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Billing and Collections in a medical office is fundamentally the most important aspect of determining whether your practice will be successful. Because of the complexity of the revenue cycle, your billing staff must work smarter, not harder. For example, if you are seeing thirty patients a day and only collecting for fifteen of them, you will be unable to sustain your operations on a long term basis. The problem will be compounded by the fact that you are paying an ineffective billing team who are producing substandard results. Often times, it is best to leave this complicated area of your business to a specialist.

First, you must recruit, hire, train and retain top talent. Let’s look at how much this typically costs a practice with four physicians. Per MGMA (Medical Group Management Association), it is reasonable to expect that you will need .75 billers/collectors per provider. (.75 staff x 4 providers = 3 billers/collectors) For busier practices, this ratio increases to one biller per full time provider.

One staff member will be responsible for capturing and posting all your charges. This employee will also need to ensure your charges have been coded to the highest level of specificity according to the documentation in the medical record. The second member of the billing department is needed to process claims and post payments to the patient accounts. The third staffer will spend his time performing insurance collections and appealing denied claims. All will be expected to answer patient questions regarding their statements and assist with collecting outstanding patient balances.

Let’s assume these three staffers average $30,000 per year with no budgeted overtime. They also receive two weeks vacation, three sick days , company paid medical, disability, life insurance and 401K/Profit Sharing. Each are allotted $1000 plus three days out of the office each year for continuing medical education. This time is utilized to keep their coding skills current and attend updates regarding the practice management system. Let’s also assume each staffer costs the practice $4200 for health insurance; $480 annually for disability; $60 annually for life insurance; $1200 for 401K/Profit Sharing; $1400 in continuing education and $3,000 in payroll taxes.

Total cost for each biller/collector comes to approximately $40,340 per employee. For a department of three, your staff costs total approximately $121,020 per year. Keep in mind, this calculation does not account for any possible overtime needed to cover when someone in the department is out sick or on vacation. It also does not include advertising costs for recruiting for these positions.

Now, let’s factor in the cost of workspace, computers, phones, a fax, a copier and office supplies needed to provide the resources for the billing department to perform their daily tasks. We will estimate each person requires about 150 sq ft of space to work. At $20 per square feet, the practice will pay an additional $9,000 annually (150 sq ft x 3 = 450 sq ft x $20/sq ft) for work space. This figure does not include property taxes, maintenance or janitorial service.

The computers, fax, phones, and copier have monthly expenses related to operations and maintenance long after the initial start-up expense. A conservative estimate of $300 per month for telephone would include four phone lines, a fax line, and a dedicated T-1 line for internet access. ($3,600 per year) The remaining costs associated with running the department are budgeted for paper and office supplies, including toner for the fax and copy machine. ($5,200 per year if you budget $100 per week) Postage cost will vary depending on volume. (another $5,200 per year if you budget $100 per week)
We are now at $122,020 in annual staff costs; $9,000 in annual expense for office space (excluding utilities, property taxes, maintenance and janitorial services); an estimated $3,600 for telephone; $5,200 for office supplies; and $5,200 for postage annually. The total estimated cost for a billing department of three equals $12,085 per month or $145,020 per year.

Finally, we have to tack on the expense of the practice management system needed to process our claims!!! Here you can expect an additional $2500 to $3,500 per month, not including the start up cost for implementation of the software application. Depending on the billing platform, implementation fees for a good practice management system can cost a practice several thousand dollars.

Adding the expense of the practice management system brings the estimate for a billing department of three staff members to a grand total of $14,585 monthly or $175,020 per year. The only thing missing from this equation is an experienced manager to supervise your billing staff. Your manager must be savvy enough to provide you with the financial reports needed to effectively monitor the financial health of your practice. How much will that cost you? Wouldn’t you rather focus on patient care? You’d refer a patient to a specialist, wouldn’t you?


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