Outsourcing Medical Billing vs Keeping RCM In-House: Pros and Cons for Private Practices
- Nisha Mehta, MD
- Sep 29
- 11 min read
Efficient medical billing and revenue cycle management (RCM) is a critical administrative function in every private practice, as proper and timely billing processes ensure the financial health of your practice. Delays in collecting payments for services rendered can directly impede practice cash flow, and create issues paying for fixed expenses and overhead. Private practices have the option of managing billing and RCM processes in house or outsourcing these services to an external company, and it’s a decision that should carefully weigh the advantages and trade-offs of each. The end goal should be to optimize the balance between maximizing collections and keeping private practice overhead reasonable, as well as using the in-house staff as efficiently as possible while understanding the burden that optimizing RCM can place on day to day operations. The right decision for your practice can depend on factors such as your practice’s size, the resources available, and your potential growth goals. Below, we cover the pros and cons of outsourcing vs. in-house medical billing services.
Disclosure/Disclaimer: This page contains information about our sponsors and/or affiliate links, which support us monetarily at no cost to you, and often provide you with perks, so we hope it's win-win. These should be viewed as introductions rather than formal recommendations. Our content is for generalized educational purposes. While we try to ensure it is accurate and updated, we cannot guarantee it. We are not formal financial, legal, or tax professionals and do not provide individualized advice specific to your situation. You should consult these as appropriate and/or do your own due diligence before making decisions based on this page. To learn more, visit our disclaimers and disclosures.
What is revenue cycle management (RCM)?
Revenue cycle management (RCM) includes all the administrative and clinical functions (including billing and coding) that contribute to the capture and collection of revenue generated from providing services to patients of your practice. This involves various tasks throughout the revenue cycle, including:
Insurance verification
Coding and charge entry
Claims submission
Payment posting
Denial management
Patient billing & collections
Financial reporting analytics
Effect revenue cycle management helps ensure your practice is properly reimbursed in a timely manner. Without such management, open claims can go unpaid for prolonged periods of time or may never be paid. Additionally, management of denials and appeals requires a timely follow-up and submission of records. All together, effective RCM is a team effort requiring a high level of expertise. Whether in-house or outsourced, it requires knowledgeable staff who are able to navigate the ever evolving and increasingly complex policies amongst insurance carriers as well as government insurance.Â
Outsourcing medical billing & revenue cycle management processes
Many practices outsource their revenue cycle management. Often times, this is for practical reasons such as that they don’t have the relevant experience in house, or because it doesn’t make sense from a financial standpoint to develop out a full cycle RCM team. However, there are additional benefits that practices may see in utilizing external expertise as well. With specialized knowledge, advanced technology (including the use of AI), and streamlined processes, the billing company may be able to run RCM services not only more efficiently, but increase overall collections.
Benefits of using outsourced medical billing services
Â
Increased efficiency for in-house staff: With staffing being so challenging (and expensive) for practices these days, how you utilize your on the ground staff is important. It also allows your staff to focus on patient care and on site needs.Â
Reduced billing errors: Specialized expertise and protocols can optimize coding and minimize billing errors, thus reducing the chances of claim denials, rejections, and audits. When looking at billing companies, ask about relevant KPIs to compare to your current billing practices.
Faster payments: With the staff and tools necessary to submit claims faster and by reducing denials and rejections, insurance companies can process claims and payments faster, speeding up your cash flow and improving predictability of payments for practice budgeting and management. When assessing RCM services, also ask about their average A/R cycle.
Maximized revenue: By providing a professionally trained staff (plus or minus enhanced AI enabled technology) for accurate documentation and coding services, proper billing practices, and optimized charge capture, medical billing services can help practices capture revenue a staff member might miss.
Reduced overhead costs: Outsourcing billing practices can reduce staffing needs (thus reducing overhead for things like benefits and office space), eliminate the need for in-house billing software and infrastructure, and can reduce time spent on addressing denials and reworking claims. All of these can provide significant cost savings.
Regulatory compliance: Medical billing services stay up to date with changes, helping ensure compliance with billing and coding guidelines, which minimizes the risk of associated penalties, audits, and legal issues.
Disadvantages of outsourced billing and coding services
Ongoing service fees: Staffing can be a huge expense for practices and outsourcing can reduce overhead, but outsourcing revenue cycle management comes at its own cost. There are a few different models billing services typically operate under, with one of the most common being a percentage of collections. While costs depend on several factors, typical percentages of collections can range from 4% to 10% of revenue. For high revenue practices, this very well may be more expensive in the long-run than having an in-house team. Explore fee models billing services use and what percentage of collections billing companies typically charge.
Less control/oversight of processes: Potential loss of visibility and oversight into your revenue cycle can be a huge drawback for practices. Without direct oversight or adequate reporting and real-time analytics from your billing company, issues like denied claims or slow follow-ups may be overlooked and thus not addressed in a timely manner, slowing down your cash flow. Make sure you work with a team that allows you maximal auditability and transparency.
Quality of services: The quality of billing and coding services can be highly variable depending on the exact company that you pick. The quality of the people they hire to do the work will vary, and the degree of oversight and training they have may be different. While you may be tempted to opt for the cheapest option, realize that this may come at a price and cost you lost revenue. For example, if the company is only making 1%-2% of collections, they have less margin to appropriately train staff, invest in software, and spend time chasing accounts receivable, all ultimately affecting how much you collect.Â
Lack of customization for solutions: Some RCM companies offer highly customizable packages that offer only medical billing or full end-to-end solutions with multiple options for add-ons depending on your ends. Others, however, may only offer standardized packages of services that may or may not fit the unique needs of your practice. In addition, they may not offer customization for integration into your practice’s current workflow, creating more work and a change in procedures when onboarding.
Creates vendor dependency: Your RCM company may offer access to technology that provides great insights and increased efficiency, but if their software experiences a technical glitch, your staff and patients will as well. If you have questions that need immediate attention, they may or may not have staff on hand, depending on their customer service availability and hours. And other factors, such as an internal staffing shortage, may cause you to experience a slowed revenue cycle, at least temporarily.
Pros and cons of having an in-house medical billing & RCM team
Depending on the size of your practice, the decision to have an in house team may be straightforward. For those practices that are very small, it likely doesn’t make sense to hire a full service billing team. For those that are very large, investing in an in house team will save you from paying a percentage of every claim to someone else. Many practices, however, fall in the middle, and should consider the following factors when deciding whether to handle revenue cycle management in house.
Benefits of in-house billing and revenue cycle management team
Greater control over processes: You manage your billing staff directly and maintain full oversight of every step of the billing process and revenue cycle.
Faster communication and issue resolution: In-house staff can quickly clarify or address any questions that arise regarding coding, documentation, or denied claims. With a dedicated team, this may help resolve issues faster.
Easier integration with clinical workflow: Your practice’s billing systems and processes, as well as staff training, can be customized to align precisely with your practice’s specific processes and preferences.
Fewer concerns about data management: Sensitive and protected patient and financial information remains within your practice’s internal environment, which can reduce data-sharing concerns and avoid any potential HIPAA issues.
Potential for an additional revenue stream:Â Practices with dedicated billing staff have the opportunity to leverage your internal team to provide medical billing services to other practices to bring in additional revenue by serving as your own medical billing service.
Disadvantages practices may encounter with an in-house team
Increased overhead staffing costs: Â Revenue cycle management involves numerous processes. Covering the end-to-end revenue cycle can take a lot of manpower and time and can require additional staffing, who also come with the need to pay benefits and provide office space.
Investments in software: While an in-house team eliminates ongoing fees for billing services, staffing isn’t the only related cost practices must cover to manage their revenue. Billing software often includes licensing fees and can require maintenance and even potential IT support.
Staffing challenges and disruptions: Most practices aren’t strangers to the struggles that can come with finding, training, and retaining qualified staff. All the efforts that go into the HR side cost time and money for other members of your staff. Small teams in particular can be susceptible to disruptions if a team member leaves or takes an unexpected leave, and having a few (or even one) person out for an extended period of time could result in backlogged RCM.
Limited expertise: In-house teams, especially for smaller practices that don’t require a large RCM team with members dedicated to specific tasks, likely won’t have the same level of experience and specialization as a dedicated revenue cycle management company. This can lead to more errors, which can cause denials, delayed payments, and compliance issues.
Â
Compliance rules & regulations:Â In addition to training staff to perform specific processes in the revenue cycle, practices also have to devote resources for staff to stay up to date on compliance rules and regulations, such as code updates and payor policies. This can require consistent and ongoing training, which can add further costs and manpower requirements. Failure to stay current can also lead to penalties and lost revenue.
In-house vs outsourced medical billing and RCM: how to decide
There is no one right answer for every practice when it comes to choosing between in-house versus outsourced billing services. There are several key factors to evaluate, which include:
Practice size and patient volume: Smaller practices may lack the resources and/or patient volume to justify hiring full-time billing staff or investing in expensive billing software. Larger practices, however, may have the scale to support an in-house team and the revenue to cover the overhead expenses while saving the practice significantly by keeping all the revenue collected.
Staffing capabilities and stability: As we mentioned above, staff turnovers and absences can create challenges and disrupt cash flow for practices. In addition, the administrative staff may not have the bandwidth to add these tasks to their existing day-to-day responsibilities for the practice, depending on the size of your staff and the learning curve required.
Growth & scaling plans:Â In-house billing teams require fixed costs of salaries, benefits, software licenses, training, etc. while outsourced RCM services often charge a percentage of collections. Depending on the stage and goals of your practice, different cost structures may benefit certain practices more than others. For example, a new private practice startup may wish to outsource services and forgo a percentage of revenue to help keep startup costs low in the beginning and may consider bringing services in-house later as they grow and have a reliable cash flow to help cover payroll. Practices looking to scale considerably by adding additional physicians to the team or bringing in another specialty may wish to establish an in-house team to save more in the long term.
Patient experience and satisfaction: Billing issues, either from an in-house team or outsourced service, can cause frustrations for patients, potentially leading to bad online reviews that impact your practice’s reputation and can cause a loss of patients and thus revenue. If patients have expressed pain points with your practice’s current processes (slow responses to billing questions, missing payments on their statements, etc.), it may very well be time to consider a change. As an aside, we have a member discount for an online reputation management platform. If this might be useful for your practice, visit our resources and perks for physicians in private practice page.Â
Requirement complexities and risk tolerance: Certain specialties have much more complex coding requirements and modifiers. Prior authorizations are also far more common and/or complex in certain specialties than others. Specialized billing services often have expertise to handle nuances and who can help navigate the latest HIPAA and payor rules and requirements. While a dedicated in-house team may have the resources and time to stay up to date (and may perform this better than a general billing and coding company), other practices may not feel as confident in their ability to stay current.
Another option: Consider a hybrid billing model for your RCM
If you find yourself landing in both camps on the debate to outsource RCM or not, also consider not just if outsourcing might be a good fit, but what level of outsourcing is the best option for your practice. When looking at outsourcing the RCM process, practices can outsource end-to-end RCM services to cover every step of the process, or they may opt for a hybrid approach and outsource only specific processes while supplementing other processes in-house.Â
For example, your staff may be well trained and have the time to handle coding and patient billing, while outsourcing claims submissions and denial management can alleviate a situation of administrative overload requiring hiring additional staff to handle the workload and improve efficiency. A hybrid approach may be able to help balance overall costs and efficiency to offer the best solution for your practice.
How do I find a billing or RCM service for my practice?
We know that outsourcing billing and revenue processes to a third-party is a huge decision for practices, especially when you’re looking for who to choose to manage your practice’s income and cash flow. We highly recommend spending the time to assess and vet potential companies. We’ve put together an article on questions to ask when considering a medical billing or RCM service for your practice to help. We’ve also covered red flags that a billing company may not be a good fit for your practice.
Word of mouth referrals can be one of the best ways to find options (though you should still do your own due diligence). We often get questions in our online physician community asking for recommendations from other doctors who have outsourced their services and can provide a first-hand account of what to expect.
Related PSG perk:
If you are exploring potential billing companies, our partners at Cosentus may be able to help. Cosentus​ has been highly reviewed by several members of our communities. They can help with credentialing, billing and coding, revenue cycle management, and accounts receivable services. As part of a perk for PSG members, they offer a free professional billing and coding review as well as 5% off services through our affiliate link with the code PSG5OFF.Â
Checking a company’s reputation and reviews online can also help. If you see certain patterns in reviews on pain points or frustrations other practices have dealt with, this can be a red flag to pay attention to.
Conclusion
Outsourcing medical billing and RCM processes can help streamline your practice’s operations, reduce overhead, and improve financial performance, especially for practices that are struggling to properly staff an in-house team or who are looking to grow but wish to limit their practice’s overhead expenses. Outsourcing services, however, isn’t always the best fit or the most cost-effective solution. An in-house team can be a great opportunity for a large practice that is looking to maximize its profit by cutting out middleman fees and who may even be interested in using their in-house team to offer services to other practices as an additional income stream.
The best approach depends on several key factors, and your practice may even benefit from a hybrid approach of having an in-house team handle certain aspects of the revenue cycle while hiring an RCM company to assist with others that have proven to be pain points for your practice.
Additional private practice resources for physicians
Explore related PSG resources:
We offer a free private practice educational series for physicians interested in virtual events to help you start and manage your practice. Sign up for our PSG weekly newsletter for alerts on upcoming events and registration links.