Managing a medical building

A hospital might outsource their billing to a professional medical billing service due to confusing insurance requirements, staffing problems and just keeping up with industry changes. The most important of the various reasons are: 1.Time and 2. Money. Outsourcing medical billing services creates significant savings in time and money for hospitals.

1.Outsourcing Medical Billing Services Saves Training Expenditure for Hospitals:

Professional medical billing companies invest countless hours in training and research to keep abreast of current codes, submission requirements, industry trends and the needs of their clients.

Significant expenditures are also made to ensure medical billing companies are up to date on the latest software. In a constantly changing industry, software vendors are always finding new and better ways of supporting practice needs. It’s not practicable for small or medium sized hospitals to dedicate the time and training necessary to stay on top of the latest innovations.

2. Outsourcing Medical Billing Services Saves Hospitals Operational Time:

By outsourcing medical billing services our hospital will be able to save operational time by leveraging the economy of scale and the efficiency of task specialization.

Professional medical billing companies, by their very nature, create an economy of scale in maintaining a team of medical billing professionals to provide services to various hospitals. Thus a professional billing company has a well-trained pool of resources to manage each hospital’s needs rather than just one individual overseeing all billing functions. The team approach also removes interruptions to revenue flow that result from vacations, unexpected sick time and staff turnover.




3.Medical Billing Services Save Money:

Hiring and training new staff, employee benefits, vacation/sick leave, and staff turnover are just a few factors increasing the costs of managing an efficient in-house billing program. Added to the operational overhead of day to day billing, software/hardware maintenance, clearinghouse fees, postage, and so on, the list of expenditures for practices is endless.

4. High Cost of In-House Billing:

Our comparison begins with a typical practice with one or two providers. Let’s assume this practice has a dedicated, in-house bill maker receives an annual salary of just $30,000. The chart below outlines the additional costs of having a full time employee in the office to handle all aspects of medical billing.

Base Pay: $30,000
Medicare and Social Security: $2,295
401K: 1,080
Disability Allowance: 720
Healthcare Allowance: 5,220
Time off Allowance: 3,270
Total labor cost per year for 1 in-house billing employee: $42,585

Next, we’ll need to consider materials and fees. An average practice will probably upgrade computers and software every 3 years at a cost of about $6,000. Spread out over those three years, we’ll assume an average annual software/hardware expenditure of $2,000. Since our in house billing will send out its own patient statements, we’ll need about $150 per month for postage, paper and envelops, an annual cost of $1,800. Clearinghouse fees for electronic claims will come to about $60 a month, or around $720 annually. For the sake of simplicity, we’ll forget for the moment that our in-house billing employee will need workspace, lights, general office supplies and a desk.


Here’s what our in-house list of software/hardware, materials and fees looks like:

Software/Hardware $2,000
Materials 1,800
Clearinghouse Fees 720
Total $4,520

Adding the two totals above (labor + materials & fees), the annual cost of medical billing services performed in-house by the practice comes to $47,105 per year. Of course this number might not mean much until we put it in perspective against teaming with a professional outsourced medical billing service. As we move forward, keep in mind this very conservative estimate does not factor in those other hidden costs such as ongoing training, unexpected leave and sudden staff changes.

5. Cost of Outsourcing to a Professional Medical Billing Service:

To evaluate the cost of working with medical billing services, we’ll assume our hospital has outsourced its billing service to a medical billing company for full service billing. This includes all of those activities that would otherwise have been performed by the in-house staff above; claim generation/submission, insurance follow up, patient invoicing and support, detailed reporting, expert practice analysis, etc. We’ll also assume the practice has negotiated a rate of 7% of collections with its professional medical billing service.

Note: Calculating costs for medical billing services will vary slightly depending on the fee structure but will usually be based on either a percentage of collections or a fixed fee per claim. For more information on fee structures, for example Percentage vs. Flat Fee Pricing by Medical Billing Services.

Assuming our hospital has just 20 patients per day, 7 days a week, 50 weeks per year, we’ll have 7,000 patients in our hospital per year. If each patient results in an average reimbursement of $60, our hospital’s receivables come to a little over $420,000 per year. At a rate of 7%, the annual cost for the professional service to manage all aspects of medical billing services for the practice would be just $29,400. In comparison with in-house services that’s a savings of $17,705 per year!


In evaluating the benefits of outsourcing to a professional medical billing company the hospital should consider the overall savings in time and money, beyond just minimizing the hassles. Medical billing companies provide knowledge, training, continuity of operations and a network of support leveraging task specialization and the economy of scale. Medical billing companies are able to eliminate dependency on one or two costly staff members to maintain revenue flow for the entire practice. Thus our hospital has a lot to gain by outsourcing its billing service to a professional billing company.


General Concept taken from:

1.Answers Corporation [last updated 2007] [online]

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3.CbaySystems [last updated 2007] [online]

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2.Outsource to India

Flatworld Solutions Pvt. Ltd

[Last updated 2007] [online]

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