Medical billing outsourcing replaces the fixed cost of an in-house billing department — salaries, benefits, software, clearinghouse fees, training and turnover — with a fee tied to what the practice actually collects. The usual mistake is comparing the fee against salaries alone. HFMA’s cost-to-collect metric counts the whole stack, not just payroll, and a 2027 budget should too.
Budget season is when this question gets asked, usually as “what do we pay the billers, and what would a company charge?” That leaves out most of the cost on both sides. Here is how to build a comparison that survives a board meeting.
Start with the right yardstick: cost to collect
HFMA publishes 29 revenue-cycle KPIs, the MAP Keys, as the industry benchmarking standard. One of them, Cost to Collect (key FM-6), is total revenue cycle cost divided by total patient service cash collected. HFMA updated that definition in August 2025, and the list of costs it says to include is the checklist for this comparison: salaries and fringe benefits, management vendors, subscription fees, outsourced arrangements, purchased services, software and hardware maintenance, bolt-on applications and the staff who support them, IT expense tied to the revenue cycle, record storage, contingency and transaction fees, legal fees, office overhead, and AI or automation workflows.
Two things follow. First, an outsourcing fee is already one of those line items (“outsourced arrangements” and “contingency fees”), so the honest comparison is cost to collect under each model, not salary versus fee. Second, the in-house column is longer than most budgets admit.
The in-house cost stack, line by line
Salaries. The Bureau of Labor Statistics counts medical coders within medical records specialists (occupation code 29-2072). Its May 2025 wage estimates, in the Occupational Outlook Handbook last updated 27 August 2026, link to state and metro data, which is where to pull a wage for your own market. BLS also reports a lower median wage for this occupation in offices of physicians than in hospitals, which is why the hospital across town can outbid you for your most experienced coder.
Benefits. BLS’s Employer Costs for Employee Compensation release for June 2026 (published 9 September 2026) puts benefits at 30.0 percent of total compensation cost for private-industry workers, against 70.0 percent for wages. On that average, every salary dollar carries roughly 43 cents of benefits on top.
Software and clearinghouse. Practice management licences, claim-scrubber subscriptions, clearinghouse transaction fees, eligibility-check fees, statement printing and postage, and the IT support behind them.
Training and code-set maintenance. The AMA’s CPT 2027 code set deletes 17 maternity codes effective 1 January 2027; the AASM (15 July 2026) confirms 95800, 95801 and 95806 are replaced by six new codes the same day; and CMS’s CY2027 Physician Fee Schedule changes, still proposed, would apply on or after 1 January 2027 (CMS fact sheet, 14 July 2026). Someone on staff has to learn those changes before the first January claim goes out.
Turnover and vacancy. BLS projects employment of medical records specialists to grow 8 percent from 2025 to 2035, much faster than the average occupation, with about 14,000 openings a year, many of them replacements. The vacancy itself carries a cost: Medicare claims must be filed within one calendar year of the date of service (42 CFR 424.44), and commercial payers set their own deadlines by contract. A vacancy of a few months in a one-biller office puts claims at risk of missing those deadlines.
Management time. Someone supervises the work, reads the remittances, and calls the payer that stopped paying. In a small practice that is the administrator or the physician.
The outsourced cost stack
An outsourced arrangement is usually priced as a percentage of collections, which converts most of the list above into one variable line. At AMS Solutions the fee is a transparent percentage of collections, set out in writing before anything is signed. What that fee covers, and what it does not, is where the comparison gets decided. Our September post on what medical billing companies actually charge walks through the three pricing models and the add-ons that turn a low headline rate into a high one.
Some costs stay in-house under either model: front-desk check-in (collecting the insurance card and copay, and re-verifying coverage at the January plan change), charge capture, and the provider’s own documentation and coding sign-off. Eligibility verification itself is part of AMS’s scope when it is contracted for. Budget for the in-house pieces on both sides.
One Medicare rule belongs in this section. Medicare will only pay a billing agent directly if the agent’s compensation is not tied to amounts billed or collected (42 CFR 424.73(b)(3)). CMS’s Claims Processing Manual, Chapter 1, §30.2.4, adds that those conditions do not apply when the agent merely prepares bills and does not receive and negotiate the payments. So under a percentage-of-collections contract, Medicare payments must go to an account the practice controls, not the vendor’s. Make sure the contract says so.
Side by side
| Cost category | In-house | Outsourced |
|---|---|---|
| Salaries and fringe benefits | Fixed; rises with each hire | Inside the percentage fee |
| Management and supervision | Administrator or physician time | Vendor account management; you still review reports |
| Software, clearinghouse, statements | Separate licences and transaction fees | Often included; confirm in writing |
| Training on annual CPT and PFS changes | Your staff, your time | Vendor responsibility |
| Turnover and vacancy risk | Yours entirely | Vendor’s, with continuity written into the contract |
| Fee behaviour when collections fall | Cost stays flat | Fee falls with collections |
The costs that never hit a line item
Two MAP Keys capture what a cheap billing department actually costs. Denial write-offs as a percentage of net patient service revenue (AR-6) measures reimbursement written off after denials, whether appeals failed or were never filed. Aged A/R as a percentage of total billed A/R (AR-1) shows how much of what you have billed is sitting in the older aging buckets. A department that looks inexpensive on payroll and expensive on AR-6 and AR-1 is not inexpensive.
For scale, one AMS client, a Michigan internal-medicine practice, cut accounts receivable by almost $300,000 after moving its billing to us; the details are in our case studies. That figure is one practice’s result, not a promise, but it shows where the money in this comparison sits.
How to run the comparison for a 2027 budget
- Pull twelve months of collections, by payer, from the practice management system.
- Build the in-house total using HFMA’s FM-6 list, not just payroll. Include benefits (your actual cost, or the BLS average of about 43 cents per salary dollar), every software and clearinghouse invoice, and a defensible share of administrator time.
- Get a written outsourcing quote that states the fee basis (gross or net collections), the exclusions, and what happens to A/R that predates the start date.
- Divide each total by collections. That is your cost to collect under each model.
- Adjust for what you are not collecting. Pull AR-1 and AR-6 for the in-house side; ask the vendor how it reports the same keys.
A billing glossary defining these terms is in our resources library.
When in-house still wins
A large group that can afford a billing manager, certified coders by specialty, and redundancy for every seat has the scale to run a strong internal department. A hospital-owned practice with a central business office already has one. A practice with a long-tenured, well-supervised biller and clean metrics has no reason to change on cost alone.
The practices that lose on the in-house model are the ones in the middle: enough volume to need two or three billers, not enough to survive losing one. If that describes your 2027 plan, run the numbers above and then look at how our outsourced medical billing services are scoped and priced.
Weighing a change to how your billing is handled?
Talk it through with us. We will walk through your current setup, what a transition would involve, and what it would cost, with no pressure to switch.
Book a consultationEstimate your current billing cost · More guides for practice owners & managers
