About Medical Billing

Also read…The future of reimbursement

Inception of the Affordable Care Act increased the ‘velocity’ of the shift toward value based services. Federal government programs are at least marginally incentivizing medical groups to provide care that falls within metrics the government believes indicative of good clinical practice. Combined with other factors, the move to value has also increased consolidation of medical providers into larger groups within larger health systems. That said, we have yet to see a new way of providing service that bends the cost curve over time.
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Some words about medical billing….pretty much any company that sends provider claims to a payer calls itself a medical billing company.  There is a tremendous variance in services and costs, however, as detailed below.

Outsourced billing

The medical billing market is characterized by a broad diversity of companies, most of which are small (< $1mm annual revenue) and specialty-focused.  Consolidation in the software industry has created industry leaders with national exposure – such as McKesson, Athena, and Allscripts  – while regional players continue to be created by business combinations among existing companies.

At one time there were brighter lines between billing companies in the services they provided to their customers, but increasing sophistication of software and diminishing costs have recently blurred these lines.  Accordingly, the categories below are not exclusive in the sense that a large company may provide a discreet service in each category.


The range of charge associated with billing service varies considerably.  There are service bureaus charging 7% of collected revenue, and full-service billing companies charging less than 5% of revenue.  Across the entire industry,  the range runs from a low of 3% of collections to a high of over nearly 20% of collections, but the general working range is from 7% – 10% of collections.

Types of billing service

Service bureau   

  • Compiles and submits claims to third-party payers
  • Charges by the claim, with a minimum monthly charge, or a percentage of collected cash
  • Very low level of actual claims management resource, may provide on-line tools to assist provider in correcting/resubmitting claims
  • The minimum monthly charge applies as the accounts receivable builds, so the company gets paid something each month.
  • Minimal support

Software as a service (SAAS) and/or combined Electronic Medical Record (EMR)

  • A la carte pricing
  • Broad array of services are available ranging from:
  • Base medical office software, claims management, claims submission, cash posting, denial management, statement mailing, or complete outsourcing to include all of the above
  • Pay on base subscription model plus charge for each additional service
  • Frequently will have dedicated account support, or help-desk
  • Overall fees when combined generally exceed those of a single-fee billing service


  • Complete support but significant expense – for example, electronic claims submission and mailing costs – are direct billed to the customer.  This gives the appearance of a very low rate, as most providers cannot anticipate the direct billed costs, which in a typical practice are about 2% of revenue.

Partially Offshored / Offshored

  • Full range of billing services are provided US / India or only India.  The appeal of the service is primarily to value-based buyers, there is limited assistance in claims management, significant downsides related to information security and governing law in the event of a date breach.  There are, however, certain claims management functions – such as calling insurance companies – that offshore services can do competently at very competitive pricing

Full-service / all US

  • Typically provides ‘cradle to grave’ service for a claim, from charge entry to turning aged claims to a collection agency.  Provider cedes entire receivables management to agency.  Most common with hospital based providers and providers with nuanced billing requirements.  Within this scheme significant emphasis is placed upon the depth of knowledge for the particular specialty and the unique needs of the customer practice, and most especially knowledge in the area of documentation and coding.

The location of full-service billing companies are largely a function of population, with it being unusual to find a billing company in a population catchment of fewer than 100,000 persons.  Prospective customers tend to self-select between existing companies based upon the perceived ‘fit’ between the customer needs and billing company offerings.

The key points of differentiation relate to services that are brought out to the customer, and the degree of customization available to the customer.  Some companies array services based upon what they know costs to be under a given service standard and do not deviate from that service standard – this allows for a less expensive service offering.  Other companies offer highly customizable service, and the associated costs are of course reflected in the contingency rate.

Small medical groups tend to be more expensive to support, and would frequently benefit greatly from the breadth of expertise a full-service company can provide.  However, these groups also tend to be acutely conscious of costs, and accordingly full-service billing companies have not historically penetrated the small medical group market.