As economic pressures take hold of medical practices and strain their resources, addressing the concept of opportunity cost becomes increasingly instrumental. In microeconomic terms, an opportunity cost refers to the value of an alternative that must be forgone in order to pursue a specific action. Put another way, it’s the benefits you could have received by taking an alternative action.

Medicine is rapidly evolving into a hybrid of medical care (patient care) and non-medical care (business management, billing, etc.). Unfortunately, unless resources are unlimited, we cannot devote time to one without sacrificing time devoted to the other. That is the applicable opportunity cost.

Economists use what’s known as a Production Possibility Frontier (PPF) curve to explore where maximum growth potentials exist.  

Below is a possible PPF curve for Acme Podiatry. It demonstrates the “something has to give” concept of opportunity costs.  

Now, let’s consider the true costs associated with the billing process of a practice. According to national averages, a full-time biller costs approximately $35,000 per year (salary, taxes, benefits), and for each $600,000 in collections,  a full-time biller is required. So a practice doing $1.2M in collections would typically require 2 full-time billers. According to these national averages, the cost of a biller related to collections would be 5.8%. But that accounts for only human resource cost. We also need to consider the costs of technology, training, office space, and other related expenses. Just as the PPF curve explains the opportunity cost associated with medical care versus non-medical care, there are opportunity costs associated with all the additional biller expenses noted above. The total cost of each biller could easily exceed 8%. 

What if the biller was not specialized or he/she also handle other tasks within the practice? What if he/she was not trained enough to work as accurately and as fast as possible?

The real objective of maximizing growth is NOT to “move along” a PPF curve and give up something to gain another. The real growth comes from “shifting” the PPF curve outward through “specialization”, which requires outsourcing.          

In the PPF curve above, Acme Podiatry decided to outsource its billing to “highly specialized and trained” billers. They did so for barely the cost associated with ONLY their current total billing costs. However, this specialization allows for an outward shift of the PPF curve, so that at any given point of medical care, collections are significantly greater. Now that’s economic growth!  

So what does it really cost you to perform billing in-house?

It’s essential that you consider:

Human Resources (salary, benefits, taxes)                                                      $_____________

Technology (computers, etc)                                                                             $_____________

Postage                                                                                                                $_____________

Physical opportunity cost (office space in sq feet x cost per sq feet)            $_____________

Human opportunity cost  (losses on time spent on non medical care)           $_____________        

Human error/ claim rejections associated with nonspeciailization                  $______________

TOTAL                                                                                                                   $______________

The next time you consider outsourcing, always keep in mind the Production Possibility Frontier Curve and truly understand your current costs and opportunity costs.