Outsourcing Dilemma Of Electronic Medical Billing Software And Service

Statistics show that both in-house and outsourced billing services may deliver superior or inadequate billing performance. On one hand, only 5.66% of “better-performing practices” outsource their billing. In other words, the vast majority of “better-performing practices” achieve adequate billing performance in-house. On the other hand, less than 83% of payments are paid to an average practice within the first four months since the date of service. Worse, 59% of in-house billers do not review explanations of benefits and 55% of billers have never appealed a denied claim. In other words, the average medical practice delivers almost one fifth of its services for free because in-house billing fails to provide adequate payment performance.

Can an outsourced electronic medical billing software and service improve or expedite payments and reduce costs? This article revisits key arguments for and against billing outsourcing in light of increasing complexity and regulatory scrutiny of billing processes.

 

1. Arguments FOR outsourced billing service:

    

    

   1. Improved billing performance in spite of continuously reduced fee schedules, growing billing complexity, frequent audits, and payer consolidation into larger networks
   2. Extra time and focus on patient care and/or practice development
   3. Reduced operating costs

    

   Billing performance improvement is typically measured in reduced accounts receivable, faster median payment, and reduced underpayment and denial ratios. The practice owner uses the extra time for the family, patient care, or practice development. The cost gains are typically measured in salaries and benefits of reduced billing personnel. It is important to keep in mind that a 10% improvement in overall billing quality means ten times more to the practice bottom line than a 1% reduction in billing fees. Therefore, if an outsourced billing service provider is able to significantly improve billing performance, cost reduction may be marginal in comparison to a total contribution to the practice bottom line.

    

2. Arguments AGAINST outsourced billing service:

    

    

   1. Upcoding risk
   2. Deficient follow up

    

   If the billing service charges a percentage of total collections, then, according to the upcoding argument, the service has an incentive to code a CPT code with a higher return often contradicting medical notes on hand. As the practice owner is ultimately responsible for the medical claims, such a billing service exposes the owner to upcoding felony charges. On the other hand, the practice owner with in-house billing operation pays flat salaries to the billing personnel eliminating the incentive for upcoding.

   The deficient denial followup argument is a variation of a “zero-sum argument.” It is based on an assumption that billing service provider’s capacity for a followup process is limited and clients must compete for it. A win for one client must necessarily be a loss for another. By driving such followup activity down to zero, the billing service provider wins at the expense of every one of his clients. The larger is the client base of the billing service, the more it wins, while the payments to each individual client continue to shrink because of the increasingly bad follow up.

   In the extreme case, when the electronic billing software and service provider has no ability to follow up at all (for instance, when the service is offered at excessively low prices, such as 4%), the provider ends up losing twice, first, by paying a fee for the automatically paid claims, and then, by receiving no service on underpayments and leaving major part of earned compensation to the insurer. On the other hand, the practice owner with in-house billing operation has all of its billing capacity focused on followup for a single practice and so the in-house billing service will necessarily bring better results than the outsourced service.

    

3. Counter-argument analysis

    

    

   1. Upcoding argument is irrelevant for doctors that code themselves using an electronic or even paper superbill. Next, if the biller is expected to code, then the practice owner must ensure that its compliance process protects both the practice and the billing service. The penalties for noncompliance have been steadily escalating in the recent decade and today include financial, licensure, and imprisonment aspects. A practice without a compliance process faces a higher risk of failing a random post-payment audit and paying higher penalties than a practice with a formal compliance process in place. Once a comprehensive process is implemented fully and reliably, the practice owner eliminates major risk regardless of having billing service in-house or outsourced.

       

       

   2. Measuring billing quality exposes the fallacy of zero-sum argument. If a medical practice performing in-house billing demonstrates lower percent of accounts receivable beyond 120 days than the national average (17.7%) then its billers do have better followup performance and the comparative analysis reduces to comparing total in-house costs to billing office fees. Again, since a 10% improvement in overall billing quality means ten times more to the practice bottom line than a 1% reduction in billing fees, an outsourced billing service provider charging a percentage of total collections has a larger incentive to improve overall payment performance than to sell the service to another medical practice.

 

Recent progress made by industry leaders in terms of overall billing quality and included services confirms this analysis. Aggressive upfront claim scrubbing, real-time compliance analysis, automated denial followup are just a few of activities, provided by modern Vericle-type billing software to enable continuous improvement of billing performance in step with growing scale and number of clients. Other important developments include billing workflow integration with practice management tools, including patient scheduling, electronic medical records (EMR) or SOAP notes, and real-time reporting and alert generation.

In conclusion, abstract arguments for and against outsourced electronic medical billing are pointless as both sides can be shown right or wrong depending on specific and quantitative performance measures. Practice owners must establish objective performance and compliance criteria and use them systematically and within individual practice context when addressing the question of medical billing outsourcing.

Yuval Lirov, PhD, author of "Practicing Profitability - Network Effect for Revenue Cycle Control in Healthcare Clinic and Chiropractic Office: Scheduling, SOAP Notes, Care Plans, Coding, Billing, Collections, and Audit Risk" (Affinity Billing) and "Mission Critical Systems Management" (Prentice Hall), inventor of patents in Artificial Intelligence and Computer Security, and CEO of Vericle.net - Distributed Billing and Practice Management Technologies. Yuval invites you to register to the next webinar on audit risk at BillingPrecision.com.