Medical Billing Rates - What to Charge

An explanation of the different types of medical billing rates. Learn the different ways to charge clients, plus tips for maximizing income...

One of the great things about medical billing is the possibility of starting your own medical billing business, and running your own company. This is an exciting opportunity with many options, as well as challenges.

One of the most important things to consider when starting your own medical billing business is which rates to charge. Your rate is what you charge the provider's office in order to bill for them. In other words, your rate is what the doctor's office pays you in order to do the billing for them.

Deciding which rate to charge

The biggest decision you can make in your own medical billing business is deciding which rates to charge. Because this is how you get your money, the rate affects your bottom line drastically.

Having a rate that's too low means that you'll be doing too much work for not enough money. Having a rate that's too high, however, will drive business away from you and on to other billing companies.

Usually, the rate you charge will be in line with industry standard pricing, but you'll have to adjust this rate in certain situations.

When you first start out, for example, you may need to charge a slightly lower rate in order to attract new clients to your business. Once you have established a good reputation, which makes you more attractive to other clients, you will be able to charge higher rates and get more clients.

Your official reputation: The relationship between high rates and high quality service

As you build up trust and a reputation for providing good service, you can increase your price in small increments over time, so that you company's rate will be in line with standard pricing. Depending on how good your reputation is, and how well you bill for your clients, you may also be able to charge an optimal rate for your services.

In other words, the rates you charge are directly in line with your reputation for providing a high quality service. If you are good at what you do, and effectively get your clients an optimal amount of revenue, then you can charge an optimal amount for your services.

The bottom line: A good reputation means more revenue for your office!

Types of pricing: Determining your charges

Of course, one of the most important things about determining which rate to choose is to determine how you will charge that rate.

Once you have determined how you will charge your clients (the type of pricing), then you can figure out how much you will charge them (your rate).

Percentage Pricing

Percentage pricing is the most common pricing structure for medical billing rates. It's usually calculated according to one of these:

• Percentage of collections: In pricing per percentage of collections, the biller bases their fee on the net amount received for the claims for which they have directly been involved with collecting.

  This means that as the biller you'll be responsible for following through the full collections process until all payments are complete. You'll only get paid once the claims that get paid and finalized.

  For example, if you charge 7% of collections, and you have actually collected $20,000 for a certain client for that month, then the price for your services for that month would be 7% of $20,000, or $1,400.

  Again, the important thing to remember about this type of pricing is that you only get paid once the doctor gets paid.

• Percentage of gross claims submitted by the billing service: In pricing per percentage of gross claims submitted by the billing service, you charge the healthcare provider a percentage of the total amount of claims submitted to insurance.

  Unlike charging a percentage of collections, which relies on actually getting claims paid before you get paid, charging per gross claims submitted means you get paid for simply sending claims for your clients. This means the doctor's office pays you whether or not the claims get paid.

  For example, if you charge 4% of all gross claims submitted, and you have submitted $30,000 worth of claims for that doctor that month, then your price for that month would be $1,200.

  This also means that you're prepared to handle a large enough amount of claims to make your cut profitable, and that you have an additional agreement in place with the doctor's office about following up on unpaid claims or appeals.

  Each percentage pricing system requires a different level of follow-up to make sure you're being paid enough to do all the work that is required to get the money on which you base your rate.

  The easiest charge rate to start out with is the percentage of collections calculation. But once you become more experienced you may want to offer different pricing schemes to attract new clients.

Flat Fee Pricing

With flat fee pricing the biller is paid per claim submitted regardless of size. This means that you charge a specific fee for each claim you send to the insurance company. It also means that you follow up on all claims until they are paid in full.

For example, if you charge $1.00 per claim, and you sent 1,500 claims that month, then you will charge the doctor $1,500 for that month's billing.

It seems like a simple approach. But it can create a range of challenges if you're faced with several big, complicated claims.

You may also find that you're handling a small volume of claims but spending too much time on them, because they're complex and difficult to manage. This leaves a lot less time to make up the volume you need for flat fee pricing to work out well.

For example, if you charge $1.00 per claim submitted, and you submit 1,500 claims, like the example above, but all of the claims are very complex and require a lot of follow-up and appeals work, then your $1.00 charge may not be enough to cover all of the work that you have to do to get those claims paid in full.

A flat fee doesn't take into account the amount of time you have to spend following up with doctors and insurance companies. This may increase your costs without increasing your profits.

This pricing scheme is best for medical billers who are sure of their ability to manage large, highly complex claims.

Combination Pricing

Some medical billing companies work with a hybrid approach to stay cost effective, and employ both percentage pricing and flat-rate pricing.

With this pricing method a medical billing service might apply a percentage to certain insurances and patient balances and a fee per claim to others.

This of course depends on your confidence and ability to send claims in a cost- and time- effective manner and actually collect on the majority of the charges that you send.

No matter what pricing scheme you choose, be sure to take into account any extra time you spend following a claim through to payment and finalization.

Adjusting your pricing rates

Many clients and billers are open to change. If one pricing system isn't working, try another one. For example, if you find that you are working too hard to get paid, you may want to increase your rate, or change your pricing schedule.

You can also have your clients sign a contract for a specific amount of time, such as six months or a year, and re-evaluate your rates and pricing schedule after that amount of time. This will also allow you to increase rates gradually as your reputation and ability gets better.

No matter how much you want that next client, if you can't maintain a solid profit margin you'll find yourself overworked and underpaid.

For more on maximizing revenue, see this article on running a medical billing and coding business.

Learn about potential selling angles for negotiating medical billing contracts.

You can find lots more information on pricing in the ebook Pricing Your Medical Billing Service.

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