How Much Should You Be Paying For Medical Billing Services?

Billing costs are traditionally performed for a percentage of “net receipts” of the physicians’ practice.  (Except where limited or prohibited by State law.)

The percentage is generally a fixed percentage for a given time period (1-3 years) and is calculated by dividing the amount they need to achieve a reasonable profit by the amount of revenue they expect to produce for you.billing-percentage

You are a hospital-based physician and you perform 250,000 interpretation reports (exams) that generate 300,000 procedures (CPT codes) each year. Your practice (should) generate $10,000,000 in receipts. Let’s say the cost to provide billing services is $2.75 per procedure. Your total billing cost would be $825,000 ($2.75 x 300,000 procedures).equation

So the question is, “What percentage should we be paying?”

Here are some of the variables you face in answering that question:

Revenue Variables

  1. Mix of Patients
    • Since Medicare and Medicaid generally yield less than your commercial patients, the amount you receive per procedure will vary based on your demographic mix.
  2. Commercial Payor Contracts
    • Reimbursement can vary widely between commercial payors as can terms of your agreements such as timely filing requirements, procedures requirement preauthorization, excluded procedures, payors’ right to unilaterally change reimbursement schedules, right to sell your rates to other networks, and many others. (The devil really “is” in the details.)
  3. Your Fee Schedule
    • We continue to discover that some practices continue to charge less for procedures than their commercial contracts approve for those procedures.

Billing Cost Variables (To your billing company or internal process)

  • Active and timely confirmation that all procedures performed are in the billing process
  • Qualification and certification of coders
  • Quality and efficacy of “clean claim” filing
  • Time and resources applied to front end electronic data interface management
  • Consistently low denied claim rates
  • Resources applied to actively and successfully resolving denied claims
  • Metric driven analysis of workflow and resolution to variances
  • Investments to automate manual processes

So, if you represent the above practice, if you receive a quote for 5.0%, is it a good deal? If you receive a quote for 10%, is it a bad deal?

It is not uncommon for highly automated billing processes to take their eye off the ball and lose revenue in any area of the listed variables above. Here is an illustration of how a great rate may be costing you hundreds of thousands of dollars but stay below the radar, because you don’t know you’re actually leaving money on the table.


In this example, hiring a billing company to legitimately maximize your revenue through its efficiency, productivity and attention to detail, will yield a net of over $9,000,000. If you chose a 6% rate, but lost 15% of your revenue through leaks in the medical billing process, you saved $315,000 in billing costs, but sacrificed $1,500,000 of revenue in the process.

(That last 15% to 20% of a practice’s revenue is the hardest and most expensive to collect, which is why it is a native temptation to billing companies to cut corners and provide lower pricing.)

Bottom line… consider the bottom line as you evaluate your billing costs. Not all billing companies are equal.



While our primary purpose and mission is revenue cycle management, our leaders have decades of physician practice management experience. Call us at 419-223-2785 for a FREE consultation, for up to 1 hour with either Sara Nofziger-Drew, Brendala Anspaugh, John Stiles or Don Rodden. We will gladly sign any reasonable confidentiality agreement and dialogue with you further about how you can lead your group in a transformative direction.

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