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ROI of Outsourcing Medical Billing


Article - ROI of Outsourcing Medical Billing

Medical billing is the most critical part of a successful practice and outsourcing helps to enhance net revenue collection. When you do in-house medical billing, you are likely experiencing some inefficiencies in your medical billing even with a highly trained office manager and medical billing staff that lead to lower collections overall.

Hence for some small and independent clinics, a better option is to outsource your medical billing for better ROI as finding and retaining qualified billing staff to handle medical billing and collections has become difficult and costly. It is observed that nowadays, many providers opting to outsource their medical billing to avoid the administrative burden and overhead associated with the billing process. Practices that outsource their billing can see a 7-10% increase in net collections as well as provide better patient and provider experience.

If you are not sure whether you need to outsource medical billing, then following the checklist would be handy for making an outsourcing decision.

  • Are your accounts receivable greater than 45 days?
  • Is your percent of accounts receivable over 120 days greater than 15%?
  • Are you seeing the same, or an increased number, of patients but seeing a decline in revenue?
  • Is your net collection rate declining?
  • Do you experience a high rate of turnover with your in-house billing staff?
  • Do you have difficulty finding qualified billing staff?

If your answer for any of the above questions is” Yes” then you should outsource your medical billing.

Once you have decided to outsource, you should know the type of billing company such as light, full service, and boutique based on your service requirements as not all billing companies are alike, and services can vary greatly but it is important to have responsibilities clearly defined in any contracts executed.

Now we will look for ROI of Outsourcing Medical Billing

When it comes to measuring ROI, you need to determine the actual costs of your current billing process with the help of your fixed and variable costs.

Determine fixed cost with the following factors:

  • Hourly wages of staff and payroll costs
  • Employee benefits
  • Billing software
  • Workers’ compensation insurance and payroll taxes
  • Clearinghouse fees

 Determine variable cost with the following factors:

  • Rise in rejections and denial rate
  • Declining cash flow and net revenue
  • Unplanned staff sick leave and vacations
  • Stationary, postage, and statement fees

Apart from the above, you can use some indicators such as First Pass Resolution Rate (FPRR), First Pass Acceptance Rate (FPAR) to evaluate ROI for outsourcing your billing.

First Pass Acceptance Rate (FPAR)- (It is days in Accounts Receivable)

  • The number of claims accepted by the payer upon the first submission.
  • Target: >95%.
  • Calculation: (Total Number Claims Submitted - Number Rejected Claims) / Total Number Claims Submitted.

You can miss big profit margins if you consistently re-work a higher percentage of claims or you process outstanding AR as denials. It’s essential to look at the number of “days in AR” and your “net collections” together.

Days in AR

  • The number of days that charges are outstanding.
  • Target:<30 days
  • Calculation: (Total Receivables - Credit Balances) / Average Daily Gross Charge Amount) *Average Daily Gross Charge Amount - Total Annual Gross Charges / 365

Net Collections

  • The total amount you were potentially due from payers and patients was collected after excluding contractual adjustments.
  • Target: >95%
  • Calculation: (Total Charges - Payer Disallowed Amount) / Total Payments)

First Pass Resolution Rate (FPRR)

These metrics determine your capabilities for follow-up claims that are not paid the first time.

  • The number of claims paid by the payer upon the adjudication.
  • Target: >95%
  • Calculation: (Total Number Claims Submitted - Number Denied Claims) / Total Number Claims Submitted

These two KPIs are important and knowing them will help to determine whether you are achieving your ROI promised by the billing partner is realistic or not. If you are looking to optimize the ROI of outsourcing medical billing, we are one of the preferred medical billing partners in the US and our staff is HIPAA compliant with a clean claim submission rate of 95%.

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