Why The Current Healthcare Industry Outsourced Coding Model Delivers A Suboptimal Result

Posted by Michael DiMarco

As I have spoken to clients over the past several years to inquire about how they use outsourced coding, I have learned several key things which inform my opinion that the model produces a suboptimal result for the hospital.

puzzle-696725_1280 (1)Outsourced coding is used largely for staff augmentation to meet short term needs due to turnover, leaves of absence, system conversions, etc.  When used for staff augmentation, the number of resources used are few and the duration is short as the hospital believes the need is temporary. Additionally, hospitals do not like using outsourced labor because they perceive the cost to be high compared to the cost of a hospital employed coder.  The issue is further compounded by the number of outsourced vendors used by a particular hospital.  The reason for using multiple vendors is that when a hospital has a need, it cannot rely upon any single supplier to fulfill the need within the required timeframe.  Additionally, it is typical for a hospital to put out a call to all its vendors to determine which one can fill the job(s) first.

These perceptions and practices exacerbate an already difficult situation resulting in inconsistent quality and productivity of outsourced coders.  Hospital staff become frustrated with paying premium rates for substandard resources and having to use internal resources to onboard, monitor, and manage the outsourced resources.  In order to address these broad and interrelated issues, each one needs to be explored in order to determine the validity, and dispel flawed assumptions.

Underlying Perceptions:

  • Hospitals can hire adequate numbers of coders to meet their needs
  • The need for temporary labor is in fact short term
  • The cost of outsourcing is higher than employing in-house resources
  • Multiple vendors will result in more timely availability of needed resources
  • Short term assignments should not have an impact on a coder’s quality or productivity
  • An experienced coder should be able to quickly learn and ramp up in a new client engagement

Underlying Realities:

  • There is a fundamental shortage of coders in the U.S.
  • Demand for healthcare services continues to increase due to the aging U.S. population, and the impact of affordable care initiatives
  • Most hospitals always use some level of outsourced coding over the long haul.  Maintaining even a minimum level of outsourced staffing will improve quality and productivity immensely as those coders will be well trained and fully optimized.
  • Outsourced labor costs for coders are actually not much higher than hospital employed coders when accounting for benefits, paid time off, IT expenses, compliance costs, downtime, training and meeting time, and lost productivity due to turnover.  With outsourced coding, you only pay for productive hours.
  • Vendors cannot afford, or will not commit resources, to an upfront investment in assessment, documentation, knowledge transfer, and onboarding of coders, if the length of assignment is of short duration
  • The vast majority of vendors do not have readily available resources to deploy, therefore, must source and hire candidates for a specific job request
  • Even experienced coders need 45-90 days to reach full productivity and quality
  • The majority of vendors behave like temporary staffing companies, not like healthcare outsourcing companies


  • Using multiple vendors, spreading the business across multiple vendors, and creating a competitive environment to fill open jobs exacerbates the situation because it dilutes the volume for any single vendor and drives each vendor to potentially skip more rigorous screening in an effort to win the placement
  • Consolidating work with a few vendors will drive scale for the vendor(s)
  • Long term contracts result in coders who can deliver higher quality and productivity as they have an opportunity to learn over a longer period of time

A Better Approach

Instead of relying on the traditional outsourcing model, hospitals should seek a provider that can:

  • Perform an onsite assessment, document system configuration, policies, and procedures and conduct knowledge transfer with the coders
  • Conduct a rigorous implementation process to ensure coders get out of the gates strong
  • Perform quality audits until the coder meet mutually agreed upon quality
  • Provide oversight through our regional coding management infrastructure, including devoting coding leads and / or managers to the client
  • Guarantee quality and productivity via a statement of work

It is extremely important that hospital decision makers begin thinking long-term.  With an increase of insured individuals due the Affordable Care Act, an aging baby-boom population, a pending shortage of physicians, and ICD-10 on the horizon hospitals are likely to continue to turn to outsource providers to meet increasing demands for services.  At himagine solutions, we’ve developed a new approach to combat the challenges within the traditional staffing model. We’re calling it Enterprise HIM. You can learn more about our approach here.

Do your outsourcing challenges differ from what is mentioned above?  How have you dealt with those challenges?  We’d love to hear from you in the comments.

Topics: Outsourcing