Critical Elements for an Accurate Total Cost of Billing

Critical Elements for an Accurate Total Cost of Billing

A miscalculation of the total cost of billing in a laboratory can lead to a weak bottom line and inferior laboratory accounts receivable performance. Often-missed line items, such as software maintenance, cost of reporting, business intelligence add-ons, and hardware costs, can result in a cost that's closer to four times greater than what was predicted.

For example, a laboratory that fails to account for all its billing costs may estimate billing cost to be $300,000 when it actually has costs reaching as high as $1.2 million. If that laboratory's annual revenue is $20 million, the perceived cost of billing would lead the lab to the erroneous conclusion that its cost of billing is a low 1.5%. But actually, it's a very high 6%. Therefore, without an accurate measure of the cost of billing as a percent of revenue, a laboratory will not recognize it needs to make changes to optimize its revenue and financial performance.

An important step toward an accurate total cost of billing is using a best-in-class billing solution to maximize your lab’s account receivables. XIFIN, a health information technology company grounded in a deep background of working with diagnostic clinical and financial data, has found that laboratories with traditional in-house billing solutions typically have a true total cost of billing between 4% and 6% of revenue. Conversely, clients of XIFIN RPM, a cloud-based solution designed to improve visibility, control, and profitability, typically see a total cost of billing of 2% to 3% of revenue, about half that of industry averages.

Vital Elements of Cost of Billing

To get an accurate total cost of billing, here's what you need to understand about expenses:


Since laboratory diagnostics represent just 2% of healthcare spending but 30% of all claims filed, many laboratories can have small margins. Therefore, you must minimize manual processes and labor inefficiencies that drive up billing staff costs.

Best-in-class billing solutions featuring an automated workflow can offload most of the routine work and decrease inconsistent actions and clerical errors while improving cash collection. The billing staff can operate more efficiently by concentrating efforts on the situations requiring human intervention.

Also, where most electronic systems allow claims to age within the system, best-in-class systems will actively review and manage submission deadlines. Problems, such as missed payments or payment discrepancies, are flagged, which lets the billing staff monitor and deal with aging claims in real-time, rather than after the fact.

With up to 40% of laboratory claims likely to have missing or inaccurate information, business process automation is critical to cost-effectively reducing these errors. A billing system that applies machine learning and other statistical techniques to clinical, diagnostic, and financial data can then gain new insights and make that data available with visualization tools and business intelligence analytics. This profound information is then used to drive process improvements. In revenue cycle management (RCM), this often takes the form of integrating the machine learning-derived feedback into an RCM workflow, which enables staffing optimization. Machine learning-driven data analyses fuel new insights, improve operations, optimize staff utilization, support better decision making, and increase forecast accuracy.

System Edits and Claims Submission

Data maintenance can be time-consuming and costly. Often overlooked in terms of contributed cost is the billing staff required to maintain billing logic updates, claims submission, and other data maintenance. A cloud-native application, such as XIFIN RPM, has no installed software or software maintenance. Seamlessly performed updates are part of its managed services. Users experience cost savings because the cloud-based service offloads the work from laboratory staff and maintains and upgrades the software at their end. In addition, best-of-class billing solutions can help avoid:

  • Falling behind on edits and updates. Failure to stay current can lead to costly claim errors and delayed or reduced reimbursement.
  • Non compliant activities, which can be very costly. Remember, the OIG might interpret a billing staff mistake as fraud, which can result in severe penalties.
  • PAMA reporting noncompliance. Strict penalties surrounding PAMA noncompliance can reach as high as $10,000 per day.

Administration, Reporting, and Financial Analysts

Administration costs, such as end-of-month reconciliation and general ledger work, also affect total cost of billing. Accounting staff can spend many hours trying to tease numbers out of the billing system that accurately represents the laboratory's revenue performance. Therefore,  make sure to use a revenue performance management solution with full referential integrity. That means it balances every client to the penny. Also beneficial is a complete end-of-month accounts receivable package that is ready for the general ledger, which erases the many hours staff traditionally spend on this critical task and facilitates the laboratory leader's ability to monitor key performance indicators.

Your billing solution should include an enterprise-grade data warehouse and business intelligence (BI) functionality that enables access to and analysis of complex diagnostic and financial data. A rich set of BI reports, dashboards, and benchmarks, and access to BI specialists and financial analysts are also laboratory must-have’s. For example, XIFIN's BI delivers easy access to reporting and business performance metrics, whenever and wherever needed, erasing some of the traditional software vendor's reporting costs.

Coding and Classification Development

Laboratories seem to always be on the cusp of significant changes that impact their systems. For example, moving from ICD-9 to ICD-10 was laborious. Changes like these require labs to pay their software vendors for additional development work, which may include exorbitant fees and difficult-to-meet timelines. Overall, coding and classification development is a complicated process that requires accurately managing many details, along with regular re-evaluation and updates.

While traditional billing systems allow some flexibility in establishing expect pricing, there are often limitations, such as only being able to address generalized rather than specific payor/plan rules.

While one option is to manually adjust expect prices, this significantly increases the likelihood of error.

Make sure your billing solution handles code management changes as part of a normal updating process without additional charges.

Hardware Maintenance, Software Licensing, and Upgrades

Using a cloud-based system like XIFIN RPM erases for the most part hardware needs and costs. Other than PC hardware and network connectivity necessary to reliably and securely access the Internet, there are no initial or ongoing hardware costs.

Laboratories are usually surprised by annual software maintenance fees that can be upwards of 20% to 30% of an installed software price. If the lab chooses to forego the upgrade, performance can degrade, prompting workarounds resulting in more costs. Since cloud-based solutions have no installed software, there are no software maintenance requirements or cycles. Updates are handled by the solution provider as part of the service offering.

According to the OIG, laboratories that use proprietary billing systems are highly susceptible to fraud issues. In its report, “Medical Billing Software and Processes Used to Prepare Claims,” the OIG states that “software developed for a single individual or a [provider] probably poses the greatest risk of financial harm to the Medicare program,” and “proprietary software, and not commercial software, poses the greatest risk of being intentionally designed to produce improper or inaccurate claims.”

Clearinghouse Costs

A billing solution with an advanced cloud-based technology platform can eliminate a large portion of a laboratory's clearinghouse costs by efficiently submitting a large percentage of claims directly to payors. This process reduces clearinghouse costs by 90% or more.

Contractual Allowances or Bad Debt

The extent of unnecessary third-party write-offs is often difficult for laboratories to identify. These claims happen when the amount collected is lower than the contracted pay rate. In traditional billing systems, these discrepancies are frequently incorrectly attributed to contractual allowance instead of being recorded as bad debt. Under current accounting rules, eliminating this erroneous bad debt represents an increase in revenue, which would directly affect the total cost of billing, as measured as a percent of revenue. The benefit is still more significant because correctly identifying these items as (potentially recoverable) bad debt rather than contractual allowance enables a laboratory to take steps to recover this otherwise lost cash.


Many laboratories struggle to get a precise accounting of net revenue, despite the guidelines and rules of the Sarbanes-Oxley Act (SOX) and the Financial Accounting Standards Board (FASB) Accounting Standards Codification® (ASC) 606. In short, the inability to cite an exact top-line revenue and ultimate profitability are due in large part to systems that fail to account for contractual allowances accurately.

FASB ASC 606 makes fundamental changes in the way all contracts must be analyzed and reported each quarter. Every organization that follows GAAP in its financial rules, or is audited by an outside CPA firm, must comply. Laboratories need to accurately determine contractual allowances, price concession percentages, and bad debt percentages for FASB compliance. For example, they will need analytics based upon both adjudicated claims analytics and the remaining aging balance.

A best-in-class billing solution can help laboratories adhere to this process, resulting in improved cash flow through access to real-time accounts receivable information and proactive collection process. Your billing solution should also help you stay ahead of ever-increasing complexities to billings, collections, and compliance. Unfortunately, traditional billing systems have difficulty keeping up with industry changes.


To maximize cash and revenue and keep your total cost of billing low, laboratories need an optimized billing solution that enables a comprehensive understanding of the total cost of billing as a percentage of revenue. Total cost is affected by hidden costs and system inefficiencies that can inflate workforce requirements and reduce cash and revenue. These, in turn, can paint an inaccurate picture of billing costs as a percent of revenue, which often leads to a false sense of security in terms of effort required to improve the bottom line.

For a total cost of billing comparison with and without XIFIN, as well as a more in-depth look at achieving a more accurate total cost of billing, download the XIFIN whitepaper, "The Executive's Guide to Measuring Total Cost of Billing in the Laboratory." You'll discover how an optimized billing solution maximizes cash and revenue while keeping the total cost of billing low, and provides the visibility needed to optimally manage a laboratory’s business.

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Published by XIFIN
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