Offshore Coding Costs More in the Long Run

July 9, 2018 1:36 pm

Offshore coders averaged 10 more denied claims per week than domestic coders.

In the lead-up to ICD-10, with an increased need for additional coders, most hospitals and health systems contracted with outsourced coding companies to augment internal coding teams. Two years later, the use of outsourced coding services continues to be common practice for most provider organizations to ensure staffing coverage and meet discharged not final billed (DNFB) goals.

More than half of organizations interviewed for the KLAS Outsourced Coding 2018 Report plan to maintain or expand use of outsourced coding. Value-added services such as strategic partnering, leadership, flexibility, quality assurance, extended education, and alternative cost structures were all cited by the report as important advantages gained through outsourced coding partnerships. However, as with any outsourced revenue cycle function, total cost must also be considered.

Offshore Coding: 6 Hospitals Weigh In

Many providers and outsourced coding vendors have tried using international coding services based on the premise of lower up-front costs with comparable coding quality. However, little industry data is available on the pros and cons of offshore coding, and the differences between outsourced and in-house services.

To fill the void, six hospitals and health systems partnered with KIWI-TEK over a two-year period to identify and quantify the differences between offshore and domestic coding services.

The final outcome confirmed what many health information management (HIM) and revenue cycle experts predicted: A full analysis of offshore coding cost, quality, and management requirements presents a complicated picture. There are many factors to consider beyond the up-front cost to code.

Total Cost Analysis

All six hospitals and health systems chosen for this study had worked with both domestic and offshore coders for at least one year. Data was normalized among the participants, and a cost comparison was performed. For purposes of the study, a rate of $60 per hour for domestic coding and $35 per hour for offshore coding was used.

Management fees were calculated at $50 per hour, the domestic coding company’s actual average salary, plus benefits provided to managers, assistant managers, and auditors. Management fees for domestic coding were included in the $60 cost of coding. Management fees for offshore coding were an additional expense required by the client. Productivity statistics were weighted by the number of coders across all clients.


Offshore coder productivity was 34 percent lower per hour than that of domestic coders. Organizations needed 51 percent more offshore coders at $35 per hour to accomplish the same volume of work completed by domestic coders at $60 per hour, raising the effective hourly rate of offshore to $52.85 per hour—an increase of $17.85 per hour.

Quality Auditing

Offshore coders required an average of six more hours per coder per month of quality reviews and auditing due to poor accuracy results. Six hours per month at $50 per hour equal an additional expense of $300 per month per coder. If spread across 160 hours per month of coding, this would add $1.87 per hour to the cost of offshore coding.

Denied Claims

Offshore coders averaged 10 more denied claims on inpatient and same-day surgery encounters per week than domestic coders. Denied claims are reworked by the management staff and then the coder is retrained on the errors. Reworking of denied claims on these patient types takes 20 minutes each to recode and 20 minutes each to retrain the coder on the errors, for a total of 40 minutes each. For 10 additional claims per week, the additional management time is 400 minutes, or 6.7 hours per week, times $50 per hour, which equals $335 for a week. This raises the cost of a 40-hour-per-week coder by $8.38 per hour.

In the final, fully weighted cost analysis, offshore coding was slightly more expensive than outsourced domestic coding expertise.

Comparison of Domestic Versus Offshore Healthcare Coding Costs

The study results suggest that offshore coding is a more expensive option than domestic coding because of the additional costs of rework, auditing, and lower productivity.

Other findings for offshore coding include the following:

  • Additional training and retraining are required.
  • Case mix index and collection percentage is lower due to the language barrier and a lower depth of coding specificity.

Although using offshored services for healthcare coding can seem like a cost-saving effort, having to review and rework claims, as well as provide additional training results in overall higher costs.

See related article with expanded survey results: Offshore Versus Domestic Outsourced Coding Services: A Comparative Assessment

Bill Wagner, CHPS, is COO, KIWI-TEK, LLC.

Sarah Humbert, RHIA, is Corporate Coding and Compliance Manager, KIWI-TEK, LLC.


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