significantly reduce physician time spent on haggling over unpaid claims.

  • Managing internal billing operations is a pain in the neck. The care and feeding of an in-house billing staff is not trivial. In addition to salary and benefits, a billing staff requires oversight to insure that they are performing optimally. They will also be prone to any of the normal unspoken overhead of employees - illness, variable job satisfaction, hiring and firing, and ability to mesh with other staff members.

Now for the cons


So what are the downsides of outsourcing your billing?

  • It’s not free. As noted above, revenue cycle outsourcers - quite cleverly - typically bill as a percentage of receipts collected. For high reimbursement specialties such as cardiology, billing services will typically charge in the 4 percent to 5 percent range; for primary care, percentages may bump up to the 8 percent to 10 percent level. The billing service’s fees typically are inclusive and incorporate any claims-clearinghouse fees that you might pay if you were doing it yourself.

  • You don’t have total control. Transferring your billing operation to a third party may be uncomfortable for some physicians who revel in the smell of superbills. Some physicians simply prefer to have tighter control over their finances. And while a large number of billing services are local mom and pop operations that allow you to connect in person, increasingly the service is being offered by large corporations serving a nationwide clientele - which makes face time less likely. Do you feel comfortable with delegating your daily financial operations to someone you are likely never to meet in person? If the answer is no, outsourcing may not be a good fit.

Weigh the options

We’ve established the pros and cons. Now, how do you decide? Here are some guidelines:

  • Compare hard costs. This is a pretty straightforward exercise; calculate the expense of doing it yourself (salary and overhead of your billing staff, amount of time you are spending on billing, third party fees for claims clearinghouses, billing related supplies such as claim forms) versus the revenue cycle fees. According to the recent survey of the American Academy of Professional Coders, the average salary in 2009 for certified coders was $44,750, which varied depending on location and experience level. Add 20 percent for benefits and overhead and you have a cost of $53,700.

  • Compare soft costs and intangibles. This represents elements such as the hassle factor of hiring and managing staff to do your billing versus the loss of daily oversight. You should also assess your overall comfort level and expertise with medical billing. It is hard to be an effective manager of an in-house billing operation if you don’t understand what you are managing. There is also a labor pool issue. Is it difficult to find competent billing staff in your location? You may have a brilliant financial manager now, but if she decided to move on, would you be able to easily replace her?

  • Compare effectiveness. This is a little trickier, because it involves making a judgment call regarding your own operation, as well assessing the potential effectiveness of a third party with whom you have not used. In terms of assessing your own operation, here’s simple question: Are you receiving reports on a regular basis? Along with having reports on gross charges, write-offs, bad debt, and refunds, you should know the relative age of your accounts receivable, the average time it takes from patient visit to filed claim, your denial rate for claims, plus checks and balance reports that reconcile payments received with payment entry and daily receipts.

All of these will give some indication of the effectiveness of your billing staff. Armed with this data, you can benchmark your practice against the revenue cycle firm of your choice. They should be able to provide some their performance data on practices like yours. This will allow to you compare effectiveness - and help you make the final decision.

Bruce Kleaveland is president of Kleaveland Consulting, a management consulting firm focused on healthcare IT. He can be reached via physicianspractice@cmpmedica.com.
This article originally appeared in the February 2010 issue of
Physicians Practice.