The Pros and Cons of Outsourcing Medical Billing

outsource medical billing

It’s a tough call for physicians to decide how they want to handle medical billing at their practice. On the one hand, outsourcing the entire process to the experts seems appealing as the most convenient way to handle revenue. On the other hand, keeping billing in-house gives a sense of control. A single approach doesn’t work for every practice. To help you make the decision in terms of both quality and cost, here are some of the pros and cons of outsourcing revenue cycle management.


By far, cost is the single most important factor that influences the decision to outsource or not. Comparing the costs of in-house versus outsourced billing can be confusing. To help make things clearer, let’s look at how a hypothetical practice with three physicians can earn an extra $200,000 every year by outsourcing medical billing. Based on industry averages, let’s say the practice employs two in-house billing specialists. The practice files 80 insurance claims every day with an average value of $125. This adds up to 20,000 claims and $2,500,000 in billing per year. In the following example, we assume that the third-party billing service has a collection rate that is at least the average in the industry (70 percent) and the collection fee charged is 7 percent.

Cost of In-House Billing Cost of Outsourced Billing
Department Costs $120,000 $4,000
Hardware and Software $7,500 $500
Claims Processing Costs $3,600 $175,000
Percentage Collection 60% 70%
Gross Collection $1,500,000 $1,750,000
Total Collection Costs $131,100 $179,500
Net Collection $1,368,900 $1,570,500

In-House Department Costs:

Annual salary of two medical billing specialists:   $80,000

Healthcare for two employees:                              $9,000

Federal and State Taxes:                                       $12,000

Training                                                                   $2,000

Ancillary costs (hardware, stationery, etc.)         $17,000

Outsourced Department Costs:

5 hours per week at $15/hour of practice employee time to follow-up billing issues, adding up to $4,000 per year in administrative expenses when medical billing is outsourced.

In-House Hardware and Software Costs: Calculated at $7,500 for software updates and hardware costs. This does not include the one-time upfront practice management software purchase cost.

Outsourced Hardware and Software Costs: Estimated at $500 on account of computer and printer costs to interact with the third-party billing service provider.

In-House Claims Processing Costs:  Calculated at $100 per physician per month for a total of $3,600 per year.

Outsourced Claims Processing Costs: The industry average varies greatly and depends on the physician specialty. For this example, the claims processing fee is calculated at 7 percent.

In-House Percentage Collection: Again, this varies by specialty and from practice to practice, but a 60 percent collection rate is the average according to industry experts.

Outsourced Percentage Collection:  Physicians can expect to see a 5 to 15 percent increment in collections when medical billing is outsourced. For this example, a 10 percent increase from 60 percent to 70 percent is factored in. It may be possible for a billing firm to increase the collection percentage to an even greater extent. It is noteworthy that the main cost favorability of outsourcing is on account of the increase in collections. Therefore, outsourcing makes a great deal of sense for physicians for whom the billing service can significantly increase collection percentage to the order of 10 percent or more.


After cost, probably the second most important factor when comparing in-house and outsourced medical billing is the efficiency of the billing process.

The in-house billing process consists of the following steps:

  •      Gather patient information in the EHR (this obviates the need to re-enter patient data each time and reduces the chances of error)
  •      Generate a superbill during the patient’s visit
  •      Enter the diagnosis and treatment codes and patient information into the claim
  •      Submit the claim to the clearing house
  •      Wait for the clearing house to scrub the claim for errors (this enables the provider to submit clean claims and lower their rejection rate)
  •      Re-submit rejected claims after gathering additional information or making corrections

The outsourced billing process consists of the following steps:

  •      Scan the superbills and send it electronically to the medical billing service
  •      Pay the billing service a fee of approximately 7 percent to file the claim, follow up on rejected claims, re-submit claims, pursue outstanding accounts, and send invoices to patients for out-of-pocket charges.

5 Reasons Your Practice Should Outsource Medical Billing

Inefficient Billing:  If your collection percentage is below industry average, this indicates issues with your in-house billing department. Your practice may see a significant increase in collections if you outsource to a third-party expert medical billing service.

High Attrition Rate:  If your practice sees a high turnover of billing staff, this is damaging your revenue cycle management. Your practice could benefit from the expert services of a third-party provider without any of the botheration of hiring and retaining staff.

Newbie Physicians:  If you’re new to the practice of medicine or new to private practice, outsourcing makes more sense as it allows you to concentrate on caring for your patients while the experts take care of the financial aspect of running a practice.

Technology:  If you and your staff feel overwhelmed by the software and hardware required to efficiently manage the revenue cycle at your practice, it may be a good idea to let tech-savvy experts at a medical billing service provider handle technical issues and software updates for you.

Business:  If you love practicing medicine, but don’t like managing the business of running a practice, letting a third-party billing company worry about administrative and clerical issues will allow you to concentrate on your patients.

The above comparisons show that outsourcing medical billing is cost effective and efficient. Yet, outsourcing isn’t right for every practice. It’s also important to understand that outsourcing isn’t a silver bullet that will miraculously cure every billing issue. The most important thing is if you do choose to outsource your revenue cycle management, you should choose a medical billing service provider with a proven track record or your billing issues will only get worse.

Contact us to find out how we can help with your medical billing.

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