Most in-house versus outsourced comparisons fail in the first line. A practice compares a billing company’s fee against one employee’s salary, finds the salary lower, and keeps billing in-house — without ever counting what that employee actually costs, or what happens to collections in the months the seat is empty. The opposite error happens too: a headline outsourcing percentage gets compared against a fully loaded in-house operation, including costs that would not actually disappear.
This article does neither. It is a worksheet, built around one scenario — a small specialty practice with two providers and a single billing employee who also covers other front-office work some of the week. Work through it with your own payroll records, invoices, and collections reports. Every dollar figure in the worked example is an illustrative placeholder chosen to show the arithmetic, not a market benchmark; your numbers will differ, and the worksheet is designed so that they can.
For the broader pros-and-cons discussion, Fastora already publishes a general in-house vs outsourced comparison and a guide to medical billing outsourcing. This page has one narrower job: getting your two totals onto the same basis.
The scenario
Picture a two-provider specialty practice — physical therapy, behavioral health, or a similar visit-based specialty — collecting a moderate, steady volume each month. Billing is handled by one experienced employee, with the practice administrator stepping in during absences. There is no second biller. That single-seat structure is common in small practices, and it is exactly where fully loaded cost is most often understated, because so much of the work is shared, informal, or absorbed by people whose time is never priced.
Demand for a clearer answer is not unusual. An MGMA poll of 352 practice leaders in November 2024 found 36% planned to outsource or automate part of their revenue cycle in the following year. Whether outsourcing is right for your practice is a separate question — this worksheet only settles what each model costs you today.
Part A: Build the fully loaded in-house total
Work down each step. Use a full year, and count only the share of each cost that belongs to billing where a cost is shared.
Step 1 — Salary for billing time. Start with gross salary for the hours genuinely spent on billing: charge entry, submission, posting, denial work, follow-up, and patient billing questions. If your biller splits the week with front-desk work, count the billing share honestly — that share is the capacity an outsourced model would replace.
Step 2 — Benefits and payroll costs. Add employer payroll taxes, health insurance contributions, retirement contributions, and paid time off cover. Salary alone understates employment cost by a wide margin in most practices; pull the real burden from your payroll reports rather than estimating.
Step 3 — Billing software and EHR billing modules. Count the practice management or billing software cost attributable to billing, including per-provider fees. If the platform would be kept either way, count only the billing-specific portion — fairness cuts in both directions.
Step 4 — Clearinghouse and transaction fees. Add clearinghouse subscription and per-claim or per-eligibility-check transaction charges for the year. These are easy to miss because they arrive as small monthly invoices.
Step 5 — Training and keeping current. Add coding and billing education, reference materials, and the staff time spent learning annual code changes and payer policy updates. Then note the risk this step cannot price: knowledge concentrated in one person leaves with that person.
Step 6 — Turnover and absence cover. Estimate what one vacancy would cost: administrator or clinician time covering billing, delayed submissions while a replacement is hired and trained, and the denial backlog that builds meanwhile. Even a simple allowance — a few weeks of disrupted billing per year, priced at the covering person’s time — is more honest than zero. Denial rework belongs in this build-up too: practice leaders in the January 2026 MGMA Stat poll named denials and appeals their biggest revenue-cycle leak, and every denied claim your team reworks is staff time already inside these steps.
Step 7 — Management time. Price the administrator or owner time spent supervising billing, reviewing aging, fielding payer escalations, and covering gaps, at a realistic hourly value. In small practices this is frequently the largest uncounted cost of all.
Worksheet A — your in-house total
| Cost line | Where to find your figure | Illustrative example (replace it) | Your figure |
|---|---|---|---|
| Billing-share salary (annual) | Payroll records | $46,000 | ______ |
| Benefits & payroll taxes | Payroll burden report | $11,500 | ______ |
| Billing software / modules | Vendor invoices | $4,800 | ______ |
| Clearinghouse & transactions | Clearinghouse invoices | $2,400 | ______ |
| Training & references | Receipts + staff time | $1,200 | ______ |
| Turnover / absence cover allowance | Covering staff time | $3,000 | ______ |
| Management & supervision time | Hours × hourly value | $5,200 | ______ |
| Total in-house billing cost | Add the column | $74,100 | ______ |
Part B: Build the outsourced total on the same basis
An outsourced fee is not one number either. Build it the same way:
- The service fee. Fastora, for reference, charges a percentage of collections or a flat monthly fee — those are the two structures to model. For a percentage quote, multiply your actual annual collections (money collected, not charges billed) by the quoted rate from any proposal you are evaluating. For a flat fee, annualize it. Use the quote in front of you; do not model a rate you have not been offered.
- What the fee excludes. Ask, in writing, whether credentialing, patient statements, prior authorization work, coding, setup, and old A/R cleanup are included or billed separately — and add any separate charges to the total.
- What stays in-house anyway. You will still capture insurance information, document visits, and spend some management time reviewing reports. Add a realistic allowance for that retained time, just as Part A counted it.
- Transition cost. Allow for the one-time effort of the switch itself: data handover, enrollment checks, and closer review during the first months.
Worksheet B — your outsourced total
| Cost line | Illustrative example (replace it) | Your figure |
|---|---|---|
| Service fee (illustrative: $720,000 collections × a quoted rate you supply) | $50,400 at a 7% illustrative rate | ______ |
| Separately billed add-ons (statements, credentialing, etc.) | $2,400 | ______ |
| Retained in-house time (intake, documentation, report review) | $6,000 | ______ |
| One-time transition allowance (first year only) | $1,500 | ______ |
| Total outsourced cost, year one | $60,300 | ______ |
In this illustration the outsourced total is lower — but note how much of the gap depends on assumptions you supplied: the collections figure, the quoted rate, and how much management time in-house billing truly absorbs. Change any of them and the answer can change. That is the point of a worksheet. Run your own totals instantly with the companion outsourcing cost calculator, then check its result against this paper build-up.
Part C: Compare cost to collect, not cost alone
Divide each total by annual collections to get your cost to collect:
- In-house, illustrative: $74,100 ÷ $720,000 = 10.3% of collections
- Outsourced, illustrative: $60,300 ÷ $720,000 = 8.4% of collections
Cost to collect is the fairest single comparison because it scales with the practice. But it is still only the cost side. Two questions sit outside the worksheet, and either can outweigh a small cost gap:
- Collections performance. A cheaper model that collects less is not cheaper. Compare each option against your current net collection rate and days in A/R, and ask any billing company what it will report monthly so you can verify performance rather than assume it.
- Fragility. A one-person in-house operation has a single point of failure; an outsourced operation has a contract and a reporting obligation instead. Price that difference qualitatively even though the worksheet cannot.
When the worksheet points the other way
Balanced means saying this plainly: in-house billing can be the right answer. If your billing employee is experienced, stable, and genuinely multi-skilled; if your specialty’s volume is low and steady; if collections performance is already strong and measured; or if an outsourcing quote excludes so much that the add-ons erase the gap — the worksheet will show it, and you should believe it. Outsourcing does not always win, and no honest comparison guarantees savings. What the worksheet guarantees is only that the decision rests on your full numbers rather than on a salary and a headline percentage.
If your totals land close together, the deciding factors are usually the unpriced ones: cover during absences, depth of denial follow-up, and how much owner time billing consumes each week. A free billing assessment can add the missing performance half of the picture — denial patterns, aging, and where collections are leaking — so the cost comparison is judged alongside the revenue it is meant to protect.
Frequently asked questions
How do you calculate the cost of in-house medical billing?
Add the billing share of salary, benefits and payroll taxes, billing software, clearinghouse fees, training, an allowance for turnover and absence cover, and the value of management time spent supervising billing — over a full year. Dividing that total by annual collections gives your in-house cost to collect. Worksheet A above walks through each line.
What percentage do medical billing companies charge?
Pricing structures vary by company and scope. Fastora charges a percentage of collections or a flat monthly fee. Whatever structure you are quoted, model it against your actual collections and confirm in writing which services — statements, credentialing, prior authorization, old A/R — are included or billed separately, since two quotes at the same rate can cover different work.
Is outsourced billing always cheaper for a small practice?
No. It often compares favorably once in-house costs are fully loaded, but a stable, experienced in-house biller, low and steady volume, or a quote with significant add-ons can reverse the result. Run both totals on the same basis — that is what the worksheet is for — and weigh collections performance alongside cost.
What costs do practices most often forget in this comparison?
Management and supervision time, turnover and absence cover, clearinghouse transaction fees, and training time for annual code and payer changes. On the outsourced side, the forgotten costs are separately billed add-ons and the in-house time that remains for intake, documentation, and report review.
Should I compare the fee against charges billed or collections?
Collections. Percentage fees are calculated on money actually collected, and your in-house cost-to-collect should use the same denominator. Comparing either figure against gross charges understates the true rate and distorts the comparison.
What else should I compare besides cost?
Net collection rate, denial rate and how denials are worked, days in A/R, reporting quality and frequency, who handles inherited old A/R during a transition, and what happens to your billing data if the agreement ends. Cost decides between comparable performers; it should not be the only test.
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