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What Is Third-Party Medical Billing? A Comprehensive Guide

Don’t know what is third-party medical billing, and how that works? Here are all the details about third-party medical billing that you want to know.

Working in the healthcare industry is quite complex as there are various entities involved in the provision and payment of healthcare services. One such entity is medical billing, which plays a very important role in the patient care payment reimbursement process. Healthcare providers often find it really difficult to handle the medical billing process as they have to ensure that claims are submitted accurately and in a timely manner alongside taking care of their patients.

Third-party medical billing is the process in which a healthcare service provider outsources their medical billing tasks to a professional medical billing service company. The medical billing company is then responsible for all the medical billing work that includes everything from submitting claims to insurance companies and following up on denied claims to collecting payments from patients or insurance companies.

In recent years, more and more healthcare practices are opting for third-party medical billing as it helps them in managing and optimizing their billing processes while improving their revenue cycles. By outsourcing the medical billing of their patients to third-party companies, healthcare practices are not just reducing their administrative burdens but also helping their healthcare staff to focus more on providing high-quality care to their patients.

How Third-Party Medical Billing Works?

Agreement and Data Collection:

Initially, the healthcare provider signs an agreement with a third-party medical billing service firm. This agreement includes information such as terms of service, charges paid by the provider for the services, etc. After the agreement, the medical billing firm starts collecting patient data and other necessary details from the healthcare provider’s records.

Claims Submission:

Next up, the claim submission process starts in which the billing company submits insurance claims to the concerned insurance company or payer on behalf of the healthcare provider. The billing and coding experts at the billing company take care of the claims submission process and they ensure that every submitted claim is accurate, complete, and complies with the insurance guidelines.

Payment Posting:

Once the insurance claim is approved by the payer or insurance company, the billing company records the payment in the billing system. The payment records include details such as deductibles, copays, or coinsurance along with any changes that occur in the records.

Denial Management:

If a claim is denied by the insurance company, the hired billing company will review the reason for the denial and appeal the claim if necessary. There are dozens of different reasons why claim denials occur which include incorrect patient information, lack of medical necessity, or missing documentation.

Patient Billing:

Once the claim is approved and no claim denial occurs then the billing company generates patient statements for any outstanding balances that are not covered by the insurance plan. These statements are later sent to the patient and they include details about payment options, such as payment plans or financial assistance.


Lastly, the billing company creates and provides regular reports to the healthcare provider on how their financial performance is going. These reports may include information such as claim volume, payment trends, and outstanding balance data.

Pros of Hiring a Third-Party Medical Billing Service:

Improved Revenue Cycle Management:

Third-party medical billing services have extensive knowledge and experience in revenue cycle management. They have coding and billing experts that help healthcare providers to optimize their billing processes while reducing errors and maximizing reimbursement rates. By leveraging the latest technology and their experience, they ensure claims are submitted quickly and accurately which results in faster payments and improved cash flow.

Cost Savings:

Outsourcing medical billing can save healthcare providers money in several ways. First, they can eliminate the costs associated with hiring and training in-house billing staff. Second, they can reduce the administrative costs of managing a billing department, such as software and hardware expenses, office space, and supplies. Third, third-party medical billing services have economies of scale, which allows them to negotiate better rates with vendors and suppliers.

Reduced Denials and Errors:

Medical billing is a complicated process that requires extensive knowledge of billing codes, regulations, and insurance policies. Mistakes can lead to claim denials, delays, and lost revenue. Third-party medical billing services have the expertise to reduce errors and improve claim acceptance rates. They use advanced billing software that automatically detects errors and inconsistencies before claims are submitted. This can significantly reduce the likelihood of denied claims and lost revenue.

Increased Compliance:

Medical billing is subject to a complex web of regulations and compliance requirements, such as the HIPAA law. Third-party medical billing services have extensive knowledge of these regulations and can ensure compliance with them. They have the resources to stay up-to-date with changes in regulations and can help healthcare providers avoid costly penalties and fines.

Cons of Hiring a Third-Party Medical Billing Service:

Communication Issues:

One of the biggest cons of hiring a third-party medical billing service is the potential for communication issues to arise. In the medical billing process, it is important to have effective communication between the healthcare provider and the billing company to ensure that billing is done correctly. Since a third-party medical billing service is taking care of the whole process, the communication between the healthcare provider and the billing company gets weak and this can lead to errors in billing, lost or delayed payments, and unhappy patients.

Less Control over the Billing Process:

When healthcare providers hire a third-party medical billing service, they heavily rely on the service to handle all billing-related tasks, such as coding, claim submission, and follow-up. This means that the healthcare provider has less control over the billing process, and if the third-party service makes any error in the billing process, it will result in lost revenue and unsatisfied patients. Moreover, the billing service is an external entity so it is not as invested in the healthcare provider’s success or reputation as its own internal billing staff would be.

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