Revenue Cycle Management Blog | GroupOne Health Source

Benefit of Outsourced Medical Billing: Increased Cash Flow

Written by Kaitlyn Houseman | May 19, 2011

Medical practices seeking additional revenue should consider partnering with a professional medical billing firm.

Industry changes are causing cash flow challenges for many of today's medical practices, causing some to close up shop and even more to link up with other organizations to stay afloat.

In one Texas bases survey, as described in a recent article in American Medical News, 51 percent of physicians whose practices reported cash flow problems drew from their personal accounts to keep going in 2010.

A better solution may include reviewing a practice’s revenue cycle to ensure that a practice is maximizing collections for all services provided.  It’s been estimated that approximately 25%-30% of all medical practice income is lost due to incorrect coding, under pricing, missed or never submitted charges and nonexistent or improper claims follow-up. 

The increased complexities of the medical reimbursement system make it difficult for the average practice to maintain a competent revenue cycle system.  In many ways, the medical reimbursement system can be compared to the complexity of the tax code or legal system, where outsourcing to experts is common place.  The looming transition to ICD-10 is going to add to the system complexity.

Utilizing professional billing firms can positively affect cash flow by increasing the level of collections.  In a recent MGMA survey, use of an external billing company increased the collection rates for almost 73% of survey respondents.  Respondents also noted the following effects on their practices:

  • 72.7% reduced days in AR
  • 59.1% decreased the rate of lost and denied claims
  • 59.1% gained better insight into the practice’s financials, physician performance and drive.

Likewise, professional billing firms can positively affect cash flow by decreasing the cost associated with the revenue cycle functions.  When all applicable costs related to the internal revenue cycle functions are considered, the cost of a professional firm can be less due to efficiencies and economies of scale. 

Additionally, as the fee for many professional firms is based on a percentage of collections, practices which outsource benefit from the fact that the cost will never exceed a certain percentage of revenue, similar to a “built-in” profit margin.  Practices with internal billing have fixed costs which must be paid regardless of level of revenue.