The decision to change an existing medical billing model must not be taken lightly. Even the best case scenario involving a change to/from an in-house or outsourced medical billing model involves some degree of short term cash flow disruption and we won’t even bring up the worse case scenario.

Any adverse health care provider’s starting point is always to determine whether or not his/her current medical billing model is having the desired financial result. Although financial analysis is beyond the scope of this discussion, the provider, accountant or some other financial professional must have the capacity to compare actual financial data to revenue and operating budgets. Assuming the integrity of the practice’s financial information is intact though accurate and timely data entry, the provider’s medical billing software should have the ability of generating actionable management reports.

Ultimately, basic financial analysis will shed light on the strengths and weaknesses in the provider’s medical billing model. Some things to consider when evaluating a medical billing model: the inherent good and bad points of in house and outsourced medical billing models; the provider’s practice management experience & management style; the local labor pool; and medical billing related operating costs.

In-house versus Outsourced Models

No medical billing model is without unique advantages and pitfalls. Take into account the in-house medical billing model. Approximately 1 / 3rd of independent healthcare practices utilizing an on-site medical billing model experience cash flow issues starting from periodic to persistent. The degree of action required by a provider to resolve his/her income issues may range from an easy adjustment (adding staffing hours) to your complete overhaul (replacing staff or switching for an outsourced medical billing model).

The provider with the under performing in-house medical billing model features a clear edge on the provider with an under performing outsourced (also called alternative party) medical billing model: proximity. An in-house medical billing model is within walking distance. A provider has the opportunity to observe, assess and address – notice the process, evaluate the system’s good and bad points and address issues before they become full blown problems.

Consider the provider with the outsourced medical billing model. The relatively low entry barriers from the 3rd party medical billing industry have resulted in a proliferation of medical billing services scattered throughout the usa. Chances are the provider’s medical billing service is located in another geographic area making upfront observations and assessments impossible.

The role of management reporting in a 3rd party medical billing model is essential. A provider must regularly review charge entry, posting, write offs and account receivable balances to insure his/her income is correctly managed. A report as basic as 30, 60, 3 months in receivables will quickly offer a provider a wise idea of methods well their medical billing and account receivable processes are being managed by a third party medical billing service.

A common mistake for most providers with an outsourced medical billing model would be to gauge the potency of this process in the very temporary, i.e. week to week or month to month. Providers keep a vague and informal sensation of their cash flow position by maintaining mental tabs on the checks they received in the week versus the prior week or maybe they deposited as much money this month as last month. Unfortunately when a weakened cashflow gets the provider’s attention a significantly larger problem could be looming.

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What may cause a decelerate in cashflow inside the outsourced medical billing model? The most commonly cited scenario is lack of follow-up on the portion of the medical billing service. Why? Like every other business, medical billing companies are involved first and foremost with their own cash flow.

A billing company generates 99.99% of the revenues on the front end in the billing process – the information entry method that generates claims. Billing businesses that devote nearly all of their manpower to data entry will be understaffed on the back end of the billing process – the followup on unpaid claims. Why? Every hour of web data entry generates an additional one to two hours of claim follow-up. Unfortunately for that provider, a billing company that ignores does not devote enough manpower for the diligent follow-up of 30, 60, 90 days in receivables could mean the difference between a provider creating a profit or suffering a loss during any time.

Practice Management Experience & Management Style

Providers with more experience management experience should be able to effectively manage or recognize and resolve an issue with his/her billing process prior to the cashflow crunch gets out of hand. On the contrary, providers with little to no practice management experience will more likely allow his/her income to achieve a crucial stage before addressing or even recognizing a difficulty even exists.

Whether a provider with billing issues chooses to retain and fix their current model or implement an entirely different billing model depends to a great extent on his/her management style – some providers cannot fathom having their billing staff away from sight or ear shot while other providers are completely confident with turning their billing process to a 3rd party service.

Local Labor Pool

Whether a provider chooses an in-house or outsourced billing model, a successful medical billing process continues to be contingent on the people involved in executing the medical billing process. On a side note, choosing office staff for the in house model is similar to choosing a 3rd party billing company. Whatever the model, a provider will want to interview the potential candidates or an account executive in the 3rd party billing service for experience, motivation, team oriented personalities, highly developed communication skills, responsiveness, reliability, etc.

Providers having an in-house model must depend on their human resource and management skills to draw in, train and retain qualified candidates from the local labor pool. Providers with practices located in areas lacking qualified candidates or without any want to get caught up with hr or management responsibilities may have not one other choice but to select an outsourced model.

Medical Billing Related Costs

As a business person, the provider’s primary responsibility is always to maximize revenues. A responsible company owner will scrutinize expenditures, analyze returns on investments and reduce costs. In an on-site model, expenses related to the billing process range from the web access utilized to transmit states to the workplace space occupied from the billing staff.

The best way to manage billing costs is for the provider to think of the amount of those costs as being a portion of the practice’s revenues. The provider’s accounting software should enable him/her to classify and track billing related costs. Once the billing related costs are identified, dividing the amount of the expenses by total revenues will convert the expenses to some portion of revenues.

The exercise of converting billing related expenses to some amount of revenues accomplishes three things: 1) gets the provider, business manager or accountant in tune with all the billing related costs in the practice; 2) provides a grounds for more comprehensive analysis of the practice’s cost and revenue components; and three) enables easy comparison involving the cost impact of the on-site versus outsourced models.

The expense of an outsourced model is pretty easy. Considering that the fees of nearly all outsourcing services look like a portion of any provider’s revenues, the annualized price of the medical billing service’s fees will be a fairly close approximation in the provider’s billing related costs with this model.

In the event a provider is considering an outsourced model, he/she should keep in mind that this model is not necessarily the silver bullet to ending all billing related costs and headaches these services fxbgil to market. True the billing company will acquire a few of the expenses associated with this process but the provider will still need staff to act since the intermediary in between the provider’s office and billing service, i.e. somebody to transmit data for the billing service.

Costs will further increase for your provider if the billing service charges additional fees for add-on services including on line access to practice data, practice management software, management reports, handling patient inquiries, etc. The specific cost of the service will increase much more if claims 30, 60, 90 in receivable are certainly not properly worked to facilitate adjudication.

In conclusion, the provider must carefully weigh the pros and cons of every model before making a decision. If the provider is not really comfortable or experienced analyzing financial data he/she must enlist the services of a cpa or other financial professional. A provider must realize the costs and also the inherent advantages and disadvantages of every billing model.

Providers employing an in house model need to comprehend the real expense of their process. Determining the real cost not only requires accurate financial data and accounting but an objective evaluation in the aspects of his/her current process, i.e. technology and staff. Why? Outdated technology, under staffing, turnover, or unqualified staff may play a role in the appearance of a low cost of ownership but those shortcomings may ultimately cause a loss in revenues.

In case a provider is set to use a 3rd party billing service, he/she should invest enough time to thoroughly familiarize him/herself with all the outsourcing industry prior to interviewing prospective billing services. The provider must understand the hidden costs associated with the outsourced model to help make an educated decision.

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