3 Ways to Charge for Your Medical Claims Billing Service Before you start your medical claims billing service, it's important to figure out how you'll be charging clients.

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The following excerpt is from Start Your Own Medical Claims Billing Service. Buy it now from Amazon | Barnes & Noble | iTunes

Before you start your medical claims billing service, it's important to determine how much money you can expect to make.

Medical billing services charge their clients by three methods: percentage, per claim and hourly. The percentage basis is generally used by medical insurance billers (MIBs) who do full-practice management or a combination of patient billing and claims billing, and just as it sounds, the MIB charges the provider a percentage of the money they collect per month as opposed to the amount of money they bill.

Related: Startup Expenses for a Medical Claims Billing Service

"We charge [the doctors] on collected revenues, not on their production levels," one MIB in Walnut Creek, California, explains. "The money all comes to us, and we put it into their own personal checking accounts and then I will bill them, depending on how big the practice is, sometimes twice a month, sometimes once a month. And they pay the bill in a timely manner or we stop doing their work."

The percentages you'll charge will depend on several variables: the going rate in your part of the country, the sorts of procedures your doctors are providing and their patient volume.

"I take a lot of things into consideration," Maryland-based Mary V. says. "With what I know about certain things, I'll charge the doctor a different percentage on the type of claim that it is. I charge a different percentage for workers' comp, for personal injury. If they handle a lot of cash, I'll actually drop that percentage because I know I'm not going to have to bill that out. All I'm going to do is data entry. One doctor might have four different percentages. With experience, I know now how much time certain claims take. With personal injury, it might be six years before that case is settled."

Since personal injury cases take so long to pay, Mary charges a higher percentage of the claim, usually 10 percent and above, whereas routine Medicare claims are billed at anywhere from 5 percent to 10 percent.

With all these variables, estimating an annual income might seem like a task fit for a professor of Boolean mathematics, but it's not really difficult. In fact, it's fun! (Adding up numbers is always more interesting when it pertains to money in your bank account.)

Here's what you do: First, settle on an average percentage. Let's use 7 percent, which is the fee an MIB we know in San Diego charges.

Related: How to Determine the Best Markets to Target for Your Medical Claims Billing Service

Next, estimate how much one client will collect in a year. This is tough, starting cold, because you don't have any clients to base your figures on. If you've done your homework, however, you'll have an idea of how much money doctors in your target market are billing and collecting per month.

Let's say your first doctor collects a nice round figure of $21,000 per month, which multiplied by 12 months gives them an annual collectable income of $252,000. Their billable income might be far more, and this, of course, is where you come in -- your mission being to bring their billable and collectable into alignment.

Now, all you have to do is multiply this $252,000 current collectable figure by 7 percent, which gives you a potential annual income of $17,640. We say "potential" because this sum, as we've just explained, can improve dramatically once you're at the helm. For example, if you're able to increase the doctor's collectable income by 10 percent, they'll now be bringing in $277,000 per year, which will give you $19,404 per year.

If you increase your client base by another five providers, each with the same collectable income, you're suddenly grossing $116,424 per year.

Per-claim jumping

Some MIBs prefer to charge on a per-claim basis rather than by percentage (anywhere from $3 to $10 per claim). This is the method of choice for billers whose workload consists mainly of straight claims billing with little or no practice management tasks.

"I bill per claim," says one Illinois MIB. "The offices do the front-end data entry, and I do the back-end tweaking, electronic filing and some of the follow-up work. I'm charging right now anywhere from $5 to $8 per claim."

In rural Virginia, one MIB charges $4.50 per insurance claim and $3.75 per patient invoice. Up in suburban New Jersey, another MIB charges $7 to $10 per claim.

When you charge via this method, you charge per claim billed rather than per claim collected. You'll want to charge the going rate in your area, which you'll have determined through your market research. Since you'll also have determined through your research how many claims doctors in your area are filing each month, you'll have a good basis for determining your annual gross income.

Let's say your first doctor is billing 350 claims per month, which, multiplied by 12 months, comes to 4,200 claims. If you charge $5 per claim, your gross annual income will be $21,000. Now, if you take on another five physicians, your gross jumps to $126,000.

Counting the hours

The third, and least popular, method of charging clients is per hour. One San Diego biller we know feels this may be a hard selling feature for most doctors. "They're already paying somebody on an hourly basis," she says. "Why would they want to hire somebody outside the office and pay them hourly as well?"

Related: Starting a Medical Claims Billing Service? Here's What You Need to Know.

You might want to consider this option if you have a client whose billing rate is so low that charging per claim or on a percentage basis isn't feasible. Or you might run into a client who's comfortable working under this arrangement and doesn't want to deviate from their norm.

Your market research will be one of the keys to determining an hourly charge. Here's one way to determine an hourly rate. Let's take an average of your annual fee for one doctor, based on the per-claim and percentage methods we used above. This will give you an annual gross income of $20,000. Now, if you divide this by 12 months, you get $1,667 per month. Assuming that your client supplies only 40 hours of work a month, you end up with an hourly charge of $42.

(Note that these are all hypothetical figures. You may far exceed these numbers, or you may find that your economic region, your level of expertise or the amount of work you choose to do puts your income somewhere below what we've given.)

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