Home 5 Lab Industry Advisor 5 Essential 5 What Can Go Wrong with Outsourcing Lab Billing and Coding?

What Can Go Wrong with Outsourcing Lab Billing and Coding?

by | Mar 24, 2023 | Essential, Lab Compliance Advisor, Reimbursement-lca

Lab leaders must be able to make a sound assessment of both the costs and benefits, and the liability risks involved.

No aspect of clinical lab operations poses greater compliance challenges than billing and coding. In addition to knowledge of complex and highly technical coding rules, accurate processing of claims requires an understanding of federal and state healthcare fraud laws as well as the specific billing and claims requirements of each payor that you bill. Finding and retaining a staff with these credentials and supporting them with the computer systems and IT infrastructure they need to ply their expertise is neither cheap nor easy. That’s why many providers choose to outsource their medical billing functions to third-party billing companies. However, to make this strategy work, you must be able to make a sound assessment of both the costs and benefits and, the liability risks involved.

The Advantages of Outsourcing Lab Billing

Creating and maintaining an in-house billing staff and infrastructure is a massive investment requiring significant and ongoing financial resources, including payroll, benefits, training, insurance, technology, office space, and other overhead expenses.

In-house billing and coding is also a constant source of stress. First, you face the challenge of integrating an entire department into your overall operation and electronic health record (EHR) systems. Then, as your lab business expands and pivots into new ventures and testing arrangements, the strain upon your billing staffing may become overwhelming. And if the team doesn’t operate at peak efficiency, billing errors become more likely. The result may be a breakdown of your entire revenue cycle and exposure of your lab to the risk of claims denials, reimbursement delays, and even liability under false claims and other regulatory requirements.

Entrusting billing and coding operations to a third-party billing company liberates you from these costs and risks. With outsourcing, you get the assurance of knowing that your claims will be processed by staff with expertise who not only know the current regulatory requirements but also keep on top of the constant flow of new rules and changes and how they impact your own billing and reimbursement. This frees up resources that you can redeploy to other operations and functions likely to increase the efficiency and profitability of your lab. Although it’s not cheap, outsourcing may be more cost-effective, financially stable, and sustainable over the long term.

How to Select the Right Billing Company

The biggest downside to outsourcing is that you lose control over your own billing and coding operations. You now must depend on the billing company to carry out these vital functions on which your business depends. That’s a leap of faith that you may live to regret. The good news is that there are things you can do to mitigate the risks of ceding control.

The first is to select a billing company that you can trust and that’s suitable for your particular lab. Make sure the company has experience and expertise in billing and coding the kind of lab products and services you furnish. Research and read customer reviews from labs and other providers that have contracted with the company. You can and should also ask the company for referrals to or testimonials from other clients about their own experience with the firm. Key questions to ask a billing company you’re thinking of hiring:

  • How many billers will be assigned to your account?
  • What kind of training do these billers have?
  • How soon will they be able to process your claims?
  • What kind of billing software do they use and is it compatible with your own?
  • How do they handle rejected claims?

Do Your Compliance Due Diligence

Outsourcing with an experienced and professional medical billing company reduces risk of billing violations and errors that may get you into legal trouble. However, it doesn’t completely eliminate liability risk. When your lab’s services are inaccurately coded or billed and submitted for payment, it’s a false claim that may trigger liability under the False Claims Act (if the payor is Medicare or another federal healthcare program) and other federal and state laws and private payor billing requirements.

It’s important to recognize that you’re at risk even if the billing company submitted the false claim to the extent it was billed under your unique provider number. In a scenario like this, your liability will likely depend on whether you knew or should reasonably have known that the billing company was submitting false claims for your services. Practical impact: To manage liability risks when entering billing and coding outsourcing arrangements, you must exercise due diligence with regard to whether the billing company’s methods and practices comply with applicable laws.

How can you evaluate a billing company’s compliance? One answer is to determine whether the company has implemented a compliance program that meets the standards that the U.S. Department of Health and Human Services Office of Inspector General (OIG) established for billing companies in 1998.1 Specifically, you should verify that the billing company’s compliance program includes or provides for:

  • Written standards of conduct for billing company employees, as well as written policies on upcoding, unbundling, balance billing, misuse of modifiers, waiver of copayments, and other risk areas
  • Designation of a compliance officer and compliance committee
  • Compliance education and training for all personnel, including special training and continuing education for billing staff
  • Anonymous hotlines and other mechanisms for employees to report potential fraud
  • Open lines of communication between the compliance officer/committee and billing staff
  • Prompt, thorough, and objective investigation of all reports of noncompliance
  • Use of discipline to enforce compliance policies and procedures and hold personnel accountable for violations
  • Regular auditing, monitoring, and reporting of compliance program effectiveness and implementation of necessary corrective actions
  • Responding to, reporting, and remedying overpayments or other potential violations detected

Compliance Tool: Use the Billing Company Compliance Vetting Due Diligence Checklist on the G2 website to find out exactly what to look for in carrying out each of these inquiries.2

Negotiate a Sound Contract

Once you select the billing company you feel you can trust to serve your needs and comply with regulatory requirements, negotiate a contract that will protect your lab’s interests. In addition to the usual business terms like fees, focus on provisions that will maximize transparency and enable you to hold the billing company accountable for its performance. You can achieve the latter objective by establishing key performance indicators (KPIs) or metrics that you expect the billing company to meet. Examples:

  • Days in receivables outstanding and/or percentage of accounts receivable older than 60 days to measure billing process timeliness
  • Clean claim ratio indicating accuracy and how many claims get paid on first submission
  • Net collection ratio, or payments divided by the result of charges minus contractual adjustments, measuring how much of what was collectable was actually collected

Require the billing company to provide you clear and useable monthly financial reports that include summaries interpreting each month’s results, highlighting trends and offering practical advice based on the data. There should also be a financial dashboard that you can access 24/7 to determine whether KPIs are being met.

Require the billing company to immediately notify you of any payment delays or issues involving your claims that arise and furnish prompt answers to any questions, comments, or concerns that you may have. Remember that what you’re looking for isn’t just a vendor but a partner who’s willing to work with you as part of a team.


Outsourcing can be an effective way to manage the costs and liability risks of billing and coding lab services you provide. But it’s not without risk. When you outsource, you relinquish control over your billing and coding operations. To manage these risks, you must select a trustworthy billing company, comprehensively vet its compliance program, and negotiate a contract that assures you maximum transparency and control over the billing company’s performance.


  1. https://oig.hhs.gov/documents/compliance-guidance/805/thirdparty.pdf
  2. https://www.g2intelligence.com/a-due-diligence-checklist-for-vetting-medical-billing-company-compliance/

Subscribe to view Essential

Start a Free Trial for immediate access to this article