How to outsource medical billing to master revenue management

Editor's note: This article was updated on July 9, 2024 with additional information and resources.

For primary care providers, navigating medical coding, payer interactions, and collections management can present significant challenges. Unfortunately, both the financial strains of high-deductible plans for patients and elevated denial rates by insurers can make an already complex process even more tedious. In an attempt to provide affordable healthcare and to cap healthcare expenses, many healthcare companies are deciding to outsource medical billing.

And, as medical expenses increase, patients are trying to avoid medical debt. Surprise medical billing, especially for self-pay patients, can result in default. Patients or their insurers should be able to pay medical bills in a prompt manner. However, fully 56% of healthcare providers are grappling with extended days in accounts receivable. Statistics like this underscore the financial challenges involved in physician reimbursement. 

On a positive note, 86% of these denials are potentially avoidable. This fact is prompting more health providers to outsource medical coding and billing processes. In this way, they are gaining 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.

Medical billing companies excel in navigating the complexities of billing and coding healthcare costs. They use their expertise, experience, and technology to enhance the first-pass acceptance rate (FPAR), reducing the number of rejections. This targeted approach has a substantial impact on key practice metrics by:

There are so many aspects of medical billing to consider. Among them are managed care contracts, medical cost sharing, and the various payment processing times. These durations can differ for hospitals, for outpatient services, for a medical home, or for outpatient surgery.

To illustrate, consider a healthcare practice with a $2 million revenue wrestling to keep its clean claim rate above 90%. At that rate, they face a substantial loss of about $200,000 from claim write-offs and delayed payments.They are unable to improve their clean claim rate on their own. So they hire an external medical billing service with a proven 95% clean claim rate. The result? An additional $100,000 in previously uncaptured revenue. With additional services like revenue forecasting, credentialing support, contract negotiations, and expertise in quality-based payment programs, the potential benefits extend far beyond that.

When they partner with an external medical billing service to outsource medical coding, physicians can streamline billing operations. They can optimize revenue and gain the necessary time to focus on patient care. This strategic collaboration promotes efficiency, financial success, and enhanced patient care. All of this makes outsourcing a valuable investment for the overall well-being of your practice.

To pinpoint the opportune moment for engaging an external medical biller, carefully assess your practice's growth trajectory. Take time to scrutinize its essential revenue cycle management metrics. Here are some key indications that outsourcing might help:

Do these scenarios sound familiar? That's a strong indicator that outsourcing your medical billing will provide financial and operational benefits to your practice.

Tebra streamlines medical billing as part of its integrated, all-in-one platform. Click here to learn more about how you can start collecting faster at higher rates.

Here are a few things you should account for when you decide whether to outsource medical billing:

Carefully evaluate the cost of maintaining your operations in house. Typically, providers only look at the rate they pay billing staff and forget about the other tangible and intangible costs that go along with getting paid for your services. Here’s a breakdown of some of those costs:

Tangible costs of in-house medical billing:

Intangible costs of in-house medical billing:

There are 2 issues if your current operations are slow and result in too many denials. Either your team can't process these many requests, or they don’t have the expertise to do it well. Here are a few questions to ask yourself before outsourcing:

If you’ve answered “yes,” it may be time to outsource your billing operations. Doing so lets you tap into the expertise of specialists dedicated to maximizing your revenue while minimizing compliance risks. The goal is to achieve:

Most medical billing services handle aspects like the claims submissions process, and subsequent reporting. In some cases, they might handle collections and coding, too. However, an RCM partner would handle these aspects and so much more, including, medical credentialing, and practice management consulting.

When it comes to services, you’ll find 3 types of RCM partners: light, full service, or boutique. In a light service, you can expect the vendor to work on billing code validation and working rejections to reduce errors. 

Full-service vendors come in early in the revenue cycle, bringing in the tools, systems, and training to get the job done. You don't need skilled staff on board, as they'll get the resources they need to create accurate statements. Depending on your requirements, boutique partners offer specialized services and handle the end-to-end process.

As you transition from in-house to outsourced operations, you must also consider your current staff members. Will you retain and let them upskill, or lay them off?

As you make that decision, consider whether your practice could benefit from retaining in-house staff in any of the following roles:

Evaluate if there are opportunities for reassignment, identifying areas where these staff members can add value, such as in patient care coordination or administrative roles.

Here are a few ways in which outsourcing medical billing could help or complicate your practice operations:

The thought of trusting an external party with the keys to your revenue may cause some apprehension. By understanding the process, you can manage your expectations and make any transition less stressful.

It’s difficult to outsource medical coding and billing services when you’re not clear about what your practice needs. Evaluate your requirements carefully. Consider factors such as:

Thoroughly examine multiple medical billing companies. Aim to narrow your choices down to two or three. How? Evaluate their:

Make sure to meet with their representatives to assess their alignment with your practice's unique needs. Consider factors like expertise, technology, compliance, and adaptability.

You have your new medical billing partner. Now, it’s time to initiate a secure and HIPAA-compliant transfer of relevant patient and billing data. HIPAA-compliant providers in the healthcare industry should transparently share their security measures for electronic medical records. They should address:

Upon receiving this data, your medical billing company will initiate the submission of insurance claims for your healthcare delivery system. 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 a time investment from your team.

Full-service billing providers also efficiently manage denials, including identifying reasons for denials. They'll make necessary corrections and initiate appeals when required.

As part of this process, your billing partner should consistently provide detailed reports. These reports should offer insights into the status of your medical billing. They should cover claim submissions, payments received, denials, and other relevant financial indicators. This will help you monitor your investment in their service and to assess the financial health of your practice.

You’ve realized it’s time to work with a billing company and the pros outweigh the cons. As you narrow down your options down to 2 or 3 vendors, here are the services/features to look out for and questions you should ask:

Here are some billing solution features to keep in mind when evaluating vendors.

Ideally, your billing vendor should improve your practice management process by providing real-time data on patient appointments, treatment notes, and billing information. Here are a few ways in which integrated billing software helps:

Consolidating this data into a single dashboard lets you access insights like practice performance, financial trends, and areas for improvement. Tebra is an integrated platform that can do all this and more. 

Verifying patients' insurance eligibility is a critical step in the medical billing process. Before you engage a billing vendor, decide if your practice or the vendor determines eligibility. In the latter option, consider how the vendor transmits that information to you. 

Additionally, the vendor should have the necessary tools for insurance verification, authorization tracking, and insurance provider details.

For example, the tools should allow the vendor to verify eligibility, coverage limits and benefits without too much back and forth. This minimizes administrative burdens, enhances revenue cycle efficiency, and improves patient satisfaction by reducing billing-related surprises.

Many patients have questions about billing, especially when insurance companies are involved. Even if you have a frequently asked question (FAQ) section on your website or in your clinic, they still prefer getting clarification individually.

Ensure the billing vendor you choose provides clear, understandable, and accurate billing statements to prevent this. It should show how much their treatments and consultations cost, how they were adjusted, and how much they owe.

Also, clarify the number statements the vendor sends to the patient, the frequency, and their payments collection policy. This maintains transparency in this process while reducing billing-related phone calls and disputes.

You may ask “What are the benefits of outsourcing medical billing services?” You will learn that online research can only take you so far. It’s important to ask potential vendors the critical questions — here are a few: 

Billing is a key component of your revenue cycle. It's crucial to assess industry standards to ensure that your medical billing company provides optimal value. According to Tebra's 2023 survey, nearly half of medical billers charge 5% to 7% of total collections. Only 7% of medical billers reported that their fees were 8% or higher.

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

Naturally, you'll want to know the initial cost of outsourcing your medical billing for your healthcare delivery. However, you also need to consider that it may boost your revenue long-term and streamline accounts receivable. Even a modest 5% increase in annual collections could translate to thousands of dollars.

In the world of medical billing, the saying "You need to spend money to make money" is really true. Even if in-house billing seems less expensive at first, the benefit of outsourced medical billing comes from focusing on revenue. So consider the big picture and invest where it counts for a thriving practice.

Given the numerous variables at play and different billing models, it's important to monitor your progress. Regularly assess key performance indicators for the revenue cycle. This will offer valuable insights into the efficiency and financial implications of your medical billing process. Consider using the following metrics:

This represents the percentage of insurance claims accepted upon first submission. Your target should be 95% or higher.

Formula: (Total number claims submitted - Number rejected claims) / Total number claims submitted

This evaluates the percentage of claims paid upon adjudication. This target also should be 95% or higher.

Formula: (Total number claims submitted - Number denied claims) / Total number claims submitted

This shows the number of days that charges remain outstanding. The optimal target is to have fewer than 30 days.

Formula: (Total receivables - Credit balances) / Average daily gross charge amount *Average daily gross charge amount = Total annual gross charges/365

This represents the total amount potentially due from payers and patients. This figure is determined after excluding contractual adjustments. The target is 95% to 99%.

Formula: (Total charges - Payer disallowed amount) / Total payments

Bear in mind that your increase in net collections will be paired with lower in-house billing costs. Together, these can balance out the fee of hiring a full-service billing company. Usually, your substantial increase in net collections will exceed the billing company's fee. Either way, your practice gains more time to focus on your patients.

Outsourcing your medical billing relieves the burden of in-house management while creating a strategic partnership — one that demands ongoing communication. Proactively request reports from your medical billing company to make sure you are getting optimal performance. You should evaluate:

Regular assessments, coupled with the review of comparative data against industry standards, will help you keep your billing in step.

A top-tier medical billing company does more than just bill. It can be a valuable ally in achieving key practice goals and help you:

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

Practices are constantly adapting to evolving insurance reimbursement rates, new patient preferences, and the dynamic regulatory environment. It's crucial to the sustainability of your practice to prioritize your revenue cycle.

When you outsource medical billing, you can elevate your practice's revenue. In addition, you can expedite payment cycles, reduce claim denials, and minimize reimbursement delays. What's more, you'll free up your medical staff from the intricacies of the time-consuming medical billing process. You'll enable them to focus on making your medical practice tops in your healthcare market.