True Cost of Outsourcing Your Medical Billing

Posted by Team PracticeForces on Apr 28 2016

Medical practices have a lot of choices when it comes to how to run their business successfully. One of the most daunting questions they face is whether or not to hire a medical billing company. The right answer differs from practice to practice and is based on a multitude of factors.

True Cost of Outsourcing Your Medical Billing

How Much Does a Medical Billing Company Cost?

Let’s create a hypothetical medical practice and determine where a practice can save money by outsourcing billing versus in-house billing.

Our practice has three primary care physicians, and two medical billing specialists. They have an average of 80 insurance claims filed each day (roughly 20,000 each year) that are $125 billed on each claim (roughly $2,500,000 each year). We also want to assume that they have a high collection rate on all these claims.

Costs Associated with Billing Staff


Our medical billing employees are making $80,000, and their healthcare costs the practice $9,000 each year. Federal and state taxes for them both ($12,000) as well as ongoing training costs ($2,000) come to $14,000. Miscellaneous expenses like paper, office space, and other costs we included at $15,000.  


Based on our studies, we allotted five hours of time each week to manage the claims sent in by our practice. Every practice will require some follow up and billing issues, so we’ve included those costs for a total of $4,000 per year.

Costs Associated with Software & Hardware


Practice Management software can be estimated at $7,000, around $200 per month per doctor, and another $500 for hardware costs. This does not include any estimated costs for the software system start up.


A computer and printer owned by the practice that will interact with the billing system and print documents will be needed.

Costs Associated with Direct Claim Processing


For a provider submitting 20,000 claims each year, the cost would be around $300 a month, or $3,600 per year.


Services usually charge a percentage based on their contract and service arrangement. We’ve estimated this figure to be at 7%.

Percentage of Billing Collected


This percentage can also vary widely. We’re assuming that our hypothetical practice collects 60% of what they bill.


Figures have shown that practices that switch to outsourced medical billing will see a 5%-15% increase in the amount they're able to collect, so we’ve factored in 10% increase.

Our Hypothetical Results




Billing Department



Software & Hardware



Direct Claims Processing



Software & Hardware



% of Billing Collected



Collections Total



Collection Costs



Collections, Net of Costs



As you can see, our hypothetical practice would save a significant amount of money by switching over to a medical billing company.

But there are many factors to consider when making major business decisions, equally important to cost. How can you determine if outsourcing medical billing is the right decision for your practice?

Discover how we can help your practice save money

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How Outsourcing Medical Billing and In-House Billing Differ

Before we delve into the pros and cons of each, let’s talk about what they are and how they will affect your practice. In medical practices, their revenue comes from both co-pays and payments from their patients, while the largest portion comes from claims through the insurance carriers. The sooner and more efficiently the claims are submitted and processed, the sooner the practice recoups their expenses and makes a profit.

Outsourcing medical billing is when a medical office hires a billing company outside of the practice to handle the claims and submissions instead. For many businesses, this is the right option for their practice.

In-house medical billing is usually done by one or more staff members, whose responsibility it is to document the claims, submit them, and process payment.

Why Outsourcing Medical Billing Might be Best for Your Practice

  • Less Expensive: Medical billing outsourcing saves your practice money in a lot of ways - you no longer have to pay staff to handle that aspect of your business, invest in training on new code guidelines, or spend your own time handling it.
  • Improved Consistency: A medical billing company is responsible for providing consistent support in submitting claims to the insurance carriers, and obligated by contract to follow up on unpaid and denied claims.
  • Complete Transparency: Performance reports should be offered and supplied automatically or on request, ensuring you to know the financial status of your practice at all times.

The Downside of Outsourcing Medical Billing

  • Less Control: The biggest downside to outsourcing medical billing for many offices is feeling a loss of control. Allowing someone else to control a large and important aspect of your business can be tough for some managers.
  • Variable Cost: Medical billing companies generally work on a percentage cost of the collections, so the higher your revenue, the more you’ll pay. This can make budgeting somewhat more difficult since the cost can fluctuate from month to month.
  • Hidden Fees: Read your contract carefully to determine if there are any hidden fees you haven’t planned for. New customer fee? Printing statement fee? Is there a fee for terminating your relationship early?

Pros of In-House Medical Billing

  • Hands On Control: When you have a staff member who handles the claims submissions, you have someone in your office to discuss billing with. This hands on approach makes it easy to resolve issues or look at specifics.
  • Return on Investment: When a practice has invested money in staff training and retention, as well as billing software and technology, outsourcing the work can mean losing time and money spent.

Cons of In-House Medical Billing

  • Higher Expenses: In-house billing is generally more expensive, since a practice has to cover employee salary, benefits, training, certifications, as well as purchasing and upgrading billing technology.
  • Increased Liability: The majority of embezzlement cases come from in-house billing and can go unnoticed if managers don’t keep a close eye on their revenue stream.  
  • Inconsistency: Staff members will have sick days, vacations, and days they are too busy to get everything done. This can result in a delay of claim submission and a backup in receiving payments.

It’s important to note that all medical billing companies are not created equal. Companies can vary widely in their efficiency and accuracy in processing claims. Before making a major decision for your practice, look into the billing companies, get referrals from other practices, and do your research.

Convinced outsourcing is the right choice for your practice? Download our 5 Things to do Before Outsourcing Your Medical Billing Tutorial 

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Topics: Medical Billing, EHR Software, EHR, EHR Penalties

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