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Mastering revenue management: The power of outsourced medical billing services

Looking to outsource medical billing? Read our complete guide to outsourced billing services to determine if it’s right for your practice.

Independent medical provider reads about outsourced billing services

At a Glance

  • Outsourcing medical billing to external companies can help practices improve their revenue cycle management through expertise in coding, billing, and collections as well as technology to increase efficiency.
  • Key indicators that a practice should consider outsourcing billing include clean claim rates below 95%, accounts receivable taking over 45 days, and declining net collection rates.
  • To get the most value from an outsourced billing service, practices need to regularly monitor key performance indicators, compare to industry benchmarks, and communicate with the billing company to optimize the revenue cycle.

For independent practices, navigating medical coding, payer interactions, and collection management presents significant challenges. Unfortunately, the added financial strains of high-deductible plans on patients and elevated denial rates have made an already complex process even more tedious. With 56% of healthcare providers grappling with extended days in accounts receivable, these statistics underscore the financial challenges experienced by today’s healthcare practices. 

On a positive note, 82% of these denials are preventable. This is prompting more healthcare providers to outsource medical coding and billing processes for increased efficiency and optimal results. This article delves into the intricacies of and reasons to outsource medical billing, offering guidance on when to consider it, discussing associated costs, and highlighting essential metrics for measuring success.

Is outsourcing medical billing a good idea?

Medical billing companies excel in navigating the complexities of billing and coding, utilizing their expertise, experience, and technology to enhance the first-pass acceptance rate (FPAR) and reduce rejections. This targeted approach has a substantial impact on key practice metrics, including clean claim rates, days in accounts receivable, and net collection.

To illustrate, consider a healthcare practice with a $2 million revenue wrestling to keep a clean claim rate above 90%. This challenge is hitting them hard, translating to a substantial loss of approximately $200,000 from claim write-offs and delayed payments.

Unable to improve their clean claim rate on their own, they hire an external medical billing service with a proven 95% clean claim rate. The results? An additional $100,000 in previously uncaptured revenue. With additional services like expertise in quality-based payment programs, revenue forecasting, credentialing support, and contract negotiations, the potential benefits extend far beyond that. 

By partnering with an external medical billing service, practices can streamline billing operations, optimize revenue, and gain the necessary time to focus on patient care. ”

By partnering with an external medical billing service to outsource medical coding, practices can streamline billing operations, optimize revenue, and gain the necessary time to focus on patient care. This strategic collaboration ensures efficiency, financial success, and enhanced patient care, making it a valuable investment for the overall well-being of your practice.

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When to hire an external medical biller

To pinpoint the opportune moment for engaging an external medical biller, carefully assess your practice's growth trajectory and scrutinize essential revenue cycle management metrics. Here are some key indicators to consider:

  • Your clean claim rate is falling below 95%. Given that 65% of denied claims aren’t resubmitted, a rate below this threshold is a strong indication that your practice is losing money. 
  • Accounts receivable takes more than 45 days.
  • Your net collection rate is declining.
  • You’re planning to expand your practice.
  • Your team is stressed and unable to handle key receivables management activities.

If these scenarios resonate with your practice, it's a strong indicator that outsourcing your medical billing will provide financial and operational benefits.

What is the process of outsourcing medical billing?

While the thought of trusting an external party with the keys to your revenue may cause some apprehension, understanding the process and expectations will streamline the transition for your practice.

1. Evaluate the needs of your practice

It’s difficult to outsource medical coding and billing services when you’re not clear on what your practice needs. To ensure you select an appropriate medical biller and package, evaluate your requirements carefully. Consider factors like claim volume, coding complexity, and any other specialized billing considerations.

2. Select your medical billing service provider

Thoroughly examine multiple medical billing companies. Aim to narrow down to 2 or 3 choices by evaluating their industry experience, reputation, client testimonials, cost, and scope of services. Make sure to schedule meetings to assess their alignment with your practice's unique needs, considering factors like expertise, technology, compliance, and adaptability.

3. Initiate secure data transfer

Once you have your new partner, it’s time to initiate a secure and HIPAA-compliant transfer of relevant patient and billing data. HIPAA-compliant providers should transparently share their security measures, encompassing information security policies, mobile security and data network security policies, OCR-compliant data breach policies, restricted access, and physical security protocols.

4. Coding and billing cycle management

Upon receiving the data, your medical billing company will initiate the submission of insurance claims. They’ll also manage the billing cycle and proactively follow up on outstanding claims from insurance providers and patients. This last point means more money in your practice’s pocket without the time investment from your team.

5. Denial management

Full-service billing providers will also efficiently manage denials, including identifying denial reasons, making necessary corrections, and initiating appeals when required.

Full-service billing providers will also efficiently manage denials, including identifying denial reasons. ”

6. Reporting insights

As part of this ongoing process, your billing partner should consistently provide detailed reports, offering insights into the status of your medical billing. These reports should cover claim submissions, payments received, denials, and other relevant financial indicators, enabling you to monitor your investment and assess the financial health of your practice.

What to ask before hiring a medical billing service

As you ask the question, “What are the benefits of outsourcing medical billing services?” online research can only take you so far. As you narrow down your options to 2 or 3 providers, it’s important to ask critical questions, like: 

  • How much does it cost to outsource medical billing with your service, particularly under a 'success fee' model? 
  • Can you outline the services included in your billing package? Are there areas of revenue cycle management that your service doesn’t (or won’t) handle?
  • What’s the typical timeline for processing insurance claims with your service? Could you share key performance indicators (KPIs) such as days in receivables, outstanding receivables over 120 days, and denial and resolution rates?
  • Do your employees maintain any professional affiliations, such as the Healthcare Business Management Association (HMBA) or the American Medical Billing Association (AMBA)? Are they using current resources and guidebooks? 
  • Can you provide references from practices similar in size, scope, and specialty to ours? 
  • Who owns the billing data, and is it transferable if we decide to change billing companies or bring billing in-house?
  • Can you provide specific details on your security protocols?
  • How will you provide us feedback to improve revenue performance? 

The cost of medical billing outsourcing

As a key component of your revenue cycle, it's crucial to assess industry standards to ensure your medical billing company provides optimal value. According to Tebra's 2023 survey, nearly half of medical billers charge between 5% and 7% of total collections, with only 7% reporting fees exceeding 7%. 

Beyond base charges, additional fees for patient collections, practice start-up, and data conversion can significantly impact outsourcing costs. Understanding your practice's essential services from the outset helps manage these cost variables effectively.

While the initial cost of outsourcing your medical billing is important, remember that long-term success is about boosting revenue and streamlining accounts receivable. ”

While the initial cost of outsourcing your medical billing is important, remember that long-term success is about boosting revenue and streamlining accounts receivable. Even a modest 5% increase in annual collections can translate to thousands of dollars for the average provider.

In the world of medical billing, the saying, "You need to spend money to make money" makes sense. Even if in-house billing seems cheaper at first, the real win comes from focusing on revenue. So, consider the bigger picture and invest where it counts for a thriving practice.

How to calculate the ROI of outsourcing medical billing

Given the numerous variables at play, regularly assessing key performance indicators for the revenue cycle can offer valuable insights into the efficiency and financial implications of your medical billing process. Consider the following metrics:

  • First Pass Acceptance Rate (FPAR): This metric represents the percentage of insurance claims accepted upon the first submission. Your target should be 95% or higher.
  • First Pass Resolution Rate (FPRR): Also with a target of 95%, this metric evaluates the percentage of claims paid upon adjudication.
  • Days in Accounts Receivable (AR): This metric represents the number of days charges remain outstanding. The optimal target is to have fewer than 30 days.
  • Net Collections: A pivotal metric in medical billing, net collections represent the total amount potentially due from payers and patients. This figure is determined after excluding contractual adjustments, with a target of achieving 95 to 99%.

Bear in mind that the reduction in in-house billing costs, paired with the increase in net collections, often balances out the fee of a full-service billing company. Even if costs are comparable, the substantial increase in net collections usually exceeds the billing company's fee. So, in addition to acquiring the service at essentially no cost, practices gain more time to focus on the patient, which is equally important.

How to get more out of your medical billing company 

Outsourcing your medical billing relieves the burden of in-house management, but it’s also a strategic partnership that demands ongoing communication. Proactively request reports to ensure optimal performance, evaluating billing accuracy, frequency, and backlog for the premium service you've invested in. Regular assessments, coupled with the review of comparative data against industry standards, keep your billing aligned with the best practices in your field.

Beyond billing, a top-tier medical billing company can be a valuable ally in achieving key practice goals. ”

Beyond billing, a top-tier medical billing company can be a valuable ally in achieving key practice goals. This includes improving your MIPS score, enhancing data capture for other quality-based payment programs, identifying revenue opportunities, and supporting the credentialing process.

Apply the insights gained from these assessments and industry data to engage in meaningful conversations with your medical billing service about optimizing your revenue cycle management. 

Leveraging outsourced billing services for long-term success

As practices adapt to evolving insurance reimbursement rates, patient preferences, and a dynamic regulatory environment, prioritizing your revenue cycle is crucial for the sustainability of your practice. The reasons to outsource medical billing are that it can elevate your practice's revenue, expedite payment cycles, reduce claim denials, and minimize reimbursement delays. Additionally, it frees up your staff from the intricacies of the time-consuming medical billing process, enabling them to focus on making your practice ever more successful. 

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Kali Armstrong

Kali Armstrong is an experienced content writer with a passion for crafting educational content that captivates and resonates with readers. Her commitment to wellness shines through ghostwritten features in Forbes and Thrive Global, showcasing her ability to deliver high-quality, impactful content.

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Elizabeth Woodcock

Dr. Elizabeth Woodcock is the founder and principal of Atlanta-based Woodcock & Associates. She has focused on medical practice operations and revenue cycle management for more than 25 years. She has led educational sessions for a multitude of national professional associations and specialty societies, and consulted for a diverse range of clients.

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