Medical billing and coding is a necessity for all types of medical practices. Of course, the medical billing process will come with a cost. You can either pay full-time employees to handle your billing in-house. On the other hand, you can work with a medical billing service who will handle the entirety of your revenue cycle management (RCM) for a cost. Practices must make a decision about which makes most sense: both practically and financially. We are here to help you explore the cost behind a medical billing service so you can make the best decision for your practice.
Related: In-House vs. Outsourced Medical Billing: Pros and Cons
The cost of a medical billing service depends on the provider and their pricing model. There are a few different fee structures typical of the medical billing industry. Keep in mind that these pricing models pertain to medical billing services rather than software (which usually costs a few hundred dollars per month). In other words, you are paying for a medical billing company to handle the entirety of your medical billing and revenue cycle management (RCM) process. Here are 4 common fee structures that you might see when looking for a medical billing service provider.
Percentage of collections
The most typical pricing model for medical billing services is probably “percentage of collections.” Under this model, the billing company will charge you a small percentage of the total amount they collect on your practice’s behalf during a collection period. This pricing model is probably the fairest, since the medical billing company only gets paid when you get paid. Meaning, if a claim gets rejected and you don’t get paid for a service (for whatever reason), the medical billing company will not get paid either. This gives the medical billing company an incentive to follow-up with claims persistently and help you earn maximum reimbursements. You’ll typically see medical billing services charge anywhere between 4-10% of total collections.
Under a flat fee pricing model, the billing provider will charge you a flat fee for a given collection period. The “flat fee” may pertain to each claim or each collection period. For instance, the company may charge you $5 per claim filed for your practice. Or they may charge you $200 per collection period (ie. per month). This pricing model may make sense for medium-sized businesses. However, note that you will pay the medical billing service the same fixed amount, no matter whether claims are denied and resubmitted or not.
A less common fee structure is an hourly fee. Some medical billing services may charge your practice an hourly fee for handling your medical billing. However, keep in mind that paying an hourly fee to a medical billing service is very similar to paying a full-time employee to manage billing in-house.
An example of a hybrid fee structure is when a medical billing service charges you a fixed rate for some types of claims and a percentage of collections for others. For instance, they may use a certain fee structure for different insurance providers. However, this pricing model is less common than others.
To learn more about pricing for medical billing services, you can take a look at our Medical Billing for Physician’s Guide.
Set up fees
Keep in mind that some medical billing services will charge a set-up fee upon signing up. Essentially, this is a one-time payment that allows the medical billing provider to get you started with their service. The set-up fee will likely cover things like software installation, training, and support. Set-up fees are usually a fixed cost – an average of $300 per physician.if you have a larger office, instead of charging you per physician, many medical billing services will charge you a fixed office rate – an average of $1,000 per larger office.
Administrative and software fees
Many medical billing services include an administrative fee, which they will usually charge you once per year. The administrative fee relates to things like software updates and maintenance, and offsetting some of the expenses incurred by the medical billing service in relation to having you as a client. The average administrative fee as of 2020 is around $3,000-$6,000 annually, depending on your practice’s size.
There are some costs you will avoid by using a medical billing service. Though medical billing services will, of course, cost your practice some money, remember that medical billing is an absolute necessity. It’s best to think of it in terms of R.O.I. Which is more cost-effective for your practice, handling billing in-house or outsourcing? Many practices today compare the cost of medical billing alongside in-house medical billing costs to make their decision. When making this decision, you will want to think about the following costs that you will be avoiding by going with a medical billing service.
When handling medical billing in-house, you will need to invest in software. While medical billing services often factor software into their fee structure, practices that use in-house medical billing must pay for it on their own. Medical billing software can cost your practice as much as 25,000 per year, depending on your size and needs. Learn more about the cost of medical billing software.
Related: Best Medical Billing Software for Small Practices
Salaries and benefits
Choosing an outsourced medical billing service also means you won’t have to worry about paying in-house billers a salary and benefits. The average medical biller and coder in the United States makes around $52,000 per year, and that does not include benefits. If you have a larger practice, you will likely need to hire more than one biller. To determine which billing method is best for your practice, you should consider the number of billers you will need on staff, their salaries and benefit costs, and software and maintenance costs. Then determine whether you will be saving money by using a full-fledged medical billing service or not.
Fees to Look Out For
Set-up fees, monthly/annual fees, and administrative fees are all typical of medical billing services. However, before signing up for a medical billing service, you should be aware of “hidden fees” that are extra or atypical of medical billing services. This is important to avoid incurring unnecessary costs and overpaying for your medical billing service. Here are two types of fees to look out for when reviewing a medical billing service contract.
You may see clearinghouse fees on your medical billing service contract. You can expect a small amount in clearinghouse fees per month - ie. $30-$100 - but watch out for additional clearinghouse fees. If you don’t read carefully, you may get stuck with unnecessary clearinghouse fees, such as “implementation fees” and “eligibility fees.” Make sure to ask questions if you see this on your contract when signing.
If you run a small practice, you should look out for monthly minimum fees. Sometimes, a medical billing service will require a monthly minimum payment. If you don’t hit that minimum in a certain month, they may charge you extra or a penalty fee. Make sure to read carefully about monthly minimums, as you don’t want to incur tons of additional costs every year for not hitting quota. It’s best to find a medical billing service that can accommodate your practice’s size and monthly claim volume without charging you extra.
If you are exploring medical billing service costs, we recommend also reading the following articles:
- 9 Steps for Choosing the Best Medical Billing Company
- Practice Management Software: Top Features & Benefits
- 8 Ways to Efficiently Collect Patient Balances
You can also use our free service to compare medical billing prices! We ask you just a few questions, then provide you with up to 5 free quotes so you can compare.