Medical billing options for private practices: In-house vs. outsourced

Welcome to Dr. John Scala's "The Business of Medicine" column — a monthly resource for mastering the business side of independent practice. Having owned 3 solo practices, Dr. Scala offers insights, advice, and actionable strategies to help you steer yours toward lasting success.

Without understanding the complexities of medical billing and coding, running a successful private practice becomes nearly impossible. Physicians go to medical school with noble intentions: helping people, curing illness, and improving lives. Many assume that working hard and giving patients 100% will result in adequate compensation. Unfortunately, this is far from reality. 

Economic pressures have significantly impacted private practices in recent years. As practice owners review their financial statements, many notice rising operational costs across staffing, equipment, supplies, and vaccines. 

Maintaining practice financial health requires a multifaceted approach. Practices can strengthen their bottom line through several strategies, such as increasing patient volume, offering more services, or minimizing no-shows. But one key option is to implement more effective billing practices, which is what we’ll explore today.

A few decades ago, most small practices managed their billing in-house using paper-based methods. Each patient encounter generated a paper superbill on which physicians would write the diagnosis and circle appropriate codes. Then they would send the superbill with patient demographics to the insurance company. 

Practices that used billing services would mail these superbills to their external billing partner. If electronic billing was available, billing staff would manually transfer codes and diagnosis into electronic insurance forms.

Of course, billing now is a lot different. Insurance companies require electronic claims submission. Some EMRs automate billing, making it more efficient, faster, and less error-prone. Many EMR systems prioritize comprehensive revenue capture alongside patient documentation. However, private practices still have 2 options: manage billing in-house, or partner with a billing company to handle it. 

In-house billing has several advantages. It allows for greater confidentiality and less risk of privacy breaches. As another organization is not accessing your EMR, you have full control over your data privacy measures. A biller in your office gives you direct control over financial processes and patient data. The practice owner can monitor finances in person, which can lead to more transparency and accountability.

Patient communication improves, as the billing integrates into the physical office: patients can communicate directly (and frequently in-person) with the billing department. Practice staff can directly ask patients who show up for an office visit if they would like to pay their bill, increasing revenue.

In smaller practices, billing typically falls to a single dedicated employee. These positions have become coveted in the medical workplace. Skilled billers command wages of $25–$30/hour, though this can vary by region and experience level. This translates to an annual cost of $57,000–$68,000 before benefits and including employer payroll taxes. 

The second option is to outsource to a medical billing service. Most independent services charge a percentage of collections; the current rate is around 6.5%. Back in the post office days, it was higher — usually around 8.5%. There are also billing service contracts that charge a flat fee per patient encounter. Billing through an EMR provider is often more cost-effective, usually only 3% of revenues. 

Outsourcing to a billing service has numerous advantages. Usually, a billing company assigns a team of workers to an individual practice. The billing team can collaborate and work together to maximize a practice’s revenue. Billing services usually offer continuing education and frequent updates to their employees. This is important because of the complexity and fluidity of the billing environment. 

Outsourcing billing is often smoother and faster than doing it in-office because the billing company has a direct connection to the payment clearinghouse. Sometimes having a billing service offsite can also help to reduce friction between office staff and patients.

For HIPAA compliance, billing services require remote direct access to the practice EMR, which introduces additional users outside of your office with system access. This can be done very securely, but it is a privacy consideration worth evaluating. 

Finally, medical providers must understand the coding fundamentals necessary for appropriate billing. Medical school does not teach medical coding — yet it is an essential topic for a private practice. Familiarity with medical coding demands a huge amount of time initially and then many hours every subsequent year to stay current.

In the past, physicians would note the diagnosis on the superbill, along with the service level and any additional procedures performed during the visit. Billers then translated these notes into the proper codes and modifiers. 

Many current systems expect providers to enter the appropriate CPT codes, along with the proper modifiers, directly. You can automatically load some of the CPT codes, like vaccines, into the EMR. An improper code or modifier can lead to the payer automatically rejecting or denying the claim, which can lead to delayed payments and revenue challenges.

Beyond the altruistic goals of patient care, practice sustainability depends on sound business decisions. When evaluating billing options, compare the full costs and benefits of both approaches for your specific situation. Consider your practice's volume, specialty complexity, and staffing structure. Look beyond basic billing to comprehensive revenue cycle management. Invest in coding education regardless of your chosen billing model.

The right billing approach should complement your overall business strategy while supporting your core mission of delivering excellent patient care.