Labs Get Less Revenue as Billing Shifts Offshore

Use of low-rate medical billers may cause labs and pathology groups to see sharp revenue declines

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>CEO SUMMARY:In an attempt to cut the cost of clinical laboratory test billing, a number of clinical labs and pathology groups are using offshore billing and collections companies. These companies charge about half of what U.S. billers charge, but along with the low rates may come a sharp drop in revenue of 30% to 40% or more because these offshore companies may not resubmit all rejected claims or go after small amounts that are difficult to collect, billing experts said.

Seeking to cut the  cost of lab- test billing, a number of clinical laboratories and anatomic pathology groups have outsourced their billing and collections operations to offshore vendors.

This trend in the medical lab industry has not been reported widely. Thus, clinical labs and pathology groups using this collection strategy may be unaware that it could backfire by causing revenue to decline, according to medical billing experts.

Such companies outside of the United States charge 2% to 3% of the dollar amount they submit to healthcare payers. This rate is roughly half of the 5% to 7% that most billers in the United States charge, said Mick Raich, CEO of Vachette Pathology, in Sylvania, Ohio. The offshore companies are based in India, Indonesia, Pakistan, and the Philippines, among other countries.

Sharp Drop in Revenue “Although these labs pay a low rate to their  offshore  vendors,  they  may  see a sharp drop in revenue of 30% to 40% or more,” added Raich. “That’s because these offshore companies do not always pursue small amounts that are difficult to collect or resubmit all rejected lab test claims.

“I get calls at least once a month from a guy who says he has 600 people in some far-off place—such as in Bangladesh,” Raich commented. “These guys will offer to do billing for us at about 3%. This happens all the time.

“When we’ve audited these companies, we typically find their operations to be a train wreck because you definitely get what you pay for,” he added. “If your lab pays 3% or so of the amount an offshore billing vendor collects for you, most likely that company will do very little on the back-end to pursue difficult claims or the large number of lab test claims involving small amounts of money.

“The margin for these offshore companies is very, very thin,” continued Raich. “This means they  have  less  incentive  to appeal denials for small amounts or resubmit rejected claims.”

To be sure, Raich made an important distinction about offshore billing companies. “There are some very good billing firms who use some offshore services,” he said. “Actually, operating in this way

is quite typical. Those billing firms that labs may want to avoid have no, or a very minor, presence here in the U.S.”

Even at 6%, all medical billing companies operate on a thin profit margin, Raich added. “But in recent years, that margin became even thinner when healthcare providers—including labs and pathology groups—began sending much of their billing and collection work offshore in the pursuit of lower rates.

“One factor that encouraged labs to use offshore billing companies is consolidation in the billing industry,” noted Raich. “Over the last five to 10 years, large billing companies have bought out privately-held and mom and pop billing companies. Many of the smaller companies were either sold or rolled up into larger billing companies. The end result was that a lot of the lab billing work was shifted offshore.

“Over the past 10 years, the number of medical billing companies in the United States dropped from 5,600 or so to only about 2,600 today,” he said. “This move to offshore billing changed how much labs and pathologists pay for billing and collections to just 3% or even 2% in some cases.” At such low payment rates, it’s difficult for off- shore billing companies to cover their costs when working on some claims, he added.”

Less Claims Experience

Cyndee Weston, Executive Director of the American Medical Billing Association, confirmed Raich’s comments. “Offshore billing companies will charge 2%, 3%, or 4% where an American billing company has to charge at least 6%—because in the United States—billing companies must comply with U.S. laws,” Weston said. “And U.S. companies will follow up on all the claims whereas the offshore companies don’t have the personnel with the experi-ence they need to pursue claims that get rejected or are difficult to collect.

“So, whenever a claim doesn’t get paid, they just drop it,” she added. “American billers don’t do that. Instead, they’ll follow up to find out why the claim wasn’t paid, and then try to fix the problem so they can resubmit that claim.”

Two other factors come into play when labs use billing companies. “First, while the lower rates are appealing, off- shore companies may have a language barrier,” Weston said. Second, these companies may not invest in ensuring that their personnel have adequate training to do the job properly, she added.

Billing Different Payers

Raich agreed, saying the staff at offshore companies may not be knowledgeable about the intricacies behind lab test billing and may not be familiar with the rules for billing different payers, such as Medicare, Medicaid, other government payers, or commercial insurers.

“It’s not that the offshore companies are bad at what they do,” Raich commented. “It’s more that they’re not venerable. By that I mean they don’t have the people with 10 or 15 years of experience with clinical lab and pathology billing.”

Staff training and experience are important factors for all billing companies, because over the past five to 10 years, billing for clinical lab and pathology tests has become more complex. In addition, payers frequently change their rules about payment—sometimes without informing labs or pathology groups. Or, if they do inform labs, notices come with little time for labs to adjust.

Offshore companies also tend to operate under different rules. “For small  amounts of money, they just don’t care,” Raich commented. “Even for somewhat larger amounts, they may just let it go unpaid.

“We know from auditing different billers that they will have  a  benchmark  to  not pursue claims that are under certain amounts,” he added. “They won’t even work those claims, and that amount might be for every claim for certain clinical labs.

“For every lab and for every billing company there’s a margin, and that margin is the point of diminishing returns,” he explained. “That means that if an offshore billing company is working on a $50 lab-test claim, and if they’re paying their collections staff $2 an hour, the billing company collect that money. Getting 2% on a $50 claim produces only $1 in revenue.

“Offshore billers in India, Indonesia, or the Philippines may pay their staff $2 an hour to file lab test claims,” he added. “But paying so little means the offshore companies have even less incentive to pursue small claims.”

Most labs know that to succeed at lab and pathology billing takes a dedicated staff with years of experience. Any turn- over among the members of a lab’s billing staff or at a billing company can mean a drop in revenue.

For Ann Lambrix, Vachette’s Vice President of Client Services, large offshore billing companies often do not provide the customer service that labs and pathology groups need. “We continue to see problems when larger billing companies buy up smaller companies,” she said. “The advantage of having a small billing operation, with maybe five or so clients, is that these companies pay more attention to those back-end denials and processes.

High Throughput Levels “Smaller billing companies can have specific guidelines for each client,” she added. “But the bigger billing companies operate at very high throughput levels and so use the same processes for dozens or hundreds of different clients.

“The larger companies must run very lean operations with high levels of automation,” Lambrix commented. “When that happens, clinical labs and pathology groups don’t get the individualized attention that is common with the smaller mom and pop billing operations here in the United States.”

Problems with Offshore Billing Companies

While offshore Billing Companies offer lower rates, they also can create problems for unwary clinical laboratories and pathology groups, said Cyndee Weston, Executive Director of the American Medical Billing Association, in Davis, Okla.

One of those problems is that many states prohibit Medicaid managed care plans from paying billing companies that are not based in the United States.

“In most states, the Medicaid provider enrollment agreements prohibit providers from using offshore billing companies,” she said. “Or, at the least, the provider must notify the Medicaid department and request the use of an offshore biller. The Medicaid program then can deny that request.

“Most providers don’t know that, and the billing companies don’t always tell their clients about this regulation,” she added. “That means the provider that contracts for offshore billing may not get paid.

“Seeking to collect payment, the provider may file a lawsuit, but in some foreign countries, legal cases can take decades to resolve,” she commented.

In addition, offshore billing companies will often bill patients when payers reject claims, Weston noted.

“When claims get kicked back because the billing companies haven’t filed them properly, many times off-shore billing companies will just move on without any follow-up,” she said. “Especially with low-cost claims, they’ll often decide not to refile.

“Then, they may bill the patient for any unpaid amount,” she explained. “That means those patients may get a surprise medical bill.”

Balance billing some Medicare patients could be illegal.

Contact Mick Raich at; Ann Lambrix at 517-486-4262 or; Cyndee Weston at


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