How to Start a Medical Billing Business

Part 1 - How to start a Medical Billing business - Background

Billing a patient for medical services can be complicated. Plus, not all patients can afford to pay the entire bill in full. And then there’s the paperwork. With laws like the Health Insurance Portability and Accountability Act of 1996 (HIPAA), it can be confusing and difficult to know which documents need to go where. If a hospital or doctor messes things up, it’s a huge legal liability.

This is where a medical billing businesses can help. They take care of billing clients on behalf of doctors, hospitals, and other healthcare providers. Medical billing companies try to simplify the process by coordinating multiple providers and billing systems, while incorporating processes to adhere to changing regulations, so healthcare providers stay compliant and can get paid for their services.

Our guide is in 3 parts:

• Part 1 - How to start a Medical Billing business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a medical billing business?

Software for a startup can be outsourced through a cloud-based billing software company. The price points here range from $60 per month, per user to $250 per month, per user.

Of course, you can grow your medical billing practice quite large. A medium-to large-scale operation requires professional, in-house, systems which can cost upwards of $50,000 to install. Servers add another $3,000 to $5,000 to the cost, and training adds another $3,000 to the startup total.

You’ll also need backup hard drives at $50 to $150 per drive, ethernet switches and wires at $50 – $100 per wire, depending on length, software licensing at $1,500 to $3,500 per user, software upgrades at $1,500 to $3,500 per year, and IT support at $150 to $200 per hour.

What are the ongoing expenses for a medical billing business?

Ongoing expenses include software, insurance, utilities, and office supplies, along with labor costs. These costs range from $100 per month just for software, up to $10,000 or more per month if you have a small medical billing company. Medium and large companies spend hundreds of thousands of dollars per month just to keep the business running.

Who is the target market?

The target market is as wide as the healthcare industry. You can narrow your focus, of course, and target specific types of practitioners and providers. This is what most small to medium-sized medical billing companies do.

How does a medical billing business make money?

A medical billing business makes money in any of several ways: billing by the hour, billing by the claim, or taking a percentage of the money collected from claims.

How much can you charge customers?

The industry standard rate is $4 to $6, per claim. If a company charges fees as a percent of total sums collected, fees range between 5% and 10%. Some companies charge upwards of 15%. Hourly rates are rare these days, but may range between $20 and $50 per hour. You can also charge a flat-fee per clinician or an initial fee plus a percent of sums collected on claims.

How much profit can a medical billing business make?

Profit potential varies a lot but typical gross margins are between 5% and 10%.

How can you make your business more profitable?

Making the business more profitable involves specializing. Most successful medical billing companies don’t work with everyone and anyone. A business might become known in the Chiropractic community, for example, or choose to work exclusively with veterinarians or family doctors. Some medical billing companies customize their services for specialists like cardiologists or ENTs.

Another way to improve profits for your company is to hire talented medical billing specialists who are good at collecting payments. Since this business only thrives when collections are high, your employees need good people skills, empathy, and raw sales talent to succeed at collecting current and past-due medical bills.

Day-to-Day and Growth

What happens during a typical day at a medical billing business?

A medical billing company stays busy. The owner of the business oversees day-to-day operations which include collecting delinquent accounts and establishing payment arrangements with patients, monitoring patients’ payments, and following up with patients when payments do not arrive on time.

The business also subcontracts business out to collection companies when payments cannot be collected within a reasonable amount of time. It maintains a medicare bad-debt cost report, which tracks billings and collections. It also initiates claims against estates for backpayment of medical bills. Medical billing companies maintain an active list of contacts with various legal departments and law firms as well as local governments (e.g. clerk of the court), which they use to help with collection attempts.

Medical billing companies also do normal bill collections by sending out bills for payments on behalf of hospitals, doctors, and other healthcare providers.

What are some skills and experiences that will help you build a successful medical billing business?

To run this business, you’ll need data entry skills, management skills, and knowledge of the healthcare and billing industry.

What is the growth potential for a medical billing business?

Medical billing can be done on a small or large scale. Starting out of your home, you can get a medical billing company up and running with a laptop computer and basic accounting and billing software. Larger operations require a staff, ranging from 5 to 10 employees up to thousands.

What are some insider tips for jump starting a medical billing business?

Make contacts early on to get up and running quickly. This is a saturated market. If you know anyone in the healthcare industry, find out what events they go to and network with them. Find out who does their medical billing. New doctors just out of residency can also be a good source of leads.

Since many hospitals already have a medical billing system, it’s best to stick with practices that are just starting.

How and when to build a team

Building a team isn’t necessary in this business. However, if you want to grow your business, add medical billers as fast as you can. They are the core revenue generators of the company.

Part 2 - Is a Medical Billing business the right fit for you?

Part 3 - Action plan to launch your Medical Billing business in 90 days