Reducing Hospital Administrative Costs Through Outsourced Billing

Reducing Hospital Administrative Costs Through Outsourced Billing

Hospitals are under more pressure than ever to reduce costs. 

A recent Kaufman Hall analysis of about 800 hospitals found a 21.3% decline in operating margins, and a 14.5% decrease in EBITDA operating margins between November 2018 and the same month in 2019. While the results varied regionally, the message was clear — many hospital decision-makers across the country face increased pressure to bend the cost curve and do more with less. 

Many tout innovation as the answer or even encourage the short-sighted solution of cutting staff, but one potential solution should be on every hospital’s short list, and that’s outsourcing administrative functions. One area proven to show the most potential for return is revenue cycle and specifically the function of billing.

Revenue cycle outsourcing can come in many forms and be customized to your hospital or health system’s goals. You have a range of flexible options including end-to-end, and co-sourcing, but dedicating your efforts to a strategic focus area of billing should be a consideration if you need to cut costs and improve the patient experience in 2020. Here are four reasons why.  

Reducing Overall Costs 

Your core competency as a hospital is taking care of your patients, meaning that expensive administrative functions should be up for outsourcing consideration. Many hospitals have become accustomed to the traditional strategy of keeping billing in-house, but this can be expensive. Costs of not outsourcing billing include:

  • Building space and supplies
  • Salary and benefits for staff
  • Acquisition, updates, and subscriptions to software and hardware
  • Direct claim processing fees

If you haven’t seriously considered outsourcing your billing, it might be time to sit down with your annual budget and examine just how much it’s costing you to keep the service in-house. 

Risk Sharing

One of the major drawbacks of keeping your billing in-house is shouldering unnecessary risk. More than ever before, billing functions involve operating in highly complex environments. This will only become truer as hospitals are forced to transition away from fee-for-service contracts and into value-based relationships that are uncharted waters for many organizations.                                                                                                                                                                                                                                                                                           

Working with an outsourced billing vendor is an effective way to share risks with a partner. In the case of billing vendors, they are more agile and focused on minimizing your billing risk, since this aspect of revenue cycle management is their core competency.                                                                                                                                                                                                                                                

If you think you might not be taking risks by insourcing billing, consider the effort exerted to prepare and respond to billing audits. When you outsource, this responsibility is taken off your plate and passed to your outsource partner. 

Labor Challenges 

Labor is a major administrative cost when you insource your billing, but challenges can run much deeper. 

Regional shortages of qualified billing professionals and retirement of your most knowledgeable people can leave your organization short-staffed, missing billing deadlines, and putting increased pressure on existing staff — a dangerous risk in a profession that’s already dealing with burnout issues

Whatever staff you do maintain also must be kept up-to-date with training, and billing and coding changes. Take, for example the costs associated with the transition to ICD-10. Hospitals invested tens of millions of dollars in IT, training, and computer assisted coding programs. While ICD-10 has passed, ICD-11 goes into effect in just two years, meaning that it’s time to begin the consideration process around insourcing billing and coding, or outsourcing the responsibility of adjusting to a new code set to experts. 

Navigating M&A

If your organization has been in involved in mergers and acquisitions, you might be a perfect candidate for hospital billing outsourcing. 

Combining multiple billing systems can be an especially arduous task, and one that gets more complex with every organizational change. Consider the fact that hospital acquisitions of physician practices has exploded 128% since 2012. If you’re handling billing in-house, each acquisition translates to increased work and complexity for your staff, but partnering with an experienced billing outsource partner can remove a large amount of the concern and free up your leadership to focus on other, higher-return issues. 

Moving Forward

First, if you aren’t aware of the time and expense that insourcing is causing, 2020 is the year to make those calculations and start painting a picture of your current environment. Next, it’s time to ask a few questions

  • Is our staff overly pressed for time?
  • Do we need expert support in insurance negotiations? 
  • Are our employees free to focus on activities that improve patient care and the patient experience? 
  • Could we improve our clean claim rates, decrease audit rates, and improve relationships with payors by enlisting the help of a specialized outsourcing partner? 
  • How much could we save by outsourcing our billing functions, including labor, direct claim processing costs, and software and hardware?


If you want to learn more about the nature of the relationship with an experienced hospital billing outsource partner, as well as about the benefits your organization could realize by stepping away from some of your in-house responsibilities, contact us and we’ll set up time to talk.