February 2, 2023

How much should I charge for medical billing services?

There are 3 methods you can use to charge for your medical billing services: Percentage, per-claim, and hourly-based billing

The owner of a medical billing company can look forward to a bright future — but only if they follow a fundamental rule of business: Charging the right prices. But what should you charge for your medical billing services? That’s a bit more complicated.

Like other healthcare and medical practice management areas, the outsourced medical billing market has its own unique norms and standards. When pricing your medical billing services, what you charge mustn’t translate into profit. It’s also the amount of cash you can use to grow and refine your billing process and, hopefully, collect more payments.

Before you do anything else, setting your pricing model for your medical billing solution will help you map out your entire business.

In this article, we’ll review the main types of pricing you can use as a medical biller and how to evaluate return on investment (ROI).

What are the 3 types of medical billing?

There are generally 3 types of pricing for a medical billing service provider to choose from. Each has its own pros and cons. And depending on your setup, a certain method may make more sense from an operational or profitability standpoint.

Percentage billing

When you bill a customer on a percentage basis, you bill for a fixed percentage of the money collected per month. This approach often makes more sense for established medical billing companies or startups looking to focus on full-practice billing and related services.

This form of billing can be beneficial for both parties. Since you are billing based on the revenue they collect, you can be certain of payment. At the same time, private practices and other medical organizations still see a steady revenue stream.

The one downside to this method is that payment amounts will vary from month to month. To curb this uncertainty, you may choose to implement a minimum monthly fee.

When setting your percentage amount, you’ll want to consider the following:

  • What kind of claims will they be billing?
  • How quickly are these claims typically settled?
  • How many patients may your customer have monthly and annually?
  • How does the practice manage its financial operations?

All of these factors can affect the difficulty of billing or collecting in a timely manner.

That said, 24.5% of billing companies charged 6-7% per month in 2022, according to our recent benchmark report.

Per-claim billing

Many medical billing companies also like to charge per claim, whether it’s collected or not. This amount can vary but usually lies between $3 to $10 per claim. The local market often determines rates.

Per-claim billing may be easier to estimate than percentage billing. All you need is the amount you plan to charge and your local clients’ average monthly billing volume.

That said, even firms that don’t bill per claim consider claims when evaluating customers. In 2022, 30% of medical billing organizations required a minimum number of claims before taking on a new client.

Hourly billing

Hourly billing is often a hard sell to customers. But for startup practices with few clients, providing an hourly rate may help them grow faster. And once they’ve accumulated more patients and more billing needs, you can shift to a per-claim or percentage rate.

Depending on your market, hourly rates may also be more lucrative than per-claim or even percentage billing. This option may also make more sense for specific add-on services, such as marketing or operational consulting.

When you look into setting your hourly rate, you’ll want to consider:

  • How many hours go into each service
  • Non-billable hours required to complete the task
  • Local market hourly fees

Should my billing fees differ per service?

Let’s face it — most medical billing companies aren’t just offering claim processing, appeals, and coding services. There are many “add-on” services for the medical billing process or general practice management that help generate new revenue streams and expand the business.

Popular “add-on” services are:

  • Chart audits
  • Practice technology support
  • Credentialing
  • Payer contract negotiations
  • Compliance consulting
  • Practice marketing consulting

You may choose to assign a percentage or hourly charge for any of these items. But you can also choose a flat project fee for one-off or annual items.

How to match clients with billing methods

Sometimes, you may want to use the per-claim method for one client and a percentage for others. But how can you make that distinction?

The customer characteristics can help you to decide if you need to switch up your normal price range. For example:

  • The practice size
  • Provider type(s)
  • The amount and kinds of specialties
  • Claim or invoice volume
  • Per claim dollar amount
  • Codes used
  • Office locations or telemedicine offers
  • Whether or not they have branches across state lines
  • Number of services required

In addition, if you choose to offer a percentage or hourly rate, clients may expect that these match a certain number of services. If you only offer claims processing and appeals but charge an 8% rate, customers may flock to the competition offering more for the same cost.

How to evaluate ROI for your medical billing company

When starting your medical billing business, it’s often better to calculate the potential earnings from each method and decide which one is more profitable for your business. You may even be able to use multiple methods depending on the client.

For example, if you land a billing job for a multi-location, established physiotherapist clinic, you may charge a 7% rate. But a startup physical therapist might require hourly or per-claim billing.

Before evaluating your potential ROI, you’ll want to determine what type of clients you plan to attract and their volume size.

Let’s say there is a private mental health practice that bills approximately 210 claims per month, and the average bill is worth $240 with a collection rate of 60%. It takes you 30 hours to process all claims.

Tebra Medical Billing Company Table

In this scenario, percentage and hourly options are far better than billing per-claim. However, which approach offers the most ROI still isn’t 100% clear.

After you have your estimated revenue, you’ll want to:

  • Subtract admin, operational, marketing, and other key expenses
  • Determine if you have improved the collections rate
  • Ensure that your model is aligned with the local market and budgetary expectations
  • How long it takes to convert a lead into a customer

Your next steps as a medical billing service provider

Whether you decide to use percentage, claims-based, or hourly billing for your medical billing company, selecting your pricing model is only the first step. Today, a medical billing service provider must also consider their core and supplementary services, what kind of medical practice they want to work with, and which medical billing software will give them the most bang for their buck.

All of these tasks are essential, but finding your ideal medical billing software is perhaps one of the biggest decisions you’ll make. Not only will you invest money upfront in this solution, but it will be used to follow up on unpaid claims.

As a result, your chosen software should integrate seamlessly with customer electronic health record (EHR) systems. It should also help to accelerate your medical billing process, so you can collect payments faster and boost your own cash flow.

It’s important to evaluate your potential solutions and then work that cost back into your pricing model.

More on the medical billing industry

The medical billing service industry is changing rapidly – for both new and established companies. To get the latest industry benchmarks, read our in-depth article Staying ahead of the curve: Medical billing trends to watch in 2023.

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