Does Your Practice Need A Billing Service?

Michael Forman, DPM, FACFAS

Does billing eat up too much time in your practice? Are you overly dependent on one employee to bill for your practice? Are you losing significant money with your billing practices? With these questions in mind, this author discusses key considerations in assessing the billing process at your practice and key questions to ask if you are considering an outside billing service.

As practicing podiatric physicians, we are constantly trying to improve how we provide patient care. Podiatric medicine and surgery is an evolving science that requires constant updating of skills. However, we should not forget that the delivery of healthcare is also a business that needs our attention. From a business standpoint, having a smooth and efficiently run practice allows the doctor to concentrate on patient care.

   The benchmark for billing and collections in a well-run practice is 6 to 8 percent of gross income. This includes data entry, rental of office space, utilities, electronic or manual production of insurance claims, collection of money, posting payments to accounts, billing for balances, postage, collection of overdue accounts and the cost of office personnel to do these tasks. It costs money to perform these functions. If you can do this efficiently for 6 to 8 percent of gross billings without overloading an employee or the doctor, you are doing all right.

What You Should Know About Associated Costs

Biller. The most important employees you have in your practice are those who do your billing and collections. These are professional people who will command a decent salary. Salaries vary by location. Practices in New York City are going to have to pay a much higher wage than a practice in Biloxi, Miss.

   What is a fair salary? It is one that your employees can use to live a decent life and feel that you appreciate their contribution. I will use several examples of professional salaries for billers (see “Comparing Hypothetical Billing Costs For Different Podiatry Practices” below right). These examples are not meant as suggestions or guides. They are merely illustrations. Each situation is unique. Benefits vary. One biller may be married and covered under his or her spouse’s health insurance. Another may work less then 20 hours a week and not qualify for benefits. Another may be older and more expensive to insure.

   Also, you must take into account other benefits that your practice offers. Some offices have a bonus system dependent on the employee’s production. Some offices offer retirement benefits. Other offices include a gasoline allowance, etc. A good benchmark in determining the employee benefits (Social Security, retirement, health insurance, etc.) cost to the practice is approximately 30 percent of salary. That is, if your employee earns $25,000 a year, your actual cash outlay is around $32,500.

   Rental space. Your biller(s) will need a place to work. If you are paying rent based on square footage, multiply the charge per square foot by the space in use. If the space is not in use, you could use that space for some other productive purpose. What do you pay for rental per square foot? Do not forget that those who pay triple net leases will have to add the yearly assessments to that figure.

   Postage, forms and statements, and clearing house charges. You should take a monthly survey of the number of insurance forms that your practice generates as well as the postage to mail them. You can calculate the costs of the statements themselves and the postage. If you use a clearinghouse, you must calculate in that cost as well.

A Closer Look At Three Hypothetical Billing Approaches

Let us look at three different practices. These are fictitious doctors and practices, and do not resemble any people living, dead, or semi-comatose. Also please note the discrepancy in the type of practice. A strictly surgical practice will generate higher fees per patient visit and have to send out fewer forms and statements than a practice that deals more with the medical care of the podiatric patient. The latter type of practice tends to see more patients, has more patient charges and requires more employees.

   Alex Valgus, DPM, is a recent graduate of an excellent podiatric residency program and opened his office two years ago. He had a gross income of $100,000 in his second year of practice. Dr. Valgus is in the office 22 days a month and sees 12 patients per day. He sends out 3,000 insurance claims a year and 1,500 patient invoices. One employee does all the billing at her desk. The billing portion of this employee’s job does not require any additional office space. Insurance and billing takes approximately 50 percent of her time.

   Paul Bunion, DPM, has been in practice seven years. He has three employees, including a receptionist/office manager who spends approximately two-thirds of the workday on billing and collection. The receptionist/office manager is a $30,000-a-year employee. Dr. Bunion had a gross office revenue last year of $300,000. He sends out 5,000 insurance claims a year and 5,000 patient invoices. He sends most of the insurance claims electronically. Dr. Bunion has an office of 1,500 square feet and his billing office uses 100 square feet. The rental for his office is $25 per square foot.

   The Keratosis City Podiatry Group is comprised of three practicing podiatrists. They have seven employees. One employee and an assistant are designated as billers. The primary biller commands a yearly income of $33,000 and the assistant receives $15,000 per year. The Keratosis Group had a $1 million gross last year. They submit 15,000 insurance claims a year and 4,500 patient invoices. They send most of the insurance claims electronically. Of their 3,800 square foot office, 150 square feet are designated as a biller area. They pay $26 per square foot per year.

   Let us look at their billing expenses per year (see “Comparing Hypothetical Billing Costs For Different Podiatry Practices” above).

   These scenarios demonstrate the financial savings to a practice with outside billing. That is not all, folks. There are a number of other factors to consider.

How Billing Services Can Provide Security And Peace Of Mind

It has been said that “one” is the most dangerous number in your office. If you have only one employee responsible for a particular task or set of tasks, that employee can “hold you hostage” at salary review time. In addition, the only supervision this employee has is you. Close personal review of everything that goes on in the office is almost impossible. I have personally been embezzled twice that I know of.

   Your biller may decide to leave at any time for any number of reasons. There may be an illness in the family, retirement, a new job, a disagreement with you or co-workers, or even death. The employee may also be terminated for a variety of reasons. At best, you will get two weeks’ notice. If you have more than one employee working on billing, you are very fortunate and if you decide to do in-house billing, please re-read the previous paragraph.

   The more people working in an area, particularly in a relatively small area as is the case in most practices, the more it can lead to internal conflict. When two employees are butting heads over a vast number of possible conflicts, the patient care and production will suffer.

   Podiatric coding is a constantly changing field. The doctor and his biller(s) must continue to update themselves on changes in billing codes and procedures. This is necessary to keep you out of trouble and take advantage of new opportunities to bill correctly for services you perform. At a minimum, those involved in billing (which should always include the doctor) should attend at least one podiatric billing course, read Codingline ( ) by Harry Goldsmith, DPM, and one of the coding manuals such as Podiatry Coding and Billing Alert.

Is Outsourcing The Answer?

Outsourcing your billing may solve many of the aforementioned problems. Selecting the best billing service to use is paramount. Let me suggest some questions you can ask of a prospective billing service to help you decide if this is for you and assist you in finding the right one for your practice.

   1. What percent of the billing service deals with podiatry? It is not necessary to have a service that is exclusive to podiatry but it is important that the service is experienced in dealing with the nuances of our billing. We contend with Q codes, toe modifiers, identifying primary care physicians, date of last service, listing the code in proper sequence, and multiple procedures per date of service (11720, 11719, 11055 and maybe a 10060). If the answer is, “Yes, we have podiatric experience,” your next question is “How many podiatric clients do you currently service?”

   2. Does the service have many employees working your account or is there one person who is responsible for your billing? If the person responsible for your billing is ill for a day or longer, or leaves the service, who will take on the responsibilities of your account?

   3. What is the time interval between receiving the encounter form and the time the insurance company or patient gets a bill?

   4. How does the service produce the encounter slips? Can the service produce the patient information on the encounter form such as previous balance or insurance company?

   5. What are the services’ fees? What do they include? Most services charge between 6 to 8 percent of the gross monies collected. This should not include payment for services that your office collects (i.e. cash visits, creams, lotions or pads). Does the fee include statements, stamps and stationery?

   6. Is there a start-up charge? How much?

   7. Is there a limit on the number of calls the office can make to the service requesting information?

   8. Is there a minimum amount for which the company will send a statement?

   9. What is the policy on collections? How often does the service send statements? How many statements do patients receive before “further action” is required? What are the “further actions” they provide? When is legal action advised and does the practice make the final decision on that?

   10. What reports can the billing service generate? Can it separate charges and payments by physician and location? Can it send you a copy of one of these reports as well as a copy of an accounts receivable report? Are these easy to read?

   11. How does the practice access the information on each account? Is the information online? Can you download the financial information or do you have to go to the service’s Web site to access the information? Who handles the money? All checks by both the insurance company and patient should go to a lock box, not the billing service. The billing service should not handle any money.

   12. How does information transfer between the practice and the service? How do the encounters transmit to the service (mail, fax, delivery service or scanner)? Scanning encounters is the most accurate and fastest method.

   13. Does your biller credential you with insurance companies? We recently moved our office from one floor to the next. Medicare alone requires a 28-page application. How can your billing service help you?

   14. Where are the backups kept? Is all of the information on your office computer and does the billing service get online access to your office? Alternately, is the information stored at the off-site location and backed up at a third location? If your financial information is only located in your office, a fire can severely cripple your practice. This is a good reason to use electronic medical records, which can keep your notes off-site.

Making Final Decisions On Your Billing Procedures

Objectively estimate what percent of your gross income the billing process consumes. Subjectively determine your willingness to handle this function in your practice.
Not all practices will benefit from outsourced billing. I recently looked at a practice with three doctors and two locations that grosses $900,000 a year. They employ one full time and one part-time employee for billing/collection. They pay considerably less than 6 percent of the gross for this entire function. In addition, the senior partner closely follows the billing and collection process. In this case, based on the numbers and personalities involved, I advised against outsourcing.

   Calculate what you are paying now, decide what involvement you or your partners are comfortable with, and then check out at least three to four billing services that handle mostly podiatry claims. Sign no more than a one-year contract. Get references. Be an intelligent consumer.

   Consider the following factors: billing expenses for one year, rental space, biller’s salary, biller’s benefits (usually 32 percent of salary), cost of statements, stationery and postage. This sum is the total cost of billing expenses. Divide your expenses by your gross income (total money received). This is your percent cost of billing. Compare that to the cost of a billing service. Factor in security, office harmony, peace of mind and training.

   Dr. Forman practices at Northern Ohio Foot and Ankle Associates and at Forman Forensic Services.

   Editor’s note: For related articles, see “InHouse Billing: Assessing The Pros And Cons” in the October 2006 issue and “Inside Secrets To DME Billing” in the January 2005 issue.

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