Many medical offices are turning to a third-party medical billing service for affordable solutions to retain optimum profitability as the business of running a medical practice gets more competitive. A variety of elements should be considered when assessing any medical billing service agreement, with service price being the most important of these. Percentage Based Agreements and Flat Fee Per Claim, the two most popular pricing models offered by medical billing services, are compared in this article, along with some key considerations for choosing a provider.
Agreements Based on a Percentage
The percentage-based agreement is perhaps the price strategy used by medical billing services the most frequently. The medical billing service’s payments to the practice are based on a percentage under this kind of arrangement, typically in one or more of the following ways:
· Proportion of collections,
· The percentage of total claims that the billing service has filed,
· Percentage of the whole practice’s total collections.
When charging the practice under the first of the aforementioned types, the percentage of collections, the medical billing business solely bases its fee on the net amount obtained for the claims it actively aided in collecting (typically excluding monies collected at the office, such as co-pays, deductibles, etc.). This is the clearest illustration of how a percentage-based contract can link the medical billing service’s performance to the practice while carefully restricting it to those things they can safely influence. Because the medical billing service only earns money when the practice earns money, this form of percentage-based arrangement helps the business by “self-policing.”
The billing service fees are deducted from the practice’s overall net income as a proportion of the total collections. It covers not only the cost of the service but also co-pays, deductibles, and any additional funds obtained at the office. This agreement is most frequently encountered with comprehensive practice management organizations, which may include manage personnel, scheduling, marketing, fee schedule negotiations, etc. in addition to medical billing. The medical billing agency can be encouraged to follow up on claims with payers under this arrangement, but it also enjoys some income protection from the various sources of payment that the practice receives.
Within Percentage Agreements, Rates Might Vary:
In a percentage-based arrangement, a medical billing business will consider a number of factors when determining the rate charged to the practice. Rates can range from as low as 4% to as high as 14% or even 16%! Claim volume and average claim dollar amounts, as well as service concerns including the medical billing business’s level of follow-up, whether or not patient bills will be provided by the billing company, and many other factors, all have an impact on this fluctuation. Let’s look at some instances when these factors have an impact on the costs of medical billing services.
FIGURE 1:
Let’s take practice A and practice B as examples of claim volume and monetary amount. They both want a medical billing solution that provides claim creation, carrier follow-up, patient invoicing, and phone assistance. Practice A averages 100 patient contacts each month and a $1000 claim average. Practice B has 1000 interactions each month with an average claim of $100. The billing business will need to estimate about ten times the number of staff hours for practice B to get the same return as from practice A, despite the fact that the gross amount invoiced is the same.
FIGURE 2:
Let’s look at practices C and D in terms of the services they provide. Each claim in both practices averages approximately 1000 per month and costs $100 on average. Practice C is now searching for a billing solution to handle the whole claim lifecycle management process, including carrier follow-up, submission to secondary and tertiary insurances, patient invoicing and assistance, report analysis, etc. Practice D does not need invoicing services since they collect patient balances in-house, and they intend to handle carrier follow-up on their own. Therefore, Practice D merely calls for the medical billing provider to produce and submit initial claims to carriers, along with maybe a few secondary claims each month. The number of gross claims submitted in this case are nearly the same, but practice C may expect to charge a fee that is much higher – maybe twice that of practice D – because of the substantial labor required to provide these extra support services. (Remember that practice D will also need to plan for additional employees to carry out these tasks internally, which is likely not worth the expense of hiring a qualified medical billing business to handle the task.)
Advantages of Percentage-Based Contracts
If a percentage-based agreement is dependent on collections, it directly links the billing company’s performance to the practice’s profitability.
For possible short-term savings, practices frequently get to pick and choose the services they need.
Negative aspects of percentage-based agreements
Keeping some billing tasks in-house can save money in the short term, but it may cost more in the long run to hire more people.
Small allegations might not receive as stern of a response. Consider a $5 patient invoice with an 8 percent collection fee from a medical billing provider as an example. In fact, pursuing the claim would cost the medical billing organization money. Postage, envelope, paper, staff time for printing, filling, and shipping costs added together would be higher than the $0.40 that would eventually trickle back to the service.
Fixed Cost per Claim:
We’ll refer to Flat Fee per Claim as another typical pricing strategy used by medical billing firms. No matter the size of the claim, the medical billing business uses flat fee pricing, charging a set dollar amount for each one that is submitted.
Flat fee per claim pricing can vary widely depending on the amount of claims and the extent of services offered, much like percentage-based agreements. In its most basic form, a fee-per-claim medical billing business could charge as little as $1–$2 per claim for just claim production and submission services. In this situation, it would be the practice’s duty to investigate accusations. Naturally, flat cost per claim pricing can also cover other services like carrier follow-up, patient billing, etc. Practices may anticipate prices to rise to $4, $5, or even $7 per claim or more with these added services.
Hybrid Strategy
The Hybrid Approach, which makes use of flat price per claim and percentage-based agreements, will serve as the discussion’s concluding example. A medical billing provider may use this pricing strategy to charge a flat fee for some insurances and patient balances while charging a percentage for others. This method often uses a fixed charge for all claims to carrier Y and a percentage for all claims to carrier X, creating silos according to the carrier or claim type.
Over the past few years, the hybrid technique has become increasingly popular in various parts of the US as some insurance companies disapproved of percentage-based arrangements. The state of New York’s decision to make percentage contracts on state Medicaid claims unlawful and mandate the use of flat rate per claim services is an example of this. The main cause for worry is a small number of dishonest billing companies that think “up-coding,” or making bogus claims for more expensive services, is an easy method to raise revenues. Even while these few businesses pose a danger to the reputation of the whole sector, legitimate medical billing firms that are focused on long-term expansion and profitability are aware that making a few quick bucks through illicit means is not a sustainable business model.
In summary, the hybrid approach respects the concerns of those insurances that are governed by formal regulation while giving honest billing firms the opportunity to link their performance to that of the practice.
