Less than 83% of payments are paid to an average practice within the first four months since the date of service. In other words, the average medical practice delivers almost one fifth of its services for free. Since the vast majority (83%) of medical billing practices perform their billing in-house, we see that in-house billing fails to provide adequate payment performance.

A search in the Yellow Pages lists over 4,000 medical billing services nationally and more than 100 such services in New Jersey alone. The large number of competing billing services should guarantee high quality of outsourced medical billing. Yet only 5.66% of better-performing practices outsource their billing, suggesting that outsourced billing may also fall short from solving the billing problem.

Can an outsourced medical billing service improve or expedite payments and reduce costs? This article revisits key arguments for and against billing outsourcing in light of increasing complexity and regulatory scrutiny of billing processes.

Extra Time and Reduced Costs

Traditionally, advocates of outsourced medical billing bring up extra time and cost gains as two main arguments in their favor. The practice owner uses the extra time for family, patient care, or practice development. Cost gains are typically measured in terms of salaries and benefits of reduced billing personnel. However, the first argument (extra time) is often irrelevant to doctors satisfied with their schedules and practice sizes. The second argument too often turns into a wash in light of commission-based fees typically charged by the billing services.

Upcoding Risks and Denial Followup Concerns

Opponents of outsourced billing often cite upcoding and deficient followup on denied claims as key reasons to keeping the billing function in-house. If the billing service charges a percentage of total collections, then, according to the upcoding argument, the service has an incentive to code a CPT code with a higher return, perhaps contradicting medical notes on hand. As the practice owner is ultimately responsible for compliance of medical claims, such a billing service exposes the owner to upcoding felony charges. On the other hand, the practice owner with in-house billing operation pays flat salaries to the billing personnel eliminating the incentive for upcoding.

Placing upcoding within an overall compliance perspective exposes the fallacy of the upcoding argument. Upcoding is only one of a long list of possibly noncompliant billing procedures. Dealing with each potential compliance problem separately and using an incentive system to avoid an infringement is ineffective and expensive. The penalties for noncompliance have been steadily escalating in the recent decade and today include financial, licensure, and imprisonment aspects. A practice without a compliance process faces a higher risk of failing a random post-payment audit and paying higher penalties than a practice with a formal compliance process in place. On the other hand, once a comprehensive process is implemented fully and reliably, the practice owner eliminates major risk regardless of having billing service in-house or outsourced. Note that no insurance offers today coverage against post-payment payer audit.

Zero-Sum Argument

The deficient denial followup argument is a variation of a zero-sum argument. It is based on an assumption that billing service providers capacity for a followup process is limited and clients must compete for it. A win for one client must necessarily be a loss for another. By driving such followup activity down to zero, the billing service provider wins at the expense of every one of his clients. The larger is the client base of the billing service, the more it wins, while the payments to each individual client continue to shrink. On the other hand, the practice owner with in-house billing operation has all of its billing capacity focused on followup for a single practice and so the in-house billing service will necessarily bring better results than the outsourced service.

Measuring billing quality exposes the fallacy of the last argument. If a medical practice performing in-house billing demonstrates lower percent of accounts receivable beyond 120 days than the national average (17.7%) then its billers do have better followup performance and the comparative analysis reduces to comparing total in-house costs to billing office fees.

However, it is important to keep in mind that 10% improvement in overall billing quality means ten times more to the bottom line than 1% reduction in billing fees. Therefore, an outsourced billing service provider charging a percentage of total collections has a larger incentive to improve overall payment performance than to sell service to another medical practice. While 59% of in-house billers do not review explanations of benefits and 55% of billers have never appealed a denied claim, an outsourced billing service provider must review ALL explanations of benefits and must consider appealing EVERY denial. The recent progress made by industry leaders in terms of overall billing quality and included services confirms this observation. Aggressive upfront scrubbing, real-time compliance analysis, automated denial followup are just a few of activities, provided by modern Vericle-type technologies to enable continuous improvement of billing performance in step with growing scale and number of clients.

In conclusion, abstract arguments for and against outsourced billing are pointless as both sides may be shown right and wrong depending on specific and quantitative performance measures. Practice owners must establish objective performance and compliance criteria and use them systematically and within individual practice context when addressing the question of medical billing outsourcing.