Summary of presentation from Paulie Vanchiere with PMI for PMI's Certified Pediatric Office Executive (CPOE) program
If you manage a medical practice, one of the most critical – and often overlooked – components of your operations is your billing department. In this article, we’ll guide you through a comprehensive evaluation of your billing office, helping you determine its true cost, assess whether outsourcing might be more effective, and review the factors you should consider in making this decision. From understanding medical billing workflows to weighing the pros and cons of in-house versus outsourced billing, and considering the impact on your revenue and HR, this guide aims to equip you with practical insights and resources to support the best financial and operational outcome for your practice.
To start, let’s briefly review the standard medical billing workflow. Every patient encounter initiates a series of steps: eligibility verification, collecting patient demographics, accurate coding, charge entry, claim submission, payment posting, denial management, accounts receivable follow-up, and continual reporting. Each point carries opportunities for errors, inefficiency, and lost revenue if not handled competently. It’s important to assess not only who manages each step, but also whether your current setup is leveraging the best technology and expertise available.
One key self-assessment is to monitor your collection rates over time—not just monthly fluctuations, but sustained trends. Declining collection rates can point to underlying inefficiencies in billing and denial management. Additionally, it’s essential to evaluate your team’s ability to use reporting tools within your EMR or billing software, since actionable data is fundamental for optimizing collections and identifying opportunities for improvement.
A major consideration in this analysis is your staffing. Are you facing high turnover, struggling to recruit qualified billing specialists, or experiencing bottlenecks due to inadequate training? These HR issues can have direct financial repercussions. Furthermore, with remote work increasingly practical, it’s feasible for billing staff to work offsite, a fact that opens up new options but also potential challenges for oversight. Managing an internal team requires additional HR resources and may expose your practice to more operational risks.
When staffing internally, don’t underestimate the benefits and drawbacks: internal staff provides greater control and immediate access to operational information, but it also demands a higher investment in hiring, training, management, and software. Alternatively, outsourcing can offer access to specialized expertise, economies of scale, and often more sophisticated technology and reporting. However, it comes with tradeoffs such as less flexibility, possible hidden costs, less visibility into daily operations, and the challenges of managing a contractual relationship.
From a purely financial standpoint, the best use of a dollar is a central concept. For example, outsourcing fees often range around 6% of collections. If your revenue is $1 million, you’d pay $60,000 annually. Can your practice maintain an in-house team with the requisite experience for less? Don’t forget to factor in all costs, from salaries and benefits to training, equipment, office space, and management time. Run the numbers side by side, noting the potential for increased collections if an expert team manages your billing—sometimes a boost in net revenue can more than offset the outsourcing expense.
Outsourcing also provides workload relief, especially valuable for physicians and practice owners already stretched thin. For smaller or new practices, outsourcing may not just be cost-effective, but also strategically wise, allowing providers to focus on clinical and business growth rather than on the minutiae of billing. Conversely, larger or established practices—especially those with more than five providers—are often able to reach the scale where in-house billing becomes more economical and manageable, provided they have the infrastructure and resources to do it well.
It’s crucial to remember that no solution is perfect. Outsourced billing companies may not pursue every last dollar with the same vigor as an internal team, particularly for small underpayments. Flexibility can also be limited, as billing companies often standardize workflows for all clients to optimize efficiency, sometimes at the expense of customization. Accountability is maintained through frequent communication, performance benchmarks, and robust reporting—whether your billing is managed inside or outside the practice.
Effective collaboration and division of responsibility are paramount. Clearly define—preferably in writing—which steps in the billing workflow the outsourcing partner handles versus what remains internal. Some companies offer full-service solutions, including data entry and patient follow-up, while others focus solely on insurance claims. Ambiguity in these responsibilities can lead to gaps, inefficiency, and ultimately, lost revenue.
Finally, exploiting available resources and benchmarks is essential. Online calculators and checklists from professional associations such as the Medical Group Management Association (MGMA) or specialty organizations can help you compare costs, model scenarios, and measure performance against industry standards. These resources ensure that you’re making data-driven decisions rather than relying on assumptions or incomplete information.
Five Practical Takeaways:
1. Assess Your Workflow and Collection Rates: Regularly review each step in your billing process and monitor collection rates over time to identify inefficiencies or declining trends that need attention.
2. Calculate the True Cost of In-House Billing: Don’t just account for salaries—factor in benefits, HR overhead, technology, training, and office space when determining your internal billing expenses.
3. Run Comparative Revenue Scenarios: Evaluate both the direct cost and the likely impact on collection rates and net revenue when comparing in-house versus outsourcing options.
4. Define Roles and Responsibilities Clearly: If outsourcing, specify exactly which tasks your partner will handle versus your internal staff, to avoid dropped steps or accountability issues.
5. Leverage External Resources: Utilize industry calculators, benchmarks, and checklists from reputable organizations to make informed, numbers-based decisions about your billing operations.
By methodically analyzing your current billing system, carefully weighing the costs, and leveraging available expertise and tools, you can determine the most effective, sustainable billing strategy for your practice – whether that means keeping it in-house or partnering with an experienced outsourcing provider.
