Revenue Cycle Management Blog | GroupOne Health Source

Outsourced Billing: Percentage of Net Collections vs. Flat Rate Fee

Written by Adrienne Schrimpf | January 2, 2014
Are you considering outsourcing your medical billing? Which pricing option is better for your practice? As a medical billing sales rep, I am often asked by practices why the standard fee structure for GroupOne clients is based on a percentage of the total revenue generated by the practice instead of a per claim basis or a base monthly rate charge. Not sure which option is best for your practice? Let’s take a look at each these revenue cycle management scenarios.

The Billing Company Doesn’t Get Paid Until You Get Paid

Percentage Based Agreements directly tie the success of the billing company to the success of the practice if fees are assessed on overall net collections.  

In general, billing companies are more compelled to work harder, follow through with secondary claims, and follow up on insurance claim denials and work to get you the highest reimbursement possible. In this medical billing collections scenario, the fee structure is based on the provider’s net revenue– a “win-win” for both the provider and the billing company as collections are directly tied to overall compensation for the billing services provider.   

Flat Fee per Claim or Base Rate

With the flat fee pricing,  the medical billing company charges a fixed rate for each claim submitted or static monthly fee, regardless of the size of the claims. 

Depending on the medical practice, this model can be cost effective but should be considered carefully.  

The fee per claim pricing model does not have the incentives for the billing company like the percentage of overall billing collections agreements.  Researching and following-up on unpaid or denied claims and insurance re-files can be extremely time consuming for everyone involved.

Once the billing company has submitted a claim, they may make a phone call or two; but they’ve done the claim submission and the encounter is billable to the practice, regardless of how it’s paid out.

Nonetheless, the flat fee per claim pricing model can be the solution for your practice if you have the resources, skills and time to manage the follow up of denied claims. 

According to the Centers for Medicare and Medicaid Services (CMS), 26% of all claims processed are rejected. In addition, 40% of those denials for services rendered are never re-billed even though 67% of these are recoverable.  Per the CMS numbers, medical practices on average could increase total collections by 6.97% with proper claim follow-up. 

Flat fees per claim may appear more cost effective in the short-term, but the potential for revenue disruption due to poor follow-up by the medical billing service, or the need to hire and train additional in-house practice staff to handle the follow up on its own, may diminish the initial cost savings to the practice. 

Note:  A few states prohibit percentage of collections arrangements specifically for Medicaid payments.