Nearterm Blog

Should Hospitals Leverage Outsourced Coding or Keep It Internal?

Hospitals have adapted many different coding models. Most are designed around contributing factors that differ from one facility to the next. However, there are three models that arguably prevail. The following is a summary of each;


All coding functions are managed and performed by internal staff/employees. The function is generally housed at the facility. Some remote coders may be used but they are hospital employees. Hospital is responsible for audit, QA, productivity, staff management, technology, employer taxes and employee benefits.


Coding is managed internally. Most coding is done internally by hospital employees but some coding is outsourced to a vendor. Hospital manages both employees and the vendor.


The coding function is outsourced to a vendor.

Each of the above can be successful. That said, many hospitals are rethinking and reinventing their processing environment. The driver is often an awareness of current state and how it has changed. Here are some examples of current state “influencers” gleaned from discussions with several hospitals and HIM professionals;

“ICD 10 coding implementation has resulted in staff increases. I have space constraints so I have no work area to accommodate additional staff. Besides, our leadership team believes the space currently occupied by HIM could be put to use for revenue generating services.”

“We are in a rural community and local coders are hard to find and retain. Turnover and leaves of absence require overtime. We usually get behind when these occur and morale is impacted. When new services are introduced, we are challenged to find coders qualified to code the new services. Billing gets behind, cash flow suffers and physicians are irritated by late query requests.”

“A recent coding audit revealed that coding accuracy among our coders ranged from 79% to 91%. This was a surprise since we had not had an audit done all year. Review of the audit results by coder made it clear that we had both performance issues and training deficits. The CFO had approached us about why the denial rate increased in recent months – now we know.”

“The DNFB standard at our hospital is no more than 3 days revenue. We meet that standard occasionally but typically run at about 7 days. Week-ends, holidays, technical issues, turnover and absences are keeping us from meeting our standard. Overtime is not approved here so performance suffers.”

Coding outsource is not for every facility but it is an option that meets the influencers illustrated above head on. The benefits of outsourcing include:

  • The facility no longer incurs certain costs shifted to the vendor:
    • Employer FICA taxes
    • Workers comp, health benefits, retirement plan
    • PTO & holiday pay
    • Software licensing and maintenance
  • Space occupied by internal coding staff can be used for revenue producing or other services deemed strategic:
    • Desks, office equipment, phones etc. can be re-purposed
  • Staffing problems are eliminated. The outsource vendor maintains expert staff with credentials and experience to accommodate any service type while meeting production standards. Coverage for vacancies, holidays, week-ends and PTO is provided by the vendor.
  • Testing, training, continuing education, meeting attendance, trade association dues, audits and other “soft cost” items are the responsibility of the vendor.

It is important to consider not only influencers but also “inhibitors” related to outsourcing when assessing the processing environment for your coding function. Inhibitors might include the absence of technology to support remote processing, the perception of job loss or merger/acquisition activity that prohibits contracting. Another inhibitor is the unwillingness to partner – the outsource option requires good communication and a “partnering approach” in order to capture the many benefits associated with it.

This article is only a summary of different medical coding options. We hope you find it thought provoking. Whether you are considering outsourcing the entire coding function or you simply need coding support from time to time, or maybe Interim HIM Leadership, we at Nearterm are available to assist you.

Feel free to call or ask the experts if you would like to access our team or offer comments about this topic.