The Intake

Insights for those starting, managing, and growing independent healthcare practices

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.

medical billing services

At a Glance

  • There are 3 types of pricing models a medical billing service provider can use: percentage of collections, per-claim, and hourly
  • Medical billing companies can offer add-on services like coding services, chart audits, and practice technology support
  • Before deciding on a pricing model, it’s crucial to evaluate the potential earnings from each method to ascertain which is most profitable

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 must not just cover your current cost of doing business. 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 pricing models?

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 of collections

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 as private practices and other medical organizations typically see a steady revenue stream.

The downside to this method is that payment amounts 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.

Read More
State of the US billing industry report

24.5% of medical billing companies in Tebra's survey who use a percentage-based pricing model for customers charged 6% to 7% in 2022.

Per claim

Many medical billing companies charge per claim processed, 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.

The incoming revenue to your business using per-claim pricing may be easier to estimate than the percentage-of-collections model. All you need is the amount you plan to charge and your clients’ average billing volume. Gather these data points using the same time period: if your business needs $100,000 annually to operate effectively for your new client, and they submit 30,000 claims per year, the price you’d charge is $3.33 per claim.

That said, even firms that don’t price services on a per-claim basis 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

Pricing services on an hourly basis is often a hard sell to customers. But for new medical practices with few patients, providing the option of an hourly rate may help them get off their feet. And once they’ve accumulated more patients and more billing needs, you can shift to a percentage or per-claim rate.

Depending on your market, hourly rates may be more appealing to clients. 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

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Should my price differ by service?

Let’s face it: most medical billing companies aren’t just offering claim processing and receivables management. 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:

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

You may choose to assign a percentage of collections 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 pricing 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:

  • Practice size
  • Provider type(s)
  • The amount and type of specialties
  • Claim or invoice volume
  • Per claim dollar amount
  • Codes used
  • Office locations or telemedicine offers
  • Whether or not they have sites 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. Capturing a positive return on investment (ROI) means you cover your business costs — and take home the extra as compensation for your time. 

Capturing a positive ROI means you cover your business costs — and take home the extra. ”

Let’s say there is a private mental health practice that bills approximately 210 claims per month, and the average charge is $240 with a collection rate of 60%. It takes you 30 hours to process all claims. You’re trying to decide whether to charge 7% of collections, $5 per claim, or an hourly rate of $45. Let’s run the numbers:

In this scenario, percentage and hourly options are far better than billing per claim. However, evaluating the ROI requires another step.

After you have your estimated revenue, you’ll want to subtract personnel, administrative, operational, marketing, and other key expenses. For the private mental health clinic, you estimate that the cost associated with the account will be $25,000 per month. That means that the per-claim and hourly pricing options are off the table.

On the surface, the ROI is a little more than $400 per month. Here’s where the ROI analysis gets tricky. Assess what’s left: does $400 per month represent a fair compensation for your time to manage the new client’s account — and further grow your business? If the private mental health clinic has clunky paper processes and a demanding office manager, it may not be worth your while to take on the new clinic at that price. In sum, ROI is about covering your costs, but it’s also about your worth as a billing service provider.

Your next steps as a medical billing service provider

Whether you decide to use percentage, claims-based, or hourly rates for your medical billing company, selecting the pricing model is only the first step. Today, a medical billing service 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 in it upfront, but you will also use it as the foundation for your medical billing business.

As a result, your chosen software should integrate seamlessly with electronic health records (EHRs). It should also help to accelerate your medical billing process, so you can collect payments faster and easier 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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Benchmarks for your medical billing practice. Get an inside look at the revenue models, operations, and industry trends gathered from 250+ independent medical billing companies in our 2023 medical billing benchmark report

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Written by

Kelsey Ray Banerjee

Kelsey Ray Banerjee is a professional content writer in the healthcare, marketing, and finance space. She has worked in the back office of a psychiatric practice, and with family members working in mental health for 2 generations, she understands the challenges healthcare professionals face when it comes to marketing and admin. She believes access to efficient healthcare is essential for society’s well-being, and loves being able to write content that can positively impact a practice and its patients.

Reviewed by

Elizabeth Woodcock

Dr. Elizabeth Woodcock is the founder and principal of Atlanta-based Woodcock & Associates. She has focused on medical practice operations and revenue cycle management for more than 25 years. She has led educational sessions for a multitude of national professional associations and specialty societies, and consulted for a diverse range of clients.

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