RCM Pricing: Low Rate Clients – Are They Even Profitable?
The revenue cycle management industry shows remarkable variation when it comes to RCM pricing. I’ve observed dramatic differences—easily double or more—between competing vendors and even within the same company’s client portfolio. This pricing inconsistency raises an important question: Are low-priced RCM clients actually profitable for billing companies?
The Race to the Bottom in RCM Pricing
Evidence suggests that most medical billing companies compete primarily on price, whether they admit it or not. A quick Google search for medical billing services reveals this reality—three out of four pay-per-click ads prominently feature extremely low rates (like 2.95%) for non-surgical specialties.
When analyzing how RCM companies position themselves in the marketplace, RCM pricing consistently emerges as the dominant differentiator. Even companies that attempt to disguise this focus with value-added messaging are fundamentally competing on price.
The Puzzling Internal Pricing Inconsistency
What’s particularly interesting is the significant RCM pricing variance that exists within individual billing companies. Even when controlling for variables like:
- Specialty type
- Practice volume
- Service inclusions (coding, credentialing, etc.)
- Geographic location
We still see dramatic pricing differences between clients of the same billing company. In some cases, these differences can be as extreme as 4% versus 8% for essentially identical services.
The explanation? These companies lowered their rates to win the business—they effectively “bought” the client.
A Real-World Profitability Analysis
To understand the impact of this RCM pricing approach, I recently analyzed a seven-figure RCM company’s client profitability. This organization maintained approximately:
- 50% of revenue from family practice, general practitioners, and internal medicine
- 50% from various surgical specialties (OBGYN, gastroenterology, general surgery, etc.)
While the company reported an overall pre-tax margin of about 25%, the surgical specialties operated at around 45% margin. The concerning discovery? Their primary care clients were operating at a slightly negative margin. Half of the business was subsidizing the other half.
For insights on optimizing performance across different specialties, see our guide on medical billing performance.
The Hidden Cost of Low RCM Pricing
This analysis reveals the danger in competing primarily on price. According to MGMA’s RCM Benchmarking Report, non-surgical specialties can be profitable when priced appropriately, but typically require at least 6% to cover average cost structures.
The individual low-priced clients in our case study were decisively unprofitable—some potentially not even covering direct costs on a contribution margin basis.
This pattern is consistent with findings from Healthcare Financial Management Association, which notes that RCM companies often underestimate the operational costs associated with different specialties when setting competitive prices.
What This Means for Your RCM Business
The solution to this RCM pricing challenge isn’t complicated, but it does require courage:
- Price appropriately from the start. Don’t “buy” business with unsustainably low rates.
- Focus on differentiation. Strong medical billing KPIs and performance metrics provide a more sustainable competitive advantage than rock-bottom pricing.
- Analyze profitability by client and specialty. Just because your business shows overall profitability doesn’t mean each segment contributes positively.
- Consider raising prices on unprofitable clients. Some will leave (improving your overall margin), while others will stay (improving their specific contribution).
The Bottom Line on RCM Pricing
RCM pricing is a critical determinant of profitability that receives too little strategic attention in many billing companies. While competing on price might seem like the path of least resistance for winning new business, the long-term implications can be devastating to your bottom line.
Rather than accepting low prices to win new clients, invest in marketing, positioning, and differentiation strategies that allow you to command rates that support sustainable profitability. Your business depends on it. For more valuable insights on how to improve your profitability through pricing, check out our Medical Billing Pricing Strategy: A Complete Guide.
