Medical billing outsourcing means hiring an outside company to run your billing: charge entry, coding review, claim submission, payment posting, denials and A/R follow-up. The practice keeps ownership of its revenue and data and usually pays a percentage of collections. It is the wrong call when the problems start in your own front desk or documentation.
This page is the plain-language version. If you are already comparing costs line by line, our post on in-house vs. outsourced medical billing costs for 2027 budgets does the arithmetic. What follows is what you are actually buying, how the fee works, how to tell whether it is working, and when to keep billing in-house.
Why the question comes up in 2027 budgets
January 2027 brings more change than most years. The AMA’s CPT 2027 code set deletes 17 maternity codes, adds 12 and revises 6, retiring the global obstetric package. The AASM announced on 15 July 2026 that home sleep test codes 95800, 95801 and 95806 are deleted and replaced by six new codes. And, as proposed in the CY2027 PFS proposed rule (CMS, 14 July 2026 fact sheet; Federal Register 2026-14327), when a separately identifiable office/outpatient E/M visit and a 0-, 10- or 90-day global procedure are furnished on the same day by the same physician or practice, the most expensive service would be paid in full and the others at 50%. That item is proposed, not final.
For a practice with one or two billers, absorbing that much change in a single quarter is often what prompts the outsourcing question.
What medical billing outsourcing includes
A full-service arrangement typically covers:
- Charge entry and coding review. Charges are entered from the encounter, and CPT, HCPCS and ICD-10-CM codes are checked against the documentation before submission.
- Claim scrubbing and submission. Claims are edited for payer rules and sent electronically through a clearinghouse.
- Payment posting. Electronic remittances and EOBs are posted, contractual adjustments applied, and underpayments flagged.
- Denial management and appeals. Denials are sorted by root cause, corrected or appealed, and tracked to prevent repeats.
- A/R follow-up. Unpaid claims are worked before they age out. Medicare claims must be filed within one calendar year of the date of service (42 CFR 424.44), and commercial deadlines are set by contract.
- Patient statements and answers to patient billing questions.
- Reporting on collections, denials and A/R.
Credentialing and payer enrollment are often offered alongside billing, because a provider who is not enrolled cannot be paid no matter how clean the claim is.
What stays with the practice: registration, collecting the insurance card and copay at check-in, re-verifying coverage at the January plan change, clinical documentation, and the provider’s sign-off on what was done. Eligibility verification can be part of the billing company’s scope; at AMS it is, when it is contracted for. An outside billing team cannot bill well from an incomplete note.
The legal plumbing
Two rules shape every outsourcing contract.
The billing company is a business associate. HIPAA’s definition of a business associate expressly includes a company that handles protected health information for billing on a covered entity’s behalf (45 CFR 160.103). The practice must have a business associate agreement in place (45 CFR 164.504(e)) before any patient data changes hands.
Medicare money goes to the practice. Medicare will pay a billing agent directly only if the agent’s pay is not related to amounts billed or collected (42 CFR 424.73(b)(3)). Percentage-of-collections pricing is common, so under that model Medicare payments land in an account the practice controls, not the vendor’s. Check that the contract says so.
What it costs
Most billing companies charge a percentage of what they collect. The fee rises and falls with collections, instead of sitting on the payroll whether claims are paid or not. At AMS Solutions the fee is a transparent percentage of collections, set out in writing before anything is signed.
The headline percentage matters less than what it covers. Before you compare quotes, get answers in writing to four questions:
- Is the fee calculated on gross or net collections?
- What is excluded (patient statements, credentialing, old A/R, clearinghouse fees)?
- Who works A/R that existed before the start date, and on what terms?
- How do you get your data back if you leave?
Our September post on what medical billing companies actually charge explains the pricing models, and our contract terms checklist covers the clauses to negotiate.
How to tell whether it is working
Ask the company to report against definitions you can check. HFMA’s MAP Keys are the industry’s standard revenue cycle KPIs, and four make a good core set:
- Clean Claim Rate (CL-1): claims that pass edits without manual intervention, divided by claims accepted for billing.
- Remittance Denial Rate (AR-5): claims denied divided by claims remitted.
- Net Days in A/R (FM-1): net receivables divided by average daily net patient service revenue.
- Aged A/R as a Percentage of Total Billed A/R (AR-1): how much of what you are owed sits in each aging bucket.
Pull the same four numbers before you switch, so you have a baseline.
When outsourcing is the wrong call
Outsourcing is not always the answer, and a billing company that says otherwise is selling.
- Your problems start upstream. If the insurance card and copay are not collected at check-in, or notes do not support the codes billed, an outside team will bill those errors faster. Fix registration and documentation first, or at least at the same time.
- Your numbers are already good. If your own MAP Keys baseline (above) is stable and nobody is covering two jobs, cost alone is a weak reason to switch.
- Someone else already bills for you. If a parent organization’s business office handles your claims, a second vendor adds a layer rather than removing one.
- You want to approve every claim decision yourself. Outsourcing works when you manage by reports and exceptions, not by reviewing each claim.
- The contract fails the checks above. No business associate agreement, Medicare deposits into a vendor account, or no clear data return on exit are reasons to walk away from that vendor.
How AMS Solutions handles it
AMS Solutions is a physician-founded billing company, founded in 1992. We serve hospitals, clinics and practices nationwide with a dedicated team and AAPC-certified coders, and we operate as a business associate under a signed BAA. Our medical billing services cover the full cycle described above, and billing and credentialing sit under one roof. Coding references and cheat sheets are in our resources library.
If none of the warning signs above apply and your 2027 plan still points to outsourcing, see how our outsourced medical billing services are scoped and priced.
