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The doctor is outsourcing: To hire or not to hire

You can employ a service to handle about any staff task or duty your office needs. But should you?

By Tyler Chin, amednews staff. Aug. 11, 2003.

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Many physicians hire someone outside the office to handle billing and transcription, but you don't have to stop there. Just about anything can be outsourced -- from watering plants, copying medical records, filing and coding to practice management, technology, collection, payroll, employee benefits administration and even nursing.

But should you outsource any or all of those functions?

That depends on your personality, practice size and priorities, said Jennifer Bever, an associate at Karen Zupko & Associates, a Chicago-based consulting firm.

Outsourcing can save money and offer access to a higher level of professional expertise and service that doctors couldn't afford to hire or find on their own, observers say. It also can let doctors shift the hassles associated with a specific function to somebody else, freeing them to practice and generate revenue, said Michael Weinstein, MD, a gastroenterologist at 12-doctor Metropolitan Gastroenterology in Washington, D.C.

But outsourcing also can be risky.

"The downside is you can lose control," said Louis Korman, MD, one of Dr. Weinstein's partners. "You can be taken. There are a lot of people who think that doctors' practices are just money mills they can take advantage of."

To prevent that from happening, Dr. Korman's group, which outsources practice management, technology and billing, spells out in its contracts what benchmarks the companies providing those services must meet and regularly monitors their performance.

"You can't just give the service to them," Dr. Weinstein said. "You have to tell them what benchmarks and goals you expect them to reach. And if they don't, tell them you will take the service someplace else."

Physicians who are just starting out or don't have experience running a practice might want to consider outsourcing billing in particular, Bever said. "One physician generates only so much revenue, and to have to deal with all of the billing can be a burden."

There are scads of billing services out there, but "it can be hard to find one that does a really stellar job," she cautioned. "The trick is the billing service needs to understand your specialty. Every specialty has a different set of codes that it uses, and so it has different reimbursement issues with insurance companies."

Outsourcing also makes sense for groups that have five to 15 doctors, said Michael Mosher, president of Beacon Services LLC in Indianapolis, which provides outsourcing and consulting services to physicians. Those practices generally can't "afford to have all the intellectual capital" in-house that companies offering a broad base of services can draw upon, Mosher said.

It's not for everyone

Physicians who require absolute control probably shouldn't outsource. "If you're the kind of person who, for example, will go over to the billing service every day, then eventually that's not going to be very helpful," Bever said. "The billers will be whacked out that you're visiting every day, and you'll probably get tired of driving there every day."

Deciding whether to outsource can be tough, because it doesn't necessarily save money. Outsourcing can cost more than doing something in-house, but offer benefits that justify it.

Metropolitan Gastroenterology made that trade-off in 1999 when it started paying a management services organization to provide an on-site practice administrator, plus human resources, accounting, payroll, legal and consulting services.

The group is probably paying the MSO 5% more than it would cost to handle those jobs itself, Dr. Weinstein said. But it doesn't think that taking on the headaches and aggravation associated with managing a multimillion-dollar operation with 80 employees is worth making the switch to in-house.

Dr. Weinstein did much of it himself for three years "and my life was miserable." He was practicing full time and managing the practice part time. The office manager had risen through the billing ranks but lacked the professional skills to manage a bigger business.

"That wasn't a big deal when we were a smaller practice, but once we got to be a bigger practice ... we never could go more than a few weeks without some catastrophic employee problem. I definitely wasn't very good at that," Dr. Weinstein said. "It's very hard to fire people, it's hard to find good people, and stuff like that."

The group is happy with how the MSO-provided on-site administrator has performed. As skilled as the administrator is, however, the group isn't interested in putting him on its payroll.

"There are some advantages" to not having him on staff, Dr. Weinstein said. "The biggest one is that if he's not doing a good job, I don't have to worry about firing him. I just have to say to the company, 'Hey, this guy is not doing a good job. I want somebody else.' They have to worry about firing him, and firing high-level people is not easy to do."

Metropolitan Gastroenterology also pays a monthly fee to access physician practice management software as a Web-based service instead of buying, installing and maintaining it in-house.

The cost is about the same or slightly higher than what it would cost to buy a system, Dr. Weinstein said. But the group didn't have to make a large up-front investment, and it doesn't have to pay for upgrades or hire someone to maintain the technology.

Saving money motivated Cincinnati internist Marshall McHenry, MD, to outsource billing when he started a solo practice in 2000.

He pays an outside billing service 6% of collections, or about $20,000 to $22,000 annually, he said. In contrast, an in-house biller would have cost $30,000, including benefits, and a billing system would have cost several thousand, if not tens of thousands of dollars, Dr. McHenry estimates.

Also, had he hired a biller, he would have had to factor in training and vacation time, and figure out how to avoid down time that could have seriously hurt his practice.

"Billing is very complex, and in order to keep abreast of it, billers have to have continuous training, so you lose them out of your office for some time, and they don't do the billing that you need done [daily]," he said.

Although some billing services charge physicians on a per-claim basis, Dr. McHenry prefers to pay a percentage of collections because he believes that gives billers a compelling incentive to go after the money that's difficult to collect.

"I don't want them churning out claims, because that doesn't help me," Dr. McHenry said. "What helps me is for them to get the money to me. They look at it as 6% of the money being theirs, and they want it. It's a wonderful incentive."

He also thinks he gets more expert billers through outsourcing, which in turn means he leaves less money on the table. Dr. McHenry contends that he gets about 10% more -- $35,000 to $40,000 a year -- than he would have had he hired someone to handle billing. Because it's a specialized skill, it can be hard to find good billers in the local labor pool, he added.

Meanwhile, back in the house

Unlike Dr. McHenry, four-doctor Primary Care Family Practice, of Colonial Heights, Va., prefers to do its own billing because it thinks it can do the best job.

It does outsource collection and payroll, an arrangement that allows it to focus resources in areas that are more beneficial to the practice, said Administrator Bill Webb.

"Our time is better spent fighting with an insurance company to get paid what our contract calls for, appealing a claim that they denied or contract negotiations," he said.

The Virginia practice used to outsource transcription but this year brought that function in-house, Webb said.

Initially, outsourcing was cheaper than keeping one part-time and two full-time transcriptionists on the payroll. But as the vendor steadily raised its rates, the outsourcing cost eventually exceeded the in-house cost.

The hassle of hiring and managing transcriptionists made the practice hesitant to switch back, but another vendor rate hike -- which would have boosted the annual cost from $90,000 to $150,000 -- tipped the balance, Webb said.

Instead of hiring transcriptionists, however, the group shelled out $50,000 plus a $10,000 annual maintenance fee for a speech recognition system.

The group also stopped outsourcing other functions. For example, it used temporary clerks in the past but found the experience unsatisfactory.

"We've not chosen to outsource staffing, because that's never a solution to a staffing issue," said Joseph Leming, MD, a family physician and the practice's president.

"The workers are transient," Dr. Leming said. "They are here just for a brief period of time; as soon as you finish training them, they are gone. That's not very helpful in terms of institutional memory and business."

Another reason Dr. Leming doesn't use temporary clerks is that they cost substantially more than in-house workers, typically twice what it would cost to put hourly clerks on the payroll.

"In business today, in order to survive, make ends meet and pay the bills, every service we do has to be evaluated based on whether or not we can perform that service at a lower cost with more reliability and quality in-house or out-of-house," Dr. Leming said.

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