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Your Comprehensive Guide to Lab Billing and Its Outsourcing

Laboratories are a very unique part of the medical establishment, appearing in a number of sizes and iterations. However, while a hospital’s lab only accounts for 3 to 5% of the total revenue of a hospital, its findings make up 70 to 80% of a patient’s electronic health record (EHR) and formulate the most critical parts of healthcare decisions. For this reason, careful attention to the revenue produced by labs – as well as the working cash flow available to further technology, staffing, and providing other resources – means careful attention to improving patient outcomes.

While revenue is a critical point of focus for the medical laboratory, the primary workers who make up the majority of lab employees and directly influence it – the lab technicians – are most often not involved in the billing and revenue process. In fact, most labs across all laboratory types house their billing facilities separately from the other portions of the lab. This separation allows primary workers to focus on the laboratory information system (LIS), procedural equipment, and – most importantly – an ongoing mission to provide precise, accurate results and continue engagement with physicians and patients alike.

As such, laboratory medical billing requires a program built around the unique circumstances provided by a medical lab versus the procedures necessitated by a physician’s office or hospital visit. All labs are billed via a set of current procedural terminology – or CPT – codes. All the considerations named above require attention to what is a relatively complex billing cycle.


A Guide to Medical Laboratory Billing

Generally speaking, the medical laboratory billing cycle is the process of ongoing interactions between a physician or some other entity ordering a lab, the lab providing the services as directed, and the insurance company or other payer who provides compensation for the time, labor, and materials used. This billing cycle can take anywhere from several days to months at a time to complete, and it usually requires multiple interactions between the parties involved before its resolution. As mentioned, in most cases, laboratories have a completely separate coding and billing department designed to navigate the billing cycle.


Billing Begins

The billing cycle begins with an order from a physician or other entity via a code for the specific lab requested. After analysis of the specimen or sample is performed as requested, labs are assigned a diagnosis or procedural code according to one of two separate coding indices used by the medical and insurance industry. These codes provide the insurance company or other payer the necessary information to determine whether to pay the claim.


Laboratory Billing Codes

Laboratory billing utilizes two primary sets of codes set forth for such purposes. The first is known formally as the International Statistical Classification of Diseases and Related Health Problems and more commonly as the International Classification of Diseases, or ICD. The ICD is maintained by the World Health Organization (WHO) and is accepted as the international diagnostic and epidemiological standard. It provides a framework of diagnostic codes that classify diseases, symptoms, injuries, and other complaints.

The second code set, known formally as the Current Procedural Technology Code Set and informally as the CPT, is provided by the American Medical Association and identifies services rendered rather than a diagnosis. The CPT delineates all the various medical, surgical, and diagnostic services performed by US practitioners. It is designed to provide a set of uniform classifications for use by medical providers, patients, coders, insurance companies, and other payers.


Completion of the Billing Cycle

Once codes are determined, the lab collections and revenue cycle management phase begins. In most cases, the lab bills the insurance company or other payer directly or via a clearinghouse, using an ANSI 837 claim file submitted electronically on an electronic data interchange (EDI). Once received, the payer utilizes medical claims adjusters or even advice from medical practitioners to evaluate medical necessity, patient eligibility, and whether the provider holds the necessary credentials to perform the procedure.

Finally, if a claim is approved, the payer reimburses the provider at a pre-negotiated rate for a percentage of the billed services. Denied or failed claims are sent back to the provider as an explanation of benefits (EOB), who must then make corrections and resubmit the claim. In many cases, this process occurs multiple times until the payer makes the agreed payment or the provider accepts a partial payment.


Use Laboratory Billing Information to Grow Your Lab

While your laboratory billing information provides you with all the information necessary to identify areas for future growth, you can’t grow your lab without a knowledge of basic lab economics. On the simplest level of analytics, you should track your overall patient volume to determine daily and monthly patient activity at all locations. In addition, you’ll want to know the gross charges and CPT codes associated with each patient interaction.

On a broader level, you can then calculate the expected gross billing per month and compare it to your actual patient activity; this key performance indicator (KPI) will help you discern whether your average charge level is consistent with your expectations – more specifically, whether your billing is keeping up with your workflow. The revenue reports generated – representative of the cash your lab receives for its work – provide the clearest picture of how efficiently your lab billing department is operating.

However, your knowledge in this area needs to incorporate much more than just gross revenue. Instead, focus on the percentage of your cash collections to each related patient interaction, perhaps most accurately reported as the accrual rate for each payer. Then, compare these accrual rates and your relationships with each payer, with the cost of each different CPT coded procedure. Together with your other costs, including overhead and accession, you can use analytics to determine the profitability of each procedure, payer relationship, and client contract; use similar projections to gauge the profitability of opportunities moving forward.

Unfortunately, dysfunctional laboratory billing procedures can lead to the opposite effect within your lab. If improper coding or billing procedures are used, accounts receivable time can aggregate as claim denials increase. In general, if your AR is sitting at 40-50 days, your billing department is functioning at average, but if AR times are consistently 60 days and over, you’re risking a cash flow shortage. A shortage of cash flow to your lab can hamper your efforts to continue providing services or purchase new equipment.


Reasons to Outsource Laboratory Billing

To accurately glean the above-mentioned information so crucial to the representation of your laboratory’s daily, weekly, and monthly activities, many labs implement a software system to provide an electronic health or laboratory record. While these systems can improve your internal workflow, improve the communications between your lab, medical providers, patients and payers as well as help to streamline your billing process, simply installing a software program isn’t enough. You’ll need to dedicate time to properly analyze the data captured by your billing system and develop the skills necessary to glean information from it – primarily to identify strengths, areas of need, and opportunities for growth.

For many labs, outsourcing laboratory billing can be a way to achieve the necessary deep analysis while preserving financial, physical, and personnel resources for other essential activities. A much more thorough approach to billing than simply adding a software system, partnering with a laboratory billing firm can have numerous benefits. Benefits include:

  • Reduced operating costs and improved cash flow. Maintaining a laboratory billing department of your own involves the associated software fees, initial and ongoing training costs, and salaried, skilled employees. As the US healthcare system’s overhead costs balloon to approximately $190 billion USD, cutting your overhead costs by outsourcing your billing is a great way to reduce expenditures and promote healthy cash flow.
  • Elimination of billing and coding errors. According to NerdWallet, nearly 50% of Medicare claims reflect some type of billing error. What’s more, state of the art billing software further reduces your chances of encountering the coding or billing errors that can delay payments and increase your workflow and billed hours. Most importantly, accurate billing and coding results in improved data for your analysis.
  • Automatic verification. Improper verification and eligibility is the number one cause of claims denial. If you currently utilize an in-house staff to verify coverage, medical necessity, or other claims information, outsourcing your verification services can improve accuracy and reduce the number of hours utilized on procedures much more easily managed by an automated system. Better yet, you won’t need to invest time and effort into keeping staff up to date on coding changes.
  • Quicker processing and payment. Automating the above tasks results in the much quicker completion of your end of the billing cycle. Instead of the months often required for the processing of a typical paper claim, using an automated software system to file a flawless claim prepared by an expert coder can result in payment in just a few days.


Hire an Experienced Laboratory Billing Company

Your lab deserves every effort possible to improve efficiencies, increase revenue, and seize opportunities for growth. However, many lab managers simply don’t have the time, staff, or resources necessary to dedicate an adequate focus to the nuances of laboratory billing. For this reason, hiring a customized service and solution to help you manage your lab is a real opportunity for improved lab performance.

Finding the right laboratory billing company is key to your management success. While a simple internet search will produce hundreds of billing service providers, discerning the best among them is a crucial component to stimulating your cash flow opportunities. To that end, Med USA is your premium choice for lab billing companies in the United States and stands head and shoulders above other companies mentioned.



Med USA is a leading medical billing and practice management company that provides extensive outsourced laboratory billing services. These services are optimized to meet the unique needs experienced by medical laboratories in the US and provide flexibility and clarity to the laboratory billing process. Using an integrated electronic health record (EHR) system, all coding and credentialing is accomplished as a part of an automated workflow.

The result is a much quicker time to billing and payment. Over three separate case studies performed on the basis of just over two million individual patient visits, Med USA billed an average of 98% of all claims within 24 hours. In addition, Med USA closed 94% of all charts the same day.

Laboratory billing through Med USA resulted in the increased efficiency of its studied clients. By moving billing and other managed support services to Med USA’s dedicated billing firm, each company studied was able to focus resources on opportunities for growth. Overall, Med USA laboratory billing can provide as much as a 30% opportunity for revenue growth over time.


Other Lab Billing Service Providers

As mentioned, numerous lab billing service providers are in existence throughout the United States. You can consider options including:

  • Physicians Group Management – this firm was founded in 1981 and provides laboratory billing management as well as revenue cycle billing for physicians. They employ a custom-assembled group of billing specialists as well as an automated EHR to comprise a complete lab billing workflow.
  • Advanced Data Systems Corporation – Advanced Data Systems, known as ADS, hosts a team of laboratory billing specialists as well as a cloud-based platform called MedicsRCM. Overall, ADS touts a 10 to 20% average increase in lab revenue with use of its services.
  • Change Healthcare – Founded over 40 years ago, Change Healthcare provides medical and laboratory billing and accounts receivable services for a number of US-based healthcare clients. In particular, this firm boasts 1,200 dedicated employees which specifically service laboratory billing clients.
  • Infallibill – As a self-proclaimed alternative laboratory billing provider, Infallibill has spent the previous five years assembling a team of medical and lab billing specialists. Depending on your needs, Infallibill can provide a software platform alone as well as complete, third-party management of all your lab billing needs.


Laboratory Billing Services Are Likely a Positive Step Forward For Your Lab

Regardless of which particular ERM software or services your lab requires, managed laboratory billing services are a solution for your manning and analysis issues. Outsourcing your lab billing can result in quicker resolution of the billing process and supply better data. In turn, better data can help you identify loss leaders, improve your efficiency, plan strategically for growth opportunities, and drastically improve your cash flow.

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