Why Should a Practice Outsource Their Billing? Do the Math!

Increase Revenue & Remain an Independent Practice – Here’s How!

The cost of setting up and maintaining a billing system, including the necessary staff to properly code, scrub, bill, post payments, and pursue denied claims, is a significant expense for any medical practice.  Add to that expense the cost of employee turnover (and training), employee benefits, annual support and maintenance of computer equipment, the constant need to remain diligent regarding changes in reimbursement and CPT and ICD-9 coding (soon to be ICD-10!), and the necessity of conforming to meaningful use criteria associated with your electronic medical record, and you have a perfect storm brewing that could cost you a bundle!

Depending on your specialty and volume, estimates from sources including the Medical Group Management Association (MGMA) and other industry experts peg the average expense of internal billing to be 8 to 15% of your collected revenue.

Outsourcing your billing will range from 6 to 10% of your collected revenue. However, a number of studies have demonstrated that collections typically improve by as much as 5 to 10% when billing is outsourced due to improvements in the rate of denied claims, timely follow-up and appeals for incorrect or no-pay claims, and familiarity and expertise in correct coding in order to maximize reimbursement.  Other intangible benefits of outsourcing include eliminating the administrative hassle of having to manage systems, staff, and expense, which allows you to focus more time and intellect on the practice of medicine.

A general guide to comparing costs of doing it yourself versus outsourcing, assuming no increase in collected revenue (plug in your own numbers), includes the following:

Doing it yourself:

  • A practice of one to three physicians requires a minimum of one and often two full-time equivalent (FTE) staff – cost including salary and benefits – $36,000 to $48,000/FTE/year
  • Computer hardware and software expense including support and maintenance – $200/provider/month plus $500 for maintenance and support – $5,300/year
  • Claims processing costs – clearinghouse fees, billing supplies, office space, office equipment – $15,000/year
  • Total cost per year of internal billing/collections (assuming 2 FTE’s) = $116,300
  • Assume two physicians collections = $950,000/year

TOTAL COST OF INTERNAL BILLING = 12% ($116,300/$950,000)


  • Staff and software expenses – $10,000/year
  • Billing service fee assuming no increase in collected revenue – 8% of collected revenue – $76,000
  • Total cost per year of outsourcing = $86,000

TOTAL COST OF OUTSOURCED BILLING = 9% ($86,000/$950,000)

Increase in revenue available for physician distribution due to outsourcing = $30,300!!

Contact RT Welter and Associates today for a free billing assessment* and more information on how we can help increase your revenue!

*limited time offer through April 30, 2014