Outsourcing Medical Billing
Linda Scott, CPC CPB • May 10, 2021
Medical billing is the most important aspect of running a successful practice, and outsourcing can help you collect more revenue. Even if you have a highly skilled office manager and medical billing personnel, you are likely to have some inefficiencies in your medical billing that result in lower overall collections when you undertake in-house medical billing.
Finding and maintaining experienced billing employees to handle medical billing and collections has become challenging and costly for some small and independent practices; therefore, outsourcing your medical billing for a greater ROI is a preferable alternative. Many physicians are opting to outsource their medical billing these days in order to eliminate the administrative strain and overhead involved with the billing process. Outsourced billing can result in a 7-10% improvement in net collections as well as a better patient and provider experience for practices.
If you're not sure whether you need to outsource medical billing, the checklist below will help you make an informed decision.
• Is your percent of accounts receivable over 120 days greater than 15%?
• Are you seeing the same, or an increased number, of patients but seeing a decline in revenue?
• Is your net collection rate declining?
• Do you experience a high rate of turnover with your in-house billing staff?
• Do you have difficulty finding qualified billing staff?
If your answer to any of the above questions is” Yes,” then you should outsource your medical billing.
Once you've decided to outsource, you'll need to decide what kind of billing company you need, such as light, full service, or boutique based on your service needs. While not all billing companies are the same, and services can vary greatly, it's critical to have responsibilities clearly defined in any contracts you sign.
ROI of Outsourcing Medical Billing
When it comes to measuring ROI, you need to determine the actual costs of your current billing process with the help of your fixed and variable costs.
Determine fixed cost with the following factors:
• Hourly wages of staff and payroll costs
• Employee benefits
• Billing software
• Workers’ compensation insurance and payroll taxes
• Clearinghouse fees
Determine variable cost with the following factors:
• Rise in rejections and denial rate
• Declining cash flow and net revenue
• Unplanned staff sick leave and vacations
• Stationary, postage, and statement fees
Apart from the above, you can use some indicators such as First Pass Resolution Rate (clean claim rate) to evaluate ROI for outsourcing your billing.
First Pass Resolution Rate
These metrics determine your capabilities for follow-up claims that are not paid the first time.
• The number of claims paid by the payer upon the adjudication.
• Target: >95%
• Calculation: (Total Number Claims Submitted - Number Denied Claims) / Total Number Claims Submitted
You can miss big profit margins if you consistently re-work a higher percentage of claims or you process outstanding AR as denials. It’s essential to look at the number of “days in AR” and your “net collections” together.
Days in AR
• The number of days that charges are outstanding.
• Target:<30 days
• Calculation: (Total Receivables - Credit Balances) / Average Daily Gross Charge Amount) *Average Daily Gross Charge Amount - Total Annual Gross
Charges / 365
Net Collections
• The total amount you were potentially due from payers and patients was collected after excluding contractual adjustments.
• Target: >95%
• Calculation: (Total Charges - Payer Disallowed Amount) / Total Payments)
These two KPIs are important, and knowing them will help to determine whether you are achieving your ROI promised by the billing partner is realistic or not. If you are looking to optimize the ROI from outsourcing medical billing, we are here to provide solutions.
Optimization of your revenue cycle creates an opportunity to make your practice more manageable and increase your revenue. Although medical billing can be overwhelming, knowing what processes will have the most impact on your practice is vital.