Should You Outsource Your Practice’s Billing?

October 10, 2007

Reprinted from The Doctor’s Office, Aug 09, 2007

Nobody likes to lose money. Physicians are no exception. However, when it comes to the business of running a practice, that’s just what will happen without someone who understands the often confusing ins and outs of your practice’s billing system.

“This is the most complex part of the physician practice, in my opinion,” says Lyle Oelrich, senior manager of physician services for the consulting firm Pershing, Yoakley & Associates in Knoxville, TN.

If billing at your facility is becoming too much to handle in house, outsourcing might be the answer. However, before you send your claims out the door to be processed by a third party, consider the following six tips:

1. Assess your current operations. “Every organization is going to be a little bit unique,” Oelrich says. One key question is whether your practice has a business office supervisor or manager who has the knowledge and the time to design and oversee your practice’s billing infrastructure internally.

Is your billing office operating efficiently? Are you getting paid for your services, and in a timely manner? For the increasing number of physicians who have approached Oelrich over the past 12-15 months expressing interest in outsourcing their billing functions, the answer to these questions has been a resounding “no.”

Oelrich links the reason to the ever-changing complexities of billing and collections. “To me, it’s a performance issue,” he says. “Some practices are starting to see dips in how they’re compared to some of the industry statistics that are collected through MGMA and other organizations.” For example, how does your organization’s net collection percentage, or the amount that your practice collects after insurance adjustments, compare to industry benchmarks? If it is less than national averages, you should ask yourself why. If you can’t explain it or improve it to levels deemed sufficient by management, it may be time to outsource this function.

After sustained efforts in trying to make things work better, such as improving their A/R follow-up, many physicians groups discover that it takes more than just a small tweak in their procedural operations to solve the problem. As a result, although smaller practices have historically outsourced their billing and collections, larger physician practices are now starting to question whether outsourcing is an appropriate decision for them as well, Oelrich says.

2. Weigh the pro and cons. The key reason to hire an outsourcing billing company is to get better performance than you would if you were to keep the services in house, Oelrich says. “That’s the real reason for outsourcing.”

On the other hand, there’s the control issue. “A lot of people want control over their business office functions,” he says. “If you outsource it, you’re likely giving up some of that control.”

That’s why some smaller practices prefer to keep their billing in house. “As the practice manager for a four-provider pediatric practice, we don’t outsource any services,” says Michele VanHorn, a practice manager at West Volusia Pediatrics in DeLand, FL.

By not outsourcing, “I am able to closely monitor billing and collection issues with services being provided on site,” she says. “Each delinquent account can be personally handled with accommodations, which might be based on our office’s individual relationship with the patient.”

The location of the billing office, which is adjacent to hers, is also convenient, she says. “Overhearing conversations about delinquent accounts and what actions are being taken to collect keeps me aware of potential problems and situations.”

On the opposite end of the spectrum, Harriet Serota, director of patient accounts at Connecticut Family Orthopedics, PC, in Danbury, CT, finds outsourcing to be invaluable. Since outsourcing its billing six years ago, Serota’s 16-staff member practice has not experienced any problems.

“I oversee everything that is done. We are only a phone call away if [the billing company has] any questions, and we speak with them every day as well as through interoffice e-mail,” Serota says.

“We have also not had to take on the frustrating job of calling insurances regarding payments, or lack thereof,” she adds. “We have been very pleased with the performance of our outsourced full-service billing company.”

3. Decide how much control you want. Outsourcing your practice’s billing does not necessarily mean that your practice loses full control. Before you choose a billing company, it helps to identify how much service you need.

“I provide our fee schedule amounts, which are added to the system,” Serota says. “The billing company does all appeals. If denied, I will do some of the second level appeals.”

You can also choose to maintain some control over A/R management. With Serota’s contract, for example, “the billing company is not permitted to change any coding. We make all changes on our end,” she says.

Serota’s practice also uses an electronic medical record, which allows doctors to do the coding during the patient’s visit. “The charges are then automatically transferred into our practice manager, where they are reviewed, corrected if necessary, and released.”

“The billing company does the electronic transmission of the claims, [and] sends paper claims where applicable. Because they have access to the EMR, they print and send documentation when necessary. We have not experienced any drawbacks with this setup,” Serota says.

4. Examine costs. Billing companies typically charge a percentage of the fees they collect, Oelrich says. The percentage varies depending on certain factors (e.g., the practice’s specialty, the length of the contract, etc.). In general, the fees range from 5 percent to 10 percent of collections, Oelrich says.

Aside from fees, another issue may be interfacing costs. For example, practices with multiple physicians often have a lab system, a pharmacy system, an accounting system, and a practice management system that “talk to one another” to minimize the duplication of certain services, such as the reentry of demographic information from system to system. All of those systems may have to be interfaced, which can be very costly, Oelrich says. “They can be up to $20,000 per interface establishment.”

In other instances, outsourcing may cost your practice no money. “We actually did an analysis of what it would cost the practice to take billing back in house. There were no savings by doing billing in house,” says Serota. “The costs were break-even and [there was] a lot less aggravation.” In fact, she adds, they’ve even saved money on everything from staff to paper forms to postage.

5. Establish a practice-friendly contract. To ensure that your practice is getting the best service for your needs once you’ve decided to go with an outsourcing company, Oelrich recommends establishing a contract with the billing company that is as favorable to your practice as possible. One such way to go about doing this is to include in the contract one or more performance measures that you expect the outsourcing company to meet, he says.

For example, many physician practices are starting to analyze their net collection percentage, which is the percentage of money due to the practice after the contractual adjustments are made. A general benchmark is 95 percent for every dollar the practice is supposed to receive after contractual adjustments, he says.

The main reason for establishing such a benchmark in the contract is to ensure that the billing company collects what is owed to the physician practice and that its performance meets or exceeds industry averages. However, at the same time, the billing company is incurring several costs (e.g., claims submission, supplies, labor, and postage).

6. Check references. As a final note, before going with any billing company, always check references. Don’t just check the specific references that the billing company provides to you, “because, as with all people who provide references, they’re all most likely to be glowing,” Oelrich says. “Otherwise, they wouldn’t be providing you with the reference.” In this situation, Oelrich recommends that you ask others in your local practice management association or, if this is not feasible, ask the original reference to provide you with the name of someone you could talk with about the performance of the billing company.


It boils down to just doing your homework. “You really want to learn and understand what you’re getting yourself into, and while outsourcing can be a really good thing for certain practices, don’t forget that after the contract is signed, the only course of action you have is what you have specified in writing through the contract,” Oelrich says.

Shannon Sousa is the editor of The Doctor’s Office. She may be reached at This story first appeared in the August edition of The Doctor’s Office, a monthly newsletter by HCPro Inc. For information on all of HCPro’s products, visit

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