Cost of Medical Practice Billing & RCM Functions

Keith_LageBy Keith Lage, CPA & Director of Business Development, GroupOne Health Source, Inc.
Twitter: @GroupOne_Health

Is your practice battling declining reimbursement? Declining reimbursement has always been a complex challenge for medical practices but today’s changing healthcare landscape has even more providers worried about the future of their revenue cycle.

With the shift from fee-for-service to value-based reimbursement slowly taking place, the Merit Based Incentive Payment System is challenging today’s healthcare providers to participate in Meaningful Use, PQRS, and the Value Modifier Program. That being said, declining reimbursement is a major challenge for practices, but most simply don’t have the time to find a solution.

As such, many practices have started to reevaluate the idea of partnering with a professional medical billing or revenue cycle management (RCM) firm as a possible resource for addressing some of the challenges. Before determining if outsourcing the practice billing is a financially sound solution, certain costs should be analyzed for both in-house and outsourced billing.

To conduct an analysis of in-house billing and compare it to outsourcing, a practice should quantify the following 13 items:

  1. Salary and wages – Cost should include pay of all individuals involved in the billing and reimbursement function.
  2. Staff benefits – Vacation, health insurance, retirement plans, social security, unemployment, etc. may equal as much as 20% to 30% of salary and wage total.
  3. Training costs – Coding and reimbursement rules and regulations are continuously changing and may adjust substantially from year to year.
  4. Space / Real Estate / Opportunity Costs – Space currently occupied by internal billing office employees could be eliminated or used as revenue producing space such as an extra exam room.
  5. Process of Staffing – The cost associated with employee hiring, training and departure is estimated to equal $3,000 – $5,000 per episode.
  6. Billing Staff Supervision –The cost of time required to administer billing personnel and related issues needs to be considered. If the physician is handling staff and personnel issues, opportunity costs include lost patient care revenue.
  7. EDI Costs, Electronic Remits, and Eligibility Verification Capabilities – The bulk of medical claims need to be sent electronically. Likewise, instead of paper EOB’s and checks, practices should be set up to receive electronic remittance advices and electronic funds transfers.
  8. Patient Statement Costs – Costs include printing, postage, and processing.
  9. Technology Costs – EMR and/or PM systems have fees for use of software, upgrades, support, annual maintenance, interfaces, and others. Practices with antiquated systems are incurring needless costs due to inefficiencies in the use of labor, space and material.
  10. Office Equipment & Supplies – Billing staff require computers, phones, desks, chairs, faxes, copiers, paper, pens, postage, envelopes, copy, fax, and printer supplies are utilized during the billing process.
  11. Communication Costs – Billing staff create costs related to extra phone lines and long distance charges.
  12. Theft/Embezzlement – An internal billing process may not provide for proper separation of revenue functions. Having one person dedicated to the billing functions gives them the opportunity to commit theft or embezzlement without anyone at the practice taking notice.
  13. Billing Errors – Studies illustrate that approximately 25%-30% of all medical practice income is lost due to improper billing. 59% of in-house billers do not inspect EOBs and 55% of in-house billers have never appealed a denied claim; even though a recent study conducted by GAO shows that as many as 50% of claim rejection appeals are successful.

This analysis of in-house billing and outsourced billing involves more than simply comparing the billing firm fee to the salary of internal billing staff. Using a professional medical billing service firm may not be the answer for everyone, but before a medical practice reject the idea completely, it would be prudent to tally the cost to do the billing in-house.  The practice may be in for a surprise.