Cost of In-House Billing vs. Outsourced Medical Billing
Oct. 28 2025, Published 1:45 a.m. ET
If you have been in the medical industry for a while, by now you must be aware that the healthcare sector has changed dramatically in just a few years. The change hasn’t been all good. Both small practices and large hospitals are facing numerous challenges, like increasing inflation, logistics problems, higher employee salaries, slow processes, billing and RCM errors, etc.
These problems are just a small fraction of the challenges that practices now face. But what many people in this industry do not realize is that the solutions to most of these issues lie in a single place. What? The answer is to outsource medical billing services and other operations. There are now thousands of billing companies in the country.
However, before jumping into making any big decisions, let’s explain the finances behind the in-house vs outsourced billing and RCM. So, let’s start.
Real Cost of In-House Medical Billing
Many healthcare providers initially assume that handling billing internally offers the most cost-effective solution. However, the actual expenses associated with maintaining an in-house billing department extend far beyond basic salaries.
Employee Salaries
Salaries are just a small part of the expenses and challenges. However, this does not mean that it isn’t a significant problem. Medical records specialists earn a median annual wage of $50,250 as of May 2024. However, this figure represents only base compensation. When you add the additional benefits, taxes, and overheads, this amount jumps to over $85,000.
Plus, you might know that a practice can’t work with a single biller or records specialist. You require a team, which, when compounded, costs a huge sum of money.
The Technical Factor
Medical billing requires sophisticated software. For efficient operations, this software needs to be in sync with other platforms like electronic health records, clearinghouses, and payer systems. Getting access to these platforms alone can cost your practice up tp $2,000 per month. Annual software expenses can easily reach $15,000 to $50,000 for multi-provider practices.
Additional technology costs include:
● Hardware purchases and maintenance
● Security software and compliance tools
● Regular system updates and upgrades
● Technical support and troubleshooting
● Data backup and disaster recovery systems
Hidden Operational Costs
Several less obvious expenses significantly impact the total cost of in-house billing.
For instance, the employee turnover in healthcare RCM is one of the highest of all industries and sectors. Healthcare revenue cycle roles experience turnover rates of 20-30% annually. Each departure costs approximately $15,000 to $25,000 in recruitment, training, and productivity loss.
Other overheads are even more troublesome, like utilities, equipment costs, and administrative tasks. These things add another 15-20% to your overall costs.
Claims processing errors, which occur in approximately 7-10% of manually processed claims, cost an average of $25 per reworked claim according to American Medical Association data.
Direct Cost Analysis: In-House vs. Outsourced Billing
Now that we have discussed in detail the costs associated with in-house billing and operations. Let’s do a comparison of the pricing models offered by the the leading healthcare RCM companies in the industry.
Most medical billing companies charge a percentage of collections. This percentage is usually in the range of 4% to 10% of net collections. If you think about this, you will realize that this is a much better option than in-house operations. This variable cost structure means practices pay based on actual collections rather than fixed overhead.
Some billing companies charge a flat fee per claim, typically $4 to $10 per claim. While this model appears straightforward, it can become expensive if actual collections fall below contracted rates. For example, a $6 flat fee represents 6% of a $100 claim but becomes 7.7% if the actual collection is only $78.
Performance Comparison
Financial benefit is one thing, but more important is the performance that you achieve. What good will pricing do if most of your claims are getting denied? So, let’s do a quick performance comparison of in-house vs outsourced medical billing.
Industry benchmarks reveal substantial performance gaps between billing approaches:
● First-pass claim acceptance: Outsourced billing achieves 80% first-pass rates compared to 68% for in-house operations
● Payment timing: 88% of outsourced claims are paid within 30 days versus 72% for in-house billing
● Overall collection rates: Professional billing services often achieve 95% or higher collection rates compared to industry averages of 85-90%
When to Outsource vs. Keep In-House
Consider maintaining internal billing operations if your practice:
● Has sufficient volume to justify dedicated billing staff (typically 5+ providers)
● Maintains complex, specialized billing requirements that require constant customization
● Possesses strong IT infrastructure and technical support capabilities
● Values direct control over every aspect of the billing process
● Can invest in ongoing staff training and technology upgrades
Outsourced billing typically benefits practices that:
● Want to reduce administrative overhead and focus on patient care
● Lack specialized billing expertise or experience high staff turnover
● Seek predictable, variable costs tied to collection performance
● Need to scale billing operations quickly or handle volume fluctuations
Wrapping Up
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Finally, we have reached the end of this blog. In our view, outsourcing is much better than keeping everything in-house. We also believe that we have provided enough evidence in this blog to convince you of the benefits of outsourcing.
So, make the smarter choice and make yourself and your practice free of unnecessary costs.
