What Is Medical Billing Pricing?
Medical billing pricing is the rate that medical billing companies charge to medical providers like physicians practices for revenue cycle management services like coding, payment posting, and denial management. While this article is geared primarily towards the service companies that provide billing to providers, medical practices could learn a tremendous amount about what influences pricing from reading this article in order to understand what they can do to improve their rate and lower their costs. Whether you’re a small medical billing company or a large private equity sponsored RCM service, understanding the nuances of medical billing pricing is essential for improving profitability and often overlooked.
Common Pricing Models in Medical Billing
Medical billing companies use a variety of pricing models, and the choice of model often depends on the provider’s needs and the services included. The most common pricing models include:
- Percentage of Collections: A contingent pricing model where the billing company charges a percentage (e.g., 5%) of the total collections during a specific period.
- Dollars Per Claim: A flat fee charged per processed claim, often preferred for high-volume practices.
- Flat Monthly or Annual Fees: Fixed pricing structures like $5,000 per month or $55,000 per year.
- Add-On Service Fees: Additional charges for specific tasks like pre-authorizations, credentialing, or patient statements.
While some billing companies bundle services into a single fee, others unbundle them, charging separately for tasks like coding, EDI enrollment, or mailing statements. This article does not contemplate BPO pricing, which typically have either a per FTE or per unit of work (e.g. line item) pricing model.
Factors That Influence Medical Billing Pricing
Several factors impact medical billing pricing, and understanding these can help providers make informed decisions. Here are the key considerations:
1. Services Included
The scope of services provided significantly influences pricing. For instance:
- Credentialing and EDI enrollment may or may not be included in bundled pricing.
- Add-on services like pre-authorizations, eligibility verification, and patient statements often incur separate fees.
2. Specialty and Complexity
Different specialties require varying levels of effort and expertise, which affects pricing:
- Ambulatory Surgery Centers (ASC): Low volume but high dollar amounts per claim.
- Pathology: High volume but low dollar reimbursements per claim.
- Subspecialties like cardiology or radiology may also have unique pricing structures.
3. Practice Volume and Size
The size of a practice and the volume of claims processed can impact billing rates. For example:
- A two-physician practice with additional mid-level providers and ancillary services like physical therapy and imaging may generate more volume than a three-physician practice without these services.
4. Payer Mix
The mix of payers (e.g., Medicare, Medicaid, workers’ compensation, commercial insurance) affects pricing due to differences in complexity and payment timelines. Billing for Medicare is typically more straightforward than handling complex claims for workers’ compensation or Medicaid managed care.
5. Geography
Location also plays a role in medical billing pricing. Certain states and regions offer better reimbursement rates, which can lower billing costs. For instance, Wisconsin may have more favorable reimbursement rates compared to South Florida, where complexities and regulations can drive up costs.
6. The Size of the Billing Company
One of the significant influences on pricing is the size of the billing company. Larger companies often benefit from economies of scale. This includes advantages in areas like medical billing automation, coding, quality control, and operational efficiency. However, bigger isn’t always better.
For example, some massive billing companies with 4,000–10,000 employees may fail to utilize their scale effectively. Instead of leveraging technology and operational efficiencies, they operate as “body shops,” relying on sheer size to dominate the market. On the other hand, midsized companies with around 500 employees often strike the ideal balance, achieving economies of scale while maintaining efficiency.
7. Performance and Staffing Levels: Quality vs. Quantity
Another critical factor is the billing company’s performance and staffing approach. Does the company chase difficult claims, or does it focus only on low-hanging fruit? Many companies claim, “We don’t get paid unless you get paid,” but this is often more of a marketing pitch than reality.
Low pricing can be a red flag. Billing companies offering rates that seem too good to be true may be understaffed or fail to collect on difficult claims. If you’re a provider evaluating such companies, consider what that pricing communicates: Are they cutting corners? Will they pursue underpayments and appeals? The answers to these questions are critical in choosing the right partner.
8. Provider Organization and Efficiency Impact on Pricing
The efficiency of the provider group itself significantly affects medical billing pricing. Disorganized providers create costly issues for billing companies, including front-end errors that cascade into backend challenges. Examples include:
- Front desk errors, which account for the majority of claim denials.
- Poor documentation leading to lower coding accuracy and reimbursement.
- Increased costs for customer service, supervisory support, and problem-solving.
Billing companies must decide whether to absorb these costs, pass them on, or staff at lower levels, potentially reducing service quality. Providers can reduce costs by addressing these inefficiencies, ultimately improving revenue while reducing billing overhead.
9. Why Transparency in Medical Billing Pricing Matters
Transparency in medical billing pricing is essential for providers to evaluate the true cost of outsourcing. While bundled pricing often appears more expensive, unbundled pricing can sometimes add hidden costs when services are itemized. Carefully reviewing proposals and understanding the full scope of services included can help providers avoid unexpected expenses, or alternatively can help billing companies hide elevated pricing to improve profitability. Billing companies that lack transparency can often hide the fact that they are understaffing or underperforming, which can result in poor value for a provider, or effectively higher pricing for the given services being delivered.
10. Good Marketing and Sales: Avoiding The Race to the Bottom in Medical Billing Pricing
The medical billing industry has become increasingly competitive, with billing companies no longer relying solely on referrals to grow their businesses. Outbound marketing and aggressive client acquisition strategies, private equity backed consolidation, and globalization among other things have intensified competition, often leading to reduced pricing.
Unfortunately, the majority of billing companies now compete on price. Even those that claim to differentiate themselves with customization, performance, or quality often end up negotiating pricing heavily to win deals. Without strong positioning and differentiation, pricing becomes the deciding factor, creating a downward spiral where billing companies cut prices to stay competitive.
For example, in a $500,000 a year deal that we won, the incumbent charged 5%, and we won at 5.5%. Not only was this 10% above the incumbent, but all the other competitive bids came in dramatically lower than the incumbent, which meant between 30%–40% less than our winning bid. This type of price competition is unsustainable and undermines the value billing companies can provide.
The Declining Trend in Medical Billing Pricing
Over the past 20 years, medical billing pricing has steadily declined. Despite stagnant reimbursement rates, competition and the shift to offshore staffing have driven prices down. The offshore transition began in the early 2000s and accelerated in the 2010s, with many billing functions now handled in countries like India.
Offshoring has moved beyond basic tasks like payment posting to include complex processes such as coding, problem-solving, and customer service. This globalization of billing services has significantly reduced costs, enabling companies to charge lower rates while maintaining profitability.
Additionally, billing companies no longer rely solely on local talent. With advances in technology, firms can operate from rural U.S. locations at a fraction of the cost of urban centers like New York City. These shifts have further contributed to pricing declines across the industry.
Hidden Costs in Medical Billing Pricing
Pricing in medical billing isn’t just about percentages – it’s also about hidden costs that providers and billing companies often overlook.
Onboarding and Implementation
Onboarding can be a significant expense for billing companies. Tasks like EDI enrollments, technology setup, and staffing for go-live operations require considerable upfront investment. To manage this, we used to charge an implementation fee equivalent to one month’s expected revenue. This ensured that only serious clients moved forward, reducing the risk of wasted resources.
Customization Requests
Customization is another hidden cost. Providers may request unique processes or reports that require additional work. For billing companies, these requests either drive up costs or force them to cut corners elsewhere. Providers should expect to pay more for customization—or understand that low pricing likely means reduced service quality.
Trends and Future Directions in Medical Billing Pricing
The industry is changing rapidly due to many factors. Following are some of the trends driving the future of medical billing pricing:
1. Data and Analytics
The industry’s ability to leverage data and analytics is currently limited, but this will improve. Better RCM analytics can help quantify performance, differentiate services, and justify pricing. Over time, this should lead to a wider spread between high-cost, high-value billing services and low-cost, basic offerings.
2. Consolidation
The consolidation of providers and billing companies will continue. Larger providers can negotiate lower pricing, while larger billing companies theoretically benefit from economies of scale. However, these economies are often not fully realized due to inefficiencies in integration.
Private equity firms driving many of these consolidations often accept lower rates and margins, expecting scale to compensate. This trend will likely persist, keeping downward pressure on pricing.
3. Technology and Automation
Automation and technology will play an increasingly significant role in reducing costs. Tools like conversational AI, machine learning, and robotic process automation can improve productivity, lower costs, and enhance performance. While these advancements could justify higher pricing through improved results, most of the industry seems focused on cost reduction, leading to further pricing declines.
4. Value-Based Care
The shift toward value-based care—where reimbursement is tied to outcomes and quality metrics—will introduce complexity to the billing process. This includes managing clinical data, quality metrics, and outcome tracking. These added complexities will likely increase operational costs, putting upward pressure on pricing and resisting the downward trend.
Final Thoughts: Pricing, Profitability, and Marketing
Medical billing pricing is (or at least should be considered) a highly complex and evolving landscape influenced by competition, hidden costs, technological advancements, and industry trends. For providers, understanding the true costs of services beyond just the percentage rate, as well as what they are doing to often negatively impact on pricing, can help ensure they select the right partner and achieve financial success. For billing companies, differentiation and strategic pricing are essential to avoid being caught in the race to the bottom in an industry that clearly has a value proposition.
