Outsourcing Billing Services is a common management decision for physician practices, and it is important to understand the pros and cons of outsourcing vs bringing inside the practice when evaluating this decision.
First, “tipping point” for most medical practices for bringing billing in-house is when the practice has more than three full-time physicians. If the practice has less than three physicians it is better to outsource it. If there are three physicians in the practice, its a judgement call, and the advantages for each are about equal.
The “Pros” of Outsourcing
- The practice has access to highly trained, experienced staff with extensive knowledge of their specialty.
- Most outsourcing companies provide a base level of coding support and education, and keep the practice apprised of changes in billing and coding regulations as part of their base fee. The practice does not have to provide continuing education and coding resources to staff, as they would for an in-house function.
- The practice does not have to deal with the “human element” of recruiting, training and retaining staff, or going without staff during times of vacation and illness.
- There is no cost associated with IT billing issues, capital equipment, or space to house the billing function.
- An outsourcing company can seamlessly expand to accommodate the needs of the practice.
The “Cons” of Outsourcing
- Outsourcing is generally more expensive; most companies charge base fee 6.0% of collections, including those done by the practice at the time of service. Often there is a minimum monthly payment if collections do not exceed a threshold. Most in-house billing functions cost between 3.0% – 3.5% (base equivalent fee) of collections.
- The base fee does not include the cost of postage or processing “old A/R,” which is generally defined as being in excess of 120 days. Separate fees apply for old A/R, and these are generally in the range of 35% of collections.
- Outsourcing companies do not pursue collections aggressively; generally their billing follow-up for guarantors is limited to three statements and one collections letter. Federal law, such as the Fair Debt Collection Act, limit how an outside agency can pursue collections. An in-house billing function can be much more aggressive, send out more invoices quicker, and use telephone calls to follow-up on late accounts. The telephone is the most effective tool in pursuing collections.
- Most outsourcing companies have two-year contracts. When they terminate, the company generally takes a one-time payout to reimburse them for their costs associated with prior months’ billings. Often this is as much as an “average” of six-months of prior billings. This can be quite costly, and (depending on the length of the contract) can raise the overall cost of base billing services to as high as 7.5% (for a two-year contract with a six-month termination fee),
In summary, it is important to understand the costs of outsourcing billing services, and carefully read the outsourcing company’s contract before making a decision. These are generally lengthy (20 + pages) and complex. It is best to have an outside expert review these for issues that can be negotiated before signing them.
If you are looking for more information about outsourcing your billing services or need help figuring out with solution is right for you, contact HSC Management today!