Medical Billing Services Save Heatlhcare Practices Money and Time

There are many reasons healthcare practices might outsource their billing to a professional medical billing service; confusing insurance requirements, staffing problems and just keeping up with industry changes are a few examples. In the end though, the reasons most medical billing companies hear about come down to the two driving principles of any business - Time and Money. This article discusses how medical billing services are able to create significant savings in time and money for healthcare providers.

Medical Billing Services Save Training and Research Time

- Some readers might take the short view and think medical billing companies just enter data into a computer and send it off to a clearinghouse. In reality medical billing is a detailed process requiring specialized skills and in-depth knowledge of medical practice management, insurance industry practices, and the regulatory framework around state and federal laws. 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 practices to dedicate the time necessary to stay on top of the latest innovations.

These investments of time by professional medical billing services are often not considered by providers, but they eliminate endless hours otherwise spent in seminars, meetings with vendors, or on the phone with clearinghouses and carriers. This time savings creates a valuable commodity for a practice seeking the edge necessary to keep up with a rigorous patient schedule.

Medical Billing Services Save Operational Time

-Medical billing services are 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 across several practices. This structure creates a well trained pool of resources to manage each practice'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.

Task specialization among teams further heightens the efficiency of medical billing companies. Through task specialization, a team of billers can accentuates individual skills and reduces distractions of other activities.

Consider a provider who sees an average of 30 patients per day, or a total of 150 encounters per week. The time required to generate and submit 150 patient claims and follow up with insurance carriers with a high lever of accuracy can take up most of the time of an in-house biller. But this is just the beginning. That same individual will also need to follow up on denied or partially paid claims, researching why and resubmitting for further review. Patient invoices require additional time- printing, stuffing and mailing- as well as posting payments, running reports and providing detailed analysis on the current state of the practice; all this just to meet the standard offering of professional medical billing companies.

Through task specialization, medical billing companies might offer each of its clients several billers submitting claims and reviewing insurance payments with the highest level of accuracy. At the same time, the service might have other individuals or groups dedicated to managing patient invoices and questions across several practices with increased efficiency. This approach maximizes the time available for each activity by specialists with a greater knowledge of their roles, and, again, guarantees minimal (if any) interruption during employee leave and staff changes.

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.

Good medical billing companies will design their services around covering all of these costs and immediately do away with the problems they create. To clearly demonstrate how medical billing services can save practices money, let's compare the core costs associated with in-house medical billing against working with a professional medical billing service.

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 biller receiving an annual salary of $30,000, or about $14.50 per hour. 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 ---------$2295
401K --------------------------------$1080
Disability -----------------------------$720
Healthcare --------------------------$5220
Time off -----------------------------$3270
Total labor for 1 in-house biller ------$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 $2000. Since our practice will send out its own patient statements, we'll need about $150 per month for postage, paper and envelopes, an annual cost of $1800. 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 biller will need a climate controlled workspace, lights, general office supplies and a desk.

Here's what our list of software/hardware, materials and fees looks like:


Software/Hardware -----------------$2000
Materials ---------------------------$1800
Clearinghouse Fees ------------------$720
Total ------------------------------$4520


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 medical billing service. As we move forward, keep in mind this conservative estimate does not factor in those other costs mentioned above that are often hidden - ongoing training, unexpected leave and sudden staff changes.

Cost of Professional Medical Billing Services:

To evaluate the cost of working with medical billing services, we'll assume our practice has contracted with 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 8% 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, see Percentage vs. Flat Fee Pricing by Medical Billing Services.

Assuming our provider visits 30 patients per day, 50 weeks out of the year, we'll have 7500 patient encounters per year. If each encounter results in an average reimbursement of $60, our receivables come to a little over $450,000 per year. At a rate of 8%, the annual cost for the professional service to manage all aspects of medical billing services for the practice would be $31,500. In comparison with in-house services that's a savings of $15,600 per year!

Summary

In evaluating the benefits of outsourcing to a professional medical billing company practices 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.

For more information on the benefits of outsourcing, contact Diversity Medical Billing Services [http://www.diversitytech.com]. Leverage maximum efficiency and economy through a well designed support structure and industry leading rates. Diversity’s medical billing services ensure the stability of practice cash flow while attaining the highest reimbursements possible. You can also learn about other ways to improve your billing with in-depth Medical Billing Articles and Information [http://www.diversitytech.com/kc].

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Outsource Medical Billing Services - Should a Physician Outsource Medical Billing Services

This is a very difficult decision for any physician and partially boils down to this or her own personal ideology and comfort level.

Hospital-based physicians will almost always be better off outsourcing because of the office related expenses that they would not otherwise incur. As the owner of medical billing service you may think I'm naturally biased towards outsourcing. I can assure you that this is not the case.

Physicians who are overly controlling, uncomfortable or mis-trusting toward billing services are nearly impossible to administer. I don't want anything to do with those types of physicians but I completely respect and understand their point of view. Setting all ideology aside I would like to delve into the pros and cons of this difficult and complicated decision.

I am a physician who is very interested in the business aspect of medicine and I do not mind spending my valuable time managing the medical billing aspect of my practice.

Clearly, the best way to do your billing is to do it personally. Obviously, doing it yourself is probably not an option but if you're willing to spend the time and have the interest I would recommend that you do your own billing. Keep in mind that most billing service owners and certainly our employees have limited medical backgrounds. Physicians who study CPT, regularly attend billing seminars and keep up to date on industry changes are the ultimate medical billing gurus in my view.

I am a physician who has absolutely no time or interest in the medical billing aspect of my practice. I am completely reliant upon my office manager and billing staff.

Unfortunately, most physicians are in this position. Even if they were interested in keeping up with all the changes and elements of medical billing the practical reality is that there is absolutely no time. Let's face it; time is your most valuable asset. It's sort of like mowing your own lawn. You'd be way better off financially seeing patients for three hours on Saturday morning. I believe the following information will dramatically help with your decision to outsource your billing or continue to do it yourself and with future decisions in the ever-changing business aspect of medicine.

The pros and cons of outsourcing your medical billing services.

I would like to preface this article with a couple of obvious but important points. If you have a system of controls, keep an open mind about the competence of your office manager, you've got an excellent computer system, proper information systems and your office is doing a superb job at collecting your money, then by all means do not make any changes. Conversely if you're planning to outsource your billing make sure you hire quality firm. I'll spend some time at the end of this article discussing this further.

Most leading experts agree that it costs about 4.5% of net collections to perform the billing function within a physician's office. Incidentally, this is close to my actual cost as well.

Theoretically, a billing service should be able collect more money than a physician's office because it is our core competency. The question is how much more? This is why I focus on how to choose a billing service at the end of this article.

The numbers

A. Lets just do the math in a theoretical model.

We'll base our numbers on a practice whose total gross receivables are $100,000 per month. Obviously, this is an overly simplistic model designed to quantify the aggregate cost and or opportunity cost of the medical billing component only.

Current Aggregate Billing Expenses

In-house expense

Total gross revenue $100,000

Current billing expense $4,500

(4.5%) ---------------

Net Revenue $95,500

Outsourced Billing Expense

Total gross revenue $100.000

Current billing service exp. $7,000

(7.0% net collections) ---------------

Net Revenue $93,000

Net cost increase with outsourcing = $2,500.00

As you can see in this," all things being equal" theoretical model your practice would incur a $2,500 decrease in net revenue with the implementation of a billing outsource strategy. Keep in mind that this model does not address other less tangible issues such as your reduced payroll, computer expenses, ect. In reality the net cost could be substantially less than $2,500. Many physicians will perceive this as a small price to pay while others will consider it to be cost prohibitive.

5% theoretical increase in gross revenue with outsourced billing

Total gross revenue $105,000 (5% increase)

Billing service expense $7,350

(7% net collections) ----------------

Net revenue $97,650

$95,500 - $97,650 = $2,150.00 increase in net revenue.

As you can see from this model with a 5% increase in collections your net revenue will increase $2,150.00 with the added expense of the billing service. Keep in mind that a 5% increase in gross collections is actually quite conservative and should easily be obtainable by quality billing service.

Intangibles

B. A billing service should be able to provide you with a substantial reduction in your day-to-day aggravations such as practice management software issues, fewer employees, hassle of hiring competent employees, less health insurance, less training, ECT..ect. Conversely you will however lose some control over your practice. If the billing service does not collect more money your expenses will increase. It's up to you to determine whether or not the increased expense is offset by decreased aggravation.

security

C. A billing service should be able to increase your security levels by creating a system of checks and balances. As a former police officer I can assure you that crime statistics indicate most embezzlement/fraud/theft occurs from within. During an investigation a store manager for Sears and Roebuck Co. once told me," our customers take it out piecemeal but our employees take it out in wheel barrels" This logic also applies to a doctor's office. A billing service can provide an extra layer of protection because there is a system of independent checks and balances. Typically billing services are fairly large businesses with strict internal controls. My organization Medi-Bill Inc. Operates internally similar to a banking institution with the way we handle funds. It is highly unlikely that the ownership of a reputable medical billing firm would risk the consequences of committing fraud against a client.

Conversely, the issue once again boils down to control. Many physicians are understandably quite unsettled at having their checks and correspondence mailed directly to the billing service. Further compounding this dilemma is," what will happen to the checks and correspondence after the billing service agreement is terminated?"(Again, we will discuss alternatives to this at the end of the article)

Technology

D. State-of-the-art practice management software is an extremely expensive investment. If you've already invested in a high quality computer system I do not believe outsourcing your billing would make much sense financially unless your computer vendor is charging outrageous support fees. If you're considering purchasing a computer system or a medical record management system my favorite vendor who we've been working with for over 15 years is Office Management Solutions (OMS) based in Tampa Florida. The owner's name is John Peake and he is by far the most honest and reputable computer vendor I have ever worked with. OMS can be reached at 813-963-5582 or http://www.oms-online.com.

If you need to update your system, purchase a new system or your support fees are getting out of hand this may be an opportune time to consider outsourcing your medical billing services.

Financial security

F. Many physicians, for obvious reasons do not want their office managers/staffers to have any in-depth knowledge of how much money the practice is making. A reputable and properly run billing service can create this level of financial security. The best case scenario is for your staffers to only see your expenses and have only a limited understanding of the revenue being generated. This can also be accomplished internally by making and recording your own deposits. If you're going to do your own billing I must emphasize the importance of financial security. You must create a system of financial security. If you don't have the time to personally open your mail and make the deposits you are definitely a candidate for outsourcing. Many banks offer a "lockbox" where you can direct your checks and correspondence. Bank lockbox services are generally quite pricey. They usually charge about .25 per copy. You may also opt to take out your own P.O. Box located adjacent to your billing company. This way you still maintain control of your checks and correspondence.

Collection agencies

G. Many billing services own or have affiliate relationships with collection agencies. You'll most definitely want to avoid this situation. Make sure your billing service provides you with a monthly report containing proper information on delinquent accounts enabling your office manager to properly send the information to a collection agency of your choice. In my opinion billing services that own collection agencies or establish close affiliate relationships with them are unethical and should be avoided at all cost. Even though it is nearly impossible to find a collection agency that does not have relationships with medical billing services the point I'm trying to make is to be sure that your billing service is independent and you have the freedom to select a collection agency of your choice. This relationship presents a scenario whereby the billing service can simply go after the easy to collect accounts and allow the more difficult but still collectible ones to slip into the hands of a collection agency who obviously charge a much higher percentage of collections. Again, it's easy to see how a billing service can facilitate or erode your sense of control. The most reputable collection agency I've dealt with is a company called Collection Information Bureau (CIB). I've been doing business with them for years and they have never attempted to establish an affiliate relationship with my company. CIB can be reached at 1-800-231-3514, contact sandy Lopez.

Different types of billing services

There are three different types of billing services.

* Fee per claim

* 50/50

* Full service

Fee per claim billing services charge a flat rate per claim. The fees generally range between $1.25 to $5.00 per claim depending upon the services provided.

Advantages:

· May be helpful to a brand-new practice who is not fully implemented a computer system or is still trying to decide whether to outsource.

· Practices with old or outdated computer systems

· Relatively inexpensive cost per claim

· Excellent for practices who have a problem with only one particular payer group such as Medicare or payers that require electronic claims submission

· Physicians planning to retire within one year

· Highly flexible

· Low-volume practices

· less employees

Disadvantages:

* Expensive for high-volume practices

* Poor integrity of accounts receivable

* Lack of information systems

* Lack of control

50/50

50/50 billing services install computer terminal/terminals in your office. The billing service performs part of the billing process while your office performs the other. As you can probably tell from my list of disadvantages this is in my opinion the least desirable type of billing service.

Advantages:

· Less expensive than full-service billing services

· Avoid the purchase of practice management software

· Creates a system of checks and balances

· less employees

Disadvantages:

* High set up fees

* Low accountability from the billing service

* Lack of control

* Communication Problems(all collection problems will be blamed upon your office)

* Your staff will still probably wind up doing most of the work

* Completely reliant upon the Internet

* Loss of data

* HIPPA issues

Full-service

Advantages:

· completely remove the billing process from your office

· symbiotic relationship

· avoid expensive computer system

· system of checks and balances

· less employees

Disadvantages:

· expensive

· loss of control

· patient relations

· collection agency relationships

Should I outsource my billing checklist: If you answer yes to most of the following questions then you should probably consider outsourcing?

· Is your overall collection rate declining?

· Is your accounts receivable too high?

· Are you experiencing an increased number of denied claims?

· Is your overall frustration level regarding your billing/business office very high?

· Are you facing a major capital investment in new hardware or software?

· Are your computer support fees to high?

· Are you having a difficult time keeping or hiring experienced billing staff?

· Are you spending too much time on the business aspect of medicine?

· Are you concerned that your staff or office manager has knowledge of your income?

· Are you completely reliant upon your office manager?

· Are you planning to expand your practice?

· Do you believe that your practices cost structure is too high?

· Do you have several employees performing tasks that could be handled by a single more experienced manager?

· Is your computer system obsolete?

· Are hardware, software, and information technology disrupting the operation of your practice?

How do I select a billing service?

1. The service should fit or complement the size of your actual practice. Try to get a basic idea of the size of the firm. A solo practice will most likely have greater success with a small to medium-sized billing firm. Obviously, a solo family practitioner would probably not be very well served by a publicly traded firm.

2. Avoid long-term binding contracts. You should be free to terminate your agreement any time within 30 days written notice. The agreement should clearly specify what each side will do for the other. Make sure the agreement assures that upon termination you'll receive a highly detailed account receivable report [listed by individual patient] .

3. Ask for references and call the other providers!

4. Inquire/investigate the actual owner of the company. Ask to speak with the owner directly.

5. Avoid firms who offer too many different types of service. Medical billing is a very highly specialized field. Companies who offer, collection agency services, payroll, financial consulting, tax consulting, malpractice insurance, marketing services etc. etc. are not in my view focused enough on what they're there to do. Collect your money!

6. Ask other physicians. Keep open mind about this one because physicians who are happy with their billing company do not necessarily want them to grow and generally like to keep a low profile on this issue.

7. Is the billing service for sale? Try to ascertain whether or not the firm has recently been sold. In your contract/agreement you should request to be notified within 30 days of the pending sale. In my experience billing services are constantly being bought and sold. Sometimes the acquisition is a positive thing but quite often the merger/acquisition can be very detrimental. You should at least be notified and given ample time to make a proper decision on whether you'll stay with the new firm or select another.

8. Where will your checks and correspondence be mailed? This delicate and important issue need not be as complicated as it appears. Many physicians for obvious reasons are reluctant to allow checks and correspondence to be forwarded directly to their billing service. Some reputable, high-quality billing services will not even provide services to clients who insist upon having the checks and correspondence mailed to them directly. I'd like to spend a few moments on this important issue and explain the ramifications of exactly where your checks and correspondence will be mailed. Maintaining the integrity of your accounts receivable is crucial! If your office routinely fails to properly mail copies of checks and correspondence to your billing company your practice could be in grave danger of losing control of the accounts receivable. If your account receivable is to maintain any semblance of financial integrity it is crucial that billing service employees do not spend valuable time and effort following up on claims that have already paid and not properly forwarded to them. Understandably, your service may even look upon this as an intentional effort to reduce their commissions. Again, bank lock boxes provide a sound alternative to this dilemma. Some practices solve this problem by directing all checks and correspondence to a P.O. Box keeping EOB's separate from other corporate mail. The checks and correspondence are mailed to the billing service," unopened" biweekly. This is an excellent compromise and creates a system of control. There are many other possible options but the important point to remember is that ONE entity must be completely responsible for the validity and integrity of your EOB's.

9. Make sure all checks and correspondence are issued under your tax identification number and made payable to you! Make sure your contract/agreement specifies that the billing service will not countersign or attempt to countersign your checks and correspondence.

David J. Duncan
President and CEO
www.usemedibill.com

Mr. Duncan is a graduate of Florida Atlantic University with a B.A in Finance and is the original founder of Medi-Bill Inc. He also has an extensive law enforcement background and is a former police officer with the City of Fort Lauderdale. Mr. Duncan's reputation for honesty and integrity is well known throughout the medical community. During his career, Mr. Duncan has provided billing, financial and practice management services to physicians and medical practices in a variety of specialties throughout the country. He has extensive experience with, managed-care, hospital contract negotiations, data integration and practice management.

If you have any questions please do not hesitate to contact me at david@usemedibill.com

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Medical Billing Services: Choose the Type That's Right for Your Practice

Medical billing service providers come in many different shapes and sizes. At one end of the spectrum are large Practice Management Companies, with an extensive network of support but sometimes rigid and expensive. At the other end are small, home-based businesses. With more and more programs offered through local colleges, mail order and online, home-based businesses are popping up everywhere. Somewhere in the middle of these two extremes is what we'll refer to as Professional Medical Billing Services. When considering your options, it is important to understand what each type of medical billing service provider has to offer and which is best for you. This article discusses these common types of medical billing service providers and some of the services they offer.

Home-Based Medical Billing Businesses vary significantly from one to the next in experience, ability and services offered. Many are small start up businesses with only one or two employees. Some offer extensive experience from previous employment in a doctor's office, others may have only one or two clients. While these service providers can offer the highest levels of customization, a small, home-based business can sometimes run short of management knowledge and business acumen to be there for the long term. And what happens to practice cash flow when the solo biller decides to take vacation? Most provide the core services of medical billing (discussed later) and many have other personal experience to offer ancillary services.

Practice Management Companies are typically larger firms that may have 100 or more employees. Most true practice management companies take a holistic approach to supporting your practice, in that they seek to handle all facets of managing the business- including medical billing, marketing, staffing, and even patient scheduling. Although some providers might be excited about the opportunity of having a practice management firm take all the "trouble" off their hands, others find it stifling to have someone else running their business. While their offering can be comprehensive, those providers interested in working with a practice management company should read service agreements and contracts carefully to make sure they know exactly how their practices will be "managed."

Professional Medical Billing Services fall in between the extremes of home-based medical billing businesses and the practice management companies, leveraging the strengths of both and eliminating the weaknesses. With a few dozen employees, Professional Medical Billing Services can offer greater flexibility than a practice management company, but more structure than the home-based service. Clients often find medical billing services have the sustained network of support to eliminate interruptions to cash flow from vacations or unexpected leave time, while simultaneously offering personalized services tailored to meet their needs.

As you consider each type of medical billing company, it's also important to think about what services you need, which services you can handle in-house, and what expectations you have your medical billing professional. Each of the types mentioned above should be able to offer the following standard services; though service delivery, flexibility and customization can vary widely.

Standard Medical Billing Services

Standard services offered by medical billing companies are generally similar across the range of companies discussed above. There will be variations in the level at which those services are provided. Again, experience and size play a key role in defining where the variations might be. Regardless, the following list identifies the most basic services provided by any well organized medical billing company.

Claim Generation and Submission Claim generation includes entry of patient demographic, insurance and encounter information into medical billing software. Claim submission is the process of sending that data to the carrier, either electronically through a clearinghouse, or via paper submission in the mail. With electronic medical billing, services should apply one or more "scrubbers" to the claims (and manual quality checks to paper claims). Scrubbers are quality assurance checks of diagnosis and procedural codes for errors or mismatches typically integrated into premium medical billing software programs.

Carrier Follow Up Carrier follow-up is an integral part of the medical billing industry- arguably the most important aspect. The quality of a medical billing service is often defined by the level of follow up they apply to claims and will have an enormous effect on reimbursements. Through follow up, medical billing companies are able to isolate those claims that may go unpaid, or partially paid, and work with the provider and carrier to make sure edits and resubmission (if necessary) are clean.

Secondary, Tertiary and Workers' Comp Claims These special claims usually require special consideration and handling as they often entail additional documentation. Service providers can sometimes get bogged down in the details required for these unique claims if not experienced and prepared.

Practice Reporting and Analysis Reports can be generated through almost any medical billing software, but how often and with what depth will your medical billing service provide these reports? Reports provide critical information about avenues for practice improvement such as directions for growth, cost savings and ways to increase profitability. The importance of reporting cannot be overstated for monitoring the health of the practice. Reports should be provided at least monthly, and experienced medical billing service providers should be able to make recommendations on how the practice can enhance profitability.

Patient Invoicing and Support Patient invoicing is a very detail-oriented process, but if done properly it can significantly enhance practice revenue. Nonetheless, balancing accounts, printing statements, stuffing envelops and applying postage can be very time consuming. And once patient statements are sent, someone will inevitably have a question about their bill. A good medical billing company has the infrastructure to support patient inquiries with customer oriented approach showing they understand their conduct is a reflection of your practice.

Other Services

As most medical billing services are well experienced in the inter-workings of a medical office, other services that may be offered. Some lateral practice services might include the following.

Credentialing Credentialing may be of particular importance to new practices. This process of "signing up" with carriers for the first time can be tedious and overwhelming, especially when just starting out. Credentialing services are also an asset to established practices as another way of growing into new business. Many medical billing companies bring the experience of working with carriers to help make your credentialing painless.

Medical Coding A natural extension of the medical billing service is medical coding. Coding is really the first step of the billing process, preparing the diagnosis and procedural information for entry into the medical billing software.

Transcription With wide experience in the medical practice support field, it is natural for many established medical billing companies to broaden their offering to include transcription services. The familiarity with HIPAA requirements and in-depth knowledge of the insurance industry support this natural addition to practice support services.

HIPAA Compliance The detailed requirements of HIPAA are not limited to healthcare practices, they extend to anyone handling patient information. Medical billing services well versed in the responsibilities outlined by HIPAA often develop programs to assist their clients in maintaining compliance.

Summary

Partnership with the right medical billing service is vital to your practice's success. Just as with finding a good accountant or lawyer to support your practice's needs, it is imperative you are comfortable with your medical billing service provider- they are the key to your revenue flow. There are many different types of medical billing service providers to choose from, each with its own set of pros and cons. The key is deciding what type of medical billing service provider you are most comfortable with and growing an open working relationship that will help you reach prosperity.

For more information on medical billing services, visit Diversity Medical Billng Services [http://www.DiversityTech.com/] offering a full range of medical billing solutions to practices across the US. You can find more information about choosing a billing service that’s right for you in the Medical Billing Knowledge Center [http://www.diversitytech.com/kc/index.htm].

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Medical Billing Services: Percentage Vs. Flat Fee Pricing Structures

As the business of running a medical practice becomes more competitive, many practices are turning to a third-party medical billing service for cost effective solutions to maintain maximum profitability. In evaluating any medical billing service agreement there is an array of factors that should be taken into consideration - pricing of services is principal among them. This article compares the two most common pricing approaches offered by medical billing services - Percentage Based Agreements and Flat Fee per Claim - and identifies some of important points to remember when selecting a medical billing service provider.

Percentage Based Agreements:

Probably the most common approach to pricing by medical billing services is the percentage based agreement. In this type of agreement, the medical billing service's fees to the practice are based on a percentage, usually in one form or another of the following:


Percentage of collections,

Percentage of gross claims submitted by the billing service,

Percentage of total collections for the overall practice.



With the first type above, percentage of collections, the medical billing company charges the practice only on net received for those claims in which it has directly assisted in collections (typically excluding monies collected at the office, such as co-pays, deductibles, etc.). This is the purest example of how a percentage based agreement will tie the medical billing service's success to the practice while safely limiting it to that which they have some measurable ability to affect. This type of percentage based agreement benefits the practice by its "self-policing" quality- the medical billing service only makes money when the practice makes money.

In our second type, percentage of gross claims submitted by the billing service, the practice is charged a percentage of the total amount submitted to insurance companies and other payers. This can be tricky for two reasons. First, the rate billed to an insurance company is not always the same as the negotiated rate that will be paid. So a seemingly competitive percentage from one medical billing service can be drastically different from another medical billing service depending on where the percentage is applied. Second, some of the incentive mentioned above is removed for follow up on claims as there is no tie-in to the results of medical billing service's submissions.

With a percentage of the total collections for the overall practice, the billing service charges for the total net received by the practice. It includes co-pays, deductibles, and any other monies collected at the office, not just by the service. This arrangement is most commonly found with full-scale practice management companies who not only handle medical billing but might also administer staffing, scheduling, marketing, fee schedule negotiations, etc. In this arrangement, the medical billing service can be driven by incentive to follow up on claims with payers, but gains some protection to its revenues through the other sources of payment coming into the practice.

Rate Variability within Percentage Agreements:

A medical billing company will consider several variables in defining the rate charged to the practice in a percentage based agreement. Rates can range from as little as 4% to as high as 14% or even 16%! Factors influencing this variability include claim volume and average dollar amount of claims, as well as service considerations like level of follow up performed by the medical billing company, whether or not patient invoices will be sent by the billing company, and many others. Let's take a look at some examples of how these variables influence medical billing service rates.

EXAMPLE 1:

Regarding claim volume and dollar amount, let's consider the example of practice A and practice B. Both are looking for a medical billing service offering claim generation, carrier follow up, patient invoicing and phone support. The average claim for practice A is $1000 and they average of 100 patient encounters per month. Practice B has an average claim of $100 with 1000 encounters per month. While the gross amount billed is the same, the difference is staggering for the billing company who will need to project nearly 10 times the staff hours for practice B to yield the same return as from practice A.

EXAMPLE 2:

With respect to services offered, let's consider practice C and practice D. Both practices average around 1000 claims per month, and each claim averages around $100. Now, practice C is looking for a billing service to handle complete claim lifecycle management- carrier follow up, submission to secondary and tertiary insurances, patient invoicing and support, report analysis, etc. Practice D collects patient balances at the office so they don't require invoicing services, and they plan on doing the carrier follow up themselves. Thus Practice D only requires the medical billing service generate and submit initial claims to carriers, and maybe submit a few secondary claims each month. In this example, the gross claims submitted is roughly the same, but practice C might anticipate a fee significantly higher - potentially double that of practice D - due to the extensive work involved in providing these other support services. (Keep in mind practice D will also need to consider additional staffing to perform these activities in-house, which will most likely not offset the cost of allowing the professional medical billing company to manage the process.)

These two examples clearly demonstrate the basic factors that influence the rates when considering percentage based medical billing services. While there are numerous negotiating points where a practice can save on general costs, they should consider what other costs may arise later to manage the services not provided by the medical billing company.

Pros of Percentage Based Agreements:


Percentage Based Agreements directly tie the success of the billing company to the success of the practice if they based on collections.

Practices can often choose which services they require for potential short term savings.

Cons of Percentage Based Agreements:


Short term savings garnered by keeping some billing activities within the practice can lead to long term costs in additional staffing.

Small claims may not be addressed as vigorously. For example, consider a $5.00 patient invoice with a medical billing service charging 8% on collections. The medical billing service would actually lose money in pursuing the claim. Adding up the cost of postage, envelope and paper, as well as staff time for printing, stuffing and mailing, it would be more than the $0.40 that would ultimately trickle back to the service.

Flat Fee per Claim:

Another common approach to pricing offered by medical billing services is what we'll call Flat Fee per Claim. With flat fee pricing the medical billing company charges a fixed dollar rate for each claim submitted, regardless of the size of the claim.

Similar to percentage based agreements, flat fee per claim pricing can vary significantly depending on the volume of claims and the extent of services provided. In its most basic form, a fee per claim medical billing service might provide only claim generation and submission services for as little as a dollar or two per claim. In this case it would be the practice's responsibility to follow up on claims. Of course flat fee per claim pricing can also include other services such as follow up with carriers, patient invoicing, etc. With these additional services, practices might expect costs to increase to $4, $5 or even $7 per claim or more.

Dependent on the practice, the flat fee per claim can be cost effective, but should be considered carefully. Follow up with insurance carriers and the bureaucratic problems should not be overlooked. In some cases, once the medical billing company has submitted a claim, they might make a phone call or two; but they've done the submission and the transaction is billable to the practice, regardless of how it's paid out. Fee per claim pricing doesn't have the inherent incentive like some types of percentage agreements. Nonetheless, it can be the solution if you have the resources to manage the follow up, or if your familiarity with the medical billing service is strong enough to trust in their follow up.

Pros of Flat Fee per Claim:


Fee per claim pricing has the potential to be more cost effective, particularly on higher priced individual claims.

Cons of Flat Fee per Claim:


If carrier follow up is included with this service, the medical billing company has little incentive once the initial claim has been submitted. Moreover, it can be near impossible to evaluate how rigorously a medical billing service is following up.

If carrier and payer follow up is not included with the service, the practice must manage it in-house. Inevitably, hiring and training new staff or allocating time of existing staff leads to increased overhead, often offsetting the benefits of using a medical billing service in the first place.

Hybrid Approach:

The final example in this discussion is what we'll call the Hybrid Approach, which takes advantage of percentage based agreements and flat fee per claim approach. Through this pricing method, a medical billing service might apply a percentage to certain insurances and patient balance bills, then apply a fee per claim for others. This approach is usually siloed by carrier or claim type, in that it would use the percentage for all claims to carrier X, and flat fee for all claims to carrier Y.

The hybrid approach has become more common in certain areas of the US over the past several years as some insurances frowned upon percentage based agreements. An example was seen when the state of New York rendered percentage contracts on state Medicaid claims illegal, requiring medical billing services use the flat fee per claim option. The principle concern arises from a few unscrupulous billing services who believe "up-coding", or submitting false claims for higher priced services, is the easy way to increased profits. While these few services threaten to tarnish the reputation of an entire industry, those bona fide medical billing services seeking long-term growth and profitability clearly realize that small gains won from illegal activities are no way to sustain a successful business.

In short, the hybrid model allows honest billing companies the chance to tie their successes to that of the practice while respecting the concerns of those insurances guided by formal legislation.

Summary

When medical providers and practices consider teaming with a medical billing company, they have an array of options. Flat fees per claim may appear more cost effective in the short-term, but the potential for revenue interruption due to poor follow up by the medical billing service provider, or the need to hire and train additional in-house practice staff to handle the follow up on its own, will undermine the initial cost savings to the practice. Agreements based on a percentage of collections are self policing and ensure the medical billing service will pursue reimbursements rigorously.

Learn more about pricing by medical billing companies through Diversity Technology, Medical Billing Services [http://www.DiversityTech.com/]. As a leading provider of medical billing services for healthcare practices across the US, Diversity specializes in percentage based medical claim lifecycle solutions.

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