How common is
outsourcing? In a recent survey of businesses with less that $5
million in sales, 53% of the respondents said their companies now
outsourced one or more traditional office procedures.
The most popular
areas for outsourcing are payroll, patient billing, administration
of employee benefits and maintenance services. Service bureaus can
perform these functions more efficiently and economically because
they are specialists in these areas. Why Outsource?
Outsourcing each of these office procedures will save money, but the
major benefits of outsourcing are clearly found when it is applied
to patient billing.
Practitioners fail to realize the extensive cost associated with
in-house billing. This can be a very
costly form of neglect. Most practitioners have hired one or two
clerks to do the billing. They think that doing so insures that the
billing is done accurately and efficiently and that the practice
retains greater control over the procedures. Let's examine each of
Control. Many practitioners are
reluctant to let a third party assume responsibility for their
billing. They think they will lose control over their receivables.
The truth is most practitioners have already lost control. With the
bureaucratic intricacies of co-pays, disallowances, charge backs,
deductibles, insurance company holdbacks and duplicate payments, who
really has control?
instinctively fear that using a service bureau will slow down the
billing process. They think a lag in billing will create a
delay in collections, thereby creating the dreaded cash flow
problem. However this does not have to be the case. Most medical
billing services invoice within 24-48 hours of receiving the
documents from the practitioner. Therefore, cash flow should not be
impaired. In fact, most practitioners report that the opposite is
true. Gross billings increase and accounts receivable time
is shortened because the billing service is paid on an incentive
basis. The higher the gross billings, the more the billing
service is paid. In-house staff, which is paid a weekly salary, may
not be as motivated.
Medical billing services are more familiar with
coding than the practitioner's own billing department. They are
cognizant of the latest trends in coding, while relying on office
staff to be well versed in the latest coding techniques is
unrealistic, naive and can adversely affect profit.
bureaus also have more sophisticated hardware and software than the
typical physician's office because of the volume of transactions
they handle. Since computer hardware and
software are constantly changing, the in-house staff and the
computers must be constantly updated. The practitioner must pay for
all the hardware and software updates as well as the expensive
'learning curve' while the employees struggle to master the new
techniques and programs.
Cost. Some practitioners think
that using a service bureau is more costly than doing the work
in-house - this depends on what you include in the term 'cost.' When
compared to base payroll costs, the billing service charge is more
expensive than in-house billing. But beware. Hidden costs are
incurred when in-house people do the work.
analysis can help illustrate how savings can be obtained through
outsourcing. Assume that a medical practice is billing $1,000,000
per year and needs three billing clerks to handle this level of
activity. Service bureaus traditionally charge 5% to 9% of gross
billings for this kind of service, so the cost of billing for this
practice would range between $50,000 and $90,000. If one billing
clerk earns between $22,000 and $25,000 yearly salary, three would
cost the practice between $66,000 and $75,000. This figure
represents the base cost of payroll. Payroll taxes, which include
the employer's share of social security, and federal and state
unemployment taxes, add approximately ten percent to the base cost.
Fringe benefits, which include pension and profit sharing plans,
medical insurance, disability insurance, educational reimbursement,
sick pay and personal time, can add another ten to thirty percent to
payroll cost in sum, the cost of payroll could jump to a range of
$79,200 to $105,000 when these additional charges are added.
Other Expenses. What
about other expenses? In-house billing clerks need
space in which to work. Assume the billing clerks occupy an
area that is 150 square feet of space. If you are renting space for
$15 per square foot, you are paying an additional rent of $2,250
just for those employees. This is just the base cost. Usually there
are add-for increases in property taxes and maintenance services.
Additional costs include utilities and office supplies.
Postage is an expense, which is commonly
overlooked. Some service bureaus, but not all, include this in the
cost. These expenses increase the cost of doing business and reduce
your bottom line.
Finally, when you
have someone performing an in-house function, that person needs
supervision. If you hire an office manager to
supervise billing staff you must still monitor the office manager.
This will take away from the time you have to see patients.
Outsourcing the billing function allows the practitioner to be more
focused on the core business, providing patient care.
Using a service
bureau may not be the answer for everyone. A neurosurgeon might have
a relatively small number of patients and corresponding caseload.
But before you dismiss the idea of outsourcing completely, figure
out how much it is costing you to do the billing in-house. You may
be in for a surprise.
Restuccia, CPA, is a partner at Restuccia & Co., a certified public
accounting firm in Lynnfield, Mass.