August 2016

Billing In-House or Outsourcing - Is One Better than the Other?

Medical billing has proven to be one of the most complex and crucial components of any health care organization today.  As management of a medical practice evolves with the introduction of new technologies, government requirements and financial limitations, physicians constantly are finding themselves deciding between operational processes that both save expenses and generate revenue.  Cash flow directly depends upon how you manage your billing and revenue cycle, so always do a thorough assessment of your practice’s costs, staffing and volume metrics when determining what is right for you. 

Regardless of whether you keep billing operations in-house or outsource them to a third party, every physician’s primary concern should center on professional medical coding practices.  The overall effectiveness of the billing operations begins and ends with the physician’s billing and coding knowledge.  That is part of being in business as a medical provider.  Spending the time necessary to learn how to properly code and bill is crucial to your success and that of your practice.

Let’s take a look at the advantages and disadvantages of the two most common billing scenarios and explore which management styles best fit each.

In-House Billing

Depending on the size of your practice, the average in-house billing department consists of one or two trained billers for every one to three physicians or other clinicians.  Payroll expenses aside, the start-up costs of an in-house billing department will include technical equipment, registration with a clearinghouse, space for employees, space for records (electronic or otherwise) and reference materials such as annually updated coding books or course material.


Retaining Control: In-house billing allows physicians and administrators to have hands-on control of financial operations.  With trusted, long-term employees executing your medical coding and revenue cycle management duties, you have close watch on the pulse of your day-to-day billing operations.  Questions can be addressed in real time and changes can be implemented immediately. 

Return on Investment (ROI): Once a practice has invested in training medical billers and purchasing billing technology, deciding to move to an outsourced solution means losing the time and money you spent on your in-house operation.  When there is an appropriate infrastructure in place, it is worthwhile to refine existing processes to generate the best ROI. 

Close Proximity: Should issues arise, the accessibility of your in-house billing department is a major advantage, since all it takes to observe the billing process and address any problems is a walk across the office.


Higher Costs: It is generally accepted that billers’ salaries, their employee benefits and technology systems add up to more than is commonly paid for a third-party billing solution. 

Liabilities: Medical billing departments can be hotbeds for embezzlement, general employee neglect (such as ignored encounter forms, discarded superbills and unresolved claim denials), which can go largely unnoticed if managers don’t keep a close eye on billing operations. 

Support Issues: If your billing department consists of only two or three staffers, your operations and cash flow can be majorly stalled when one employee gets sick, goes on vacation, takes a leave of absence or quits.  Additionally, it is even more problematic if your practice is in a location where qualified staff members are difficult to recruit.

Outsourced Medical Billing

Outsourced billing is typically a good fit for practice owners who do not want to manage an administrative team.  All of the day-to-day billing functions are handled offsite, and a reputable medical billing company should have a team of well-trained certified billers versed in the nuances of billing, sending and appealing denied claims.  It is important that they are familiar with all your third-party payers, including workers’ compensation patients and any and all special programs in which you may participate such as the Child Health and Disability Prevention Program (CHDP); Family Planning, Access, Care, and Treatment (Family PACT); or Comprehensive Perinatal Services Program (CPSP). 


Less Expensive: If you are starting a new business or transitioning because of an employee’s resignation, outsourcing especially makes financial sense.  Make sure to do a cost analysis when determining this, however.

Transparency: A medical billing company should be able to supply you with comprehensive performance reports automatically or upon request.  This capability grants you unparalleled visibility into your billing operations without requiring you to micromanage or oversee any staffers.  

Consistency and Regularity of Billing: A reputable medical billing company should regularly and in a timely way send claims to insurance companies and be contractually obligated to follow up on all unpaid and denied claims, regardless of staff illness or heavy workload. 


Hands-Off: While many physicians like to focus on taking care of their patients, some are more hands-on and like to closely evaluate the billing operations of their practices.  For more hands-on managers, it may be tough to relinquish control of the billing process to another entity.

Variable Costs: Many billing companies do not charge a flat, monthly or annual rate.  Some base their fees on the number of claims sent out. The more common scenario, however, is to charge a percentage of the collections; i.e., the more you bring in, the more you will pay out.  This can make it hard to budget your expected billing expenses, since costs may vary widely between slow and busy months. 

The Possibility of Hidden Fees: It is always important to ask about extra fees prior to hiring a medical billing company.  Read the proposed contract carefully.  Check for a sign-on or start-up fee, a printing rate for bills or statements that must be mailed, additional fees for using a clearinghouse or fees for using their electronic system to check a patient’s eligibility and benefits and check for cancellation fees should you choose to terminate the relationship.  If you choose to cancel your contract, it is also necessary to understand who owns the data on your patients. Ensure your patient data cannot be held hostage!


Perhaps the most important factor in deciding between in-house or outsourced billing is that of management style of the physician owner.  If you like to have your hands in the heart of your practice, in-house billing is probably the best option for you.  If you prefer outsourcing, be certain you can gain access to the information you will need to make quality decisions that affect the profitability of your medical practice. 

For an in-depth discussion on selecting an outsourced billing company, review the September 2005 issue of Practice Management News.


Mary Jean Sage is the Founding Principal and Senior Consultant of The Sage Associates. She has extensive experience as a health care management specialist and is a coding and practice management consultant in Pismo Beach, CA. She can be reached at

The articles provided in Practice Management News are general. They do not constitute legal, practice management or coding advice in any particular factual situation or create at attorney-client relationship. Consult your attorney or other professional for advice in your particular situation.