By Cody Raich, Executive Data Analyst
During the past five years, we have seen many billing companies lower their cost for services. When this trend is examined, it becomes apparent that the lower cost is available because these billing services are offshoring their services.
- As medical billing companies increasingly look to offshore their services, many health care providers are now weighing the potential savings of going with an offshore company against the familiarity offered by onshore billers.
- However, rather than forcing health care providers to choose a side, Vachette Pathology and Stark Medical Auditing & Consulting predict the move toward offshore billing will force onshore billers to lower their rates to remain competitive.
I’m often asked, “How do these offshore companies compare?” This is always an interesting question. I usually tell the client what really matters is not where your billing is done, but how much you actually make. Now if you want to raise the American flag and tout patriotism while driving your 35 percent foreign car, watching your Korean TV and chatting on your Chinese iPhone I can respect that. But, the bottom line is what actually is going into your American wallet.
With your wallet in mind, let’s take a look at an example.
Group A is a hypothetical U.S.-based provider whose services totaled $14 million in annual charges for 2015. Let’s say payments received for charges were $2.7 million and the provider’s charges for onshore billing cost 7 percent of their payments, or $189,000 per year. Conversely, let’s say offshore billing costs merely 4 percent, or $108,000 per year.
Offshore billing cost = 4 percent * ($2.7 million) = $108,000 per year.
Onshore billing cost = 7 percent * ($2.7 million) = $189,000 per year.
Onshore – Offshore = $81,000 in annual savings (all outside variables held constant).
The obvious initial conclusion is that Group A will save $81,000 for the year if they do their billing offshore. As noted in the accompanying graph, if all variables remain constant over a ten-year period, the group would realize a savings of nearly $810,000 by switching to an offshore billing service.
However, for a group as large as this, a mere half a percentage point drop in collections will lose a surprising chunk of change ($70,000). In some situations a change in billers can lead to a 2 to 5 percent increase in collections after a switch.
Collection % = $2.7 million / $14 million
(Percent of charges that were actually collected in payments)
For example, 2.7 / 14 = .192 or 19.2%
But what if the biller increases the collection percentage? Based on our projections, that could equal huge gains ($140,000 for every 1 percent increase in collections plus the initial $81,000 would equal a potential of $221,000 more for that year alone). This is the “double whammy” possibility that offshoring your billing presents. Taking this chance and receiving this result could be atypical, but not completely outside the realm of possibility. If the right dominos fall, doctors and their practices could have a financial bump without additional charges.
So why aren’t more practices utilizing this opportunity for savings? The fact is, many billing services are moving offshore. Sure, they’ll still maintain an office in the U.S., but the actual billing is being done elsewhere. Still, many aren’t or simply won’t make the switch due to the fact that changing processes in billing can be arduous.
In reality, health care providers should look for the disparity between offshore and onshore billers to shrink in the coming years since onshore billers will likely be forced to lower their rates to stay in business. While onshore billers may initially believe their advantage in service quality will continue to allow them to collect higher rates than their offshore competitors, the truth is health care is shortsighted and billing companies are usually treated as homogenous commodities rather than unique. This will force onshore companies to do one of two things, either offshore their work as well, or decrease their rates to compete – likely at the expense of service quality. Physicians can use this knowledge to leverage their current onshore biller for a lower rate, or simply take their business offshore. At this point, physicians are left with the difficult decision of whether to embrace it for the lower rate at his own peril or demand that their current biller starts charging where supply meets demand.
As billing enters the global marketplace, the disparities between offshore and onshore billers will become less pronounced. We currently see offshore billing services narrowing the gap between themselves and their onshore competition, with both quantity and quality being comparable. However, the immediate question of “should we move our billing offshore” remains? The answer for every health care provider is in the numbers, and we at Vachette would like to offer our expertise to help you in making the best and most profitable decision for you and your practice.
Give us a call – 517-486-4262.