Should You Outsource Your Billing?

Deciding whether to handle billing in-house or hire an outside billing company is an important decision for any medical practice. While it’s true that not all physicians or their staffs have the experience, training and temperament to handle billing internally, it’s important to understand that a billing company typically takes 6% to 9% of the monies they handle. This article takes a look at the drawbacks — and benefits — of outsourcing billing.

What are the drawbacks?

In addition to the percentage fees on all billings, most billing companies charge a set-up fee ranging from $500 to $3,000 — or more. One purpose of the fee is to discourage medical practices from transferring to a competing billing company and having to pay the fee again.

In addition, a billing company contract typically locks your practice into a specific time period. In the event you become dissatisfied with the company’s services during that time, it will be hard to break the contract because you’ll have to prove the company wasn’t measuring up to industry standards that aren’t necessarily well established or stringent. Also, many billing companies outsource their work overseas. Troubleshooting may require spending time on international phone calls at your expense.

If your billing company requires payments to be sent directly to the company, instead of to your practice, it may cause your practice to lose control over your funds — even before deciding whether the billing company performs up to your expectations. And it’s important to keep in mind that each medical specialty has its own billing quirks and nuanced coding. So, if you outsource your billing, check references and ensure it has experience within your specialty.

Finally, the most common complaint about billing services is that they don’t chase the money. Because they’re paid on a percentage basis, they tend to focus their energy and resources on handling bigger customers and bigger claims. In other words, there’s a tendency to chase low-hanging fruit instead of more challenging claims.

What are the benefits?

Billing is complicated, and, given the increasing complexity in the health care field, it probably won’t get any simpler going forward. For your practice to handle billing internally, you would require at least one skilled, well-qualified individual on your team to stay up to date with billing procedures, attend seminars regularly and keep up on coding changes and modifiers.

Further, billing isn’t a learn-on-the-job endeavor — nor is it taught in medical school. The learning curve is significant — and for new physician practices, there’s already an overwhelming number of things to learn. To simplify practice management, you’ll likely need to hire an experienced billing service.

Outsourced billing can free up team members to focus on responsibilities more connected to your core mission of providing medical services. This, in itself, can create savings. In addition, many billing companies’ coders and billers are professionally certified and know how to streamline your practice’s billing processes. Having a professional, high-quality billing service that you can trust may eliminate numerous headaches and worries.

What makes sense for you?

It’s a good idea to periodically compare the cost of using a billing company to the costs of having internal staff handle it — including an estimate of how much additional revenue the billing company may be able to capture vs. in-house billing. Because the decision is integral to both your practice’s bottom line and your personal control of the practice, it can be an emotional issue. But the truth is, not all physicians or their staffs have the experience, training and temperament to handle billing internally. The critical decision of whether to outsource billing should be sound and well researched to ensure your practice thrives over time.

Sidebar: 4 key metrics

One way to help a medical practice decide between in-house or outsourced billing is to answer the following question: What are the four most important reports in your revenue cycle management? If you’re unable to answer this question, you probably need to outsource billing.

Those four key metrics are:

  1. Days in accounts receivable (A/R). How long does it take to get your average claim paid? Most practices should fall below 50 days to get a claim paid. If your days in A/R number is greater than 50, you have a possible bottleneck somewhere in the system. The formula for days in A/R is: (total A/R divided by gross annual charges) × 360.
  2. A/R report. Most billing software places outstanding revenue in divided time buckets. National benchmarks that you can measure against are:

Percentage of claims             Days in A/R

52.5%                                              0-30

16.8%                                              30-60

7.5%                                                60-90

5.5%                                                90-120

17.7%                                              120+

(Source: Medical Group Management Association)

  1. Claim rejection rate. This refers to claims that have been rejected immediately by the clearinghouse on the front end. It may be because of simple demographic errors, claim data errors or a missing diagnosis, among other things. Claim rejection rates should normally be lower than 4%.
  2. Denial rates. Claim denials have been accepted by the clearinghouse but have been denied by the insurance company. Claim rejection rates should be below 8%. It’s important to note that 50% to 60% of all denials are never worked to adjudication, so basically turn into lost revenue.


If you have any additional questions or would like to discuss further, please contact us on 973-298-8500.