What are the Downsides of Outsourcing Medical Billing to a Company that Charges a Percentage of Net Collections?

business owner outsourcing medical billing

Outsourcing medical billing to a company that charges a percentage of net collections can be very advantageous for healthcare providers. It can reduce administrative burdens and allows for better focus on patient care. Outsourcing also offers expertise in billing and collections. However, there are also several downsides and risks associated with this approach. 

  1. Reduced Control

    • Outsourcing involves giving control of a critical business function to a third party. It possibly leads to loss of management oversight and quality control over the billing process. 
    • This could potentially result in issues such as billing errors or suboptimal billing practices. 
  1. Cost Concerns

    • Companies that charge a percentage of net collections might not always be the most cost-effective solution. This is especially if the percentage charged is high. 
    • Providers might end up paying more to the billing company than they would if they had handled billing in-house or chosen a flat-fee service. 
  1. Confidentiality and Security Risks When Outsourcing Medical Billing

    • Handling patient data and billing information involves stringent compliance with data protection laws. An example is HIPAA in the United States. 
    • Outsourcing this function poses the risk of data breaches and violations of patient confidentiality. Therefore, the billing company should maintain adequate security measures. 
  1. Variable Revenue

    • The billing company’s fees are based on a percentage of collections. Therefore, the cost will vary based on the revenue generated. 
    • During months with high collections, the amount paid to the billing company will be significantly higher. 
  1. Disputes and Conflicts When You Outsource Medical Billing

    • Disagreements can arise over the calculation of net collections.This can lead to conflicts between the healthcare provider and the billing company. 
    • Resolving such disputes can be time-consuming and damaging to the business relationship. 
  1. Incentive Misalignment

    • The billing company’s incentive is to maximize collections. This may not always align with the healthcare provider’s goal of maintaining good patient relationships. 
    • This can result in aggressive collection practices that can tarnish the provider’s reputation with patients. 

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busy entrepreneur outsourcing medical billing

  1. Dependency and Service Interruption

    • Overreliance on an external entity may create vulnerabilities. Furthermore, service interruptions or the risk of the company going out of business may happen. Such can have detrimental effects on the healthcare provider’s operations. 
    • Transitioning to a new service or back to an in-house solution can be costly and disruptive in such cases. 

  1. Quality of Service

    • The quality of service provided by the billing company can significantly impact the provider’s revenue cycle. 
    • If the billing company does not offer high-quality service, it might result in delays, errors, and lost revenue. 

  1. Contractual and Legal Issues

    • There could be complications arising from contractual terms and conditions, leading to legal disputes between the provider and the billing company. 
    • Strict contract terms may limit the provider’s flexibility in adjusting to changing business needs. 

  1. Patient Satisfaction

    • Patients may experience dissatisfaction due to interactions with the billing company, impacting their overall experience with the healthcare provider. 
    • Poor customer service from the billing company can result in negative reviews and reputational damage to the healthcare provider. 

Decision-Making Considerations When Outsourcing Medical Billing

With outsourcing medical billing, it is essential for healthcare providers to conduct a thorough risk assessment. Consider factors such as cost, control, service quality, data security, and the potential impact on patient satisfaction. They should also ensure that they have strong legal contracts. Moreover, clear communication channels are also necessary to address any issues that may arise during the course of the relationship.