Hire a Coder or Use The Coding Network?

This simple question requires a somewhat elaborate answer known in MBA circles as a “build or buy” analysis. “Build” refers to recruiting and hiring, while “buy” is the option to contract or outsource the service. There are a number of factors that go into the decision making process, and we will try to show you what is involved. Our illustration will be for surgical coding and assumes that the surgeons do their own E&M coding.

Finding coders can be difficult. If you are lucky, your labor marketplace has specialty-experienced certified coders available to hire. Most of us are not so fortunate. The current shortage of experienced coders in the United States has driven-up overall salary levels. Classified employment advertisements in industry journals show numerous recruitment incentives, including substantial cash sign-on bonuses. The AAPC and Advance® recent salary surveys show that the average national gross monthly salary for a certified coder is in excess of $3,500 per month. Nobody wants to hire an “average” person, so we think $3,500 is too “light” to attract and retain a quality coder; so we think a salary of $4,000 per month is more realistic. For this analysis, we’ve split the difference and will use $3,750 as the monthly gross salary. Feel free to use your community’s wage scale, but keep in-mind that experienced coders earn higher salaries.

Payroll taxes, as required by law, must be withheld from an employee’s paycheck. Employers must remit these withholdings over to various tax agencies. FICA stands for the Federal Insurance Contributions Act. The FICA tax consists of both Social Security and Medicare taxes. Social Security and Medicare taxes are paid both by the employees and the employer. Both parties pay half of these taxes. Employees pay half, and employers pay the other half. Together both halves of the FICA taxes add up to 15.3%. The 15.3% FICA tax is broken down as follows:

  • Social Security (Employee pays 6.2%)
  • Social Security (Employer pays 6.2%)
  • Medicare (Employee pays 1.45%)
  • Medicare (Employer pays 1.45%)

In addition, there are employer paid Federal and state unemployment taxes (FUTA and SUTA), Workers’ Compensation coverage, and mandatory disability insurance, all of which may vary by the amount of the practice’s total payroll and state-of-jurisdiction. According to the 2008 Employee Benefits Study by the U. S. Chamber of Commerce, these mandatory employer paid payroll expenses total 10.5% of the gross salary. That same Chamber of Commerce Study reports that health insurance costs $380 per month per employee, the cost of retirement benefits are $225 per month per employee, and that paid-time-off (vacations, holidays, sick time, family leave, etc.) costs 7.7% of gross salaries, for a total additional employer-paid tax and benefits cost equal to 34.3% of salaries. Data released by ADP (the payroll company) states “the average employer pays 38% extra on hidden costs for employee fringe benefits and taxes.” We’ll be conservative and use 35% of salary for taxes and benefits.

It goes without saying that employees require a place to work. The costs of physical space, desks, phones, computers, supplies, parking, etc. are difficult to quantify but impossible to ignore. This is particularly relevant in medical offices; we’ve seen many hundreds and rarely do we find an excess of office space. In fact, exam rooms are often converted into staff offices, totally removing them from revenue production and just increasing overhead. Conservatively, we estimate these “tangible” expenses to be $250 per month.

There are some not-always-obvious costs associated with the “care and feeding” of coders: First, you need someone to hire, test, train and supervise the coders. There is a real cost for these functions even though they may be done by someone of your current staff. The expensive CPT and ICD9 books are updated annually so they must be replaced every fall. If instead you use an electronic software-as-a-service tool (i.e. EncoderPro® or CustomCoder® or CodeCorrect® etc.) you’ll have to pay for the pricey monthly license. Don’t forget coding association dues and meeting registration fees, continuing education, newsletters, etc., all adding-up to a considerable amount money. Does your coder carry Errors and Omissions (i.e. coding malpractice) insurance? We do, and it’s not cheap. Someone has to cover your coder while he/she is on vacation or your revenue cycle will come to a halt. Also, the OIG’s model compliance plan suggests that each coder should have an independent outside “arms-length” peer review annually; that alone will cost from $500 to $1,000 per coder each year. (We audit our coders on a quarterly basis to assure our clients with a 90% accuracy rate.) We estimate that these “intangibles” will cost the employing practice $250 per month.

The cost of contracting with The Coding Network is easy to calculate. One fee covers everything. All you need is the number of operating room surgeries (or the number of Evaluation and Management encounters or other specialty services) the physician provides in an average month.
To help you with the analysis, we prepared the following table using the data discussed above. It is for surgical coding and assumes that each surgeon performs 35 operating room cases per month (minor procedures performed in the office are considered part of the E&M visit coding and are priced at a much lower rate.) The table illustrates a “build-or-buy” analysis for surgical coding only, but you can substitute your own salaries and data to make it more applicable to your practice. It can be used as a template for any of the 55 medical specialties for which we code.

The monthly cost of Surgical Coding Alternatives
Item Employed Coder The Coding Network
Monthly gross pay (1 coder) $3,750 n/a
Employer-paid taxes + benefits (35% of pay) $1,312 n/a
Subtotal direct costs $5,062 n/a
Tangible expenses $250 n/a
Intangible expenses $250 n/a
Subtotal $5,562.00
Cost per operation (performed in the OR) (Divide by your # of operations.) $17.00*
TOTAL MONTHLY CODING COST $5,562.00 x no. of coders needed (Multiply by your # of operations.)

*The Coding Network’s fees decline as the volume increases by increments of $1.00 per 100 cases in a month to a floor of $13 per case (reached at 401 cases or more in a month.)

Clearly our example is based on national averages and some educated estimates, so actual results using your actual data will vary somewhat. We are confident that you will find these figures to be better-than-ballpark.

Plus, keep in-mind that The Coding Network offers volume-based pricing – the more cases you send us each month, the lower the per-case price. That, combined with the data in this table shows that The Coding Network is less expensive for any practice employing a single coder with fewer than 12 full-time surgeons. For a practice of that size, our surgical coding fee works out to be approximately $500 per doctor each month. Importantly, a large practice will need an additional coder for part-time coverage, but with The Coding Network, you pay for this on a per-operation basis.

Importantly, fixed overhead expenses must be paid day-in-and-day-out, whether the doctors are busy working or away on vacation. Compare this to The Coding Network; we work on a per-case basis. TCN transforms what was a fixed overhead expense into a much preferred variable operating expense. Our clients only pay for what they need. If, for any reason — a doctor is away or the surgery schedule is slow — then your coding costs also go down.

Our fee for coding Evaluation and Management services includes minor office procedures and is much less expensive than our fee for coding surgical operations performed in the Operating Room.

If you need assistance with your build-or-buy analysis, just give us a call at 888-CODE-MED. We’ll be glad to help.

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