Understanding the economics
How to Compare Medical Billing Fees and Total Cost
Two billing proposals can show different percentages and still cost the same. They can also show the same percentage while covering very different amounts of work. A useful comparison starts with a shared service scope, a defined collection base, and an honest view of the responsibilities your organization will retain. Then you can assess the financial value expected from the relationship.
Establish what the percentage applies to.
Ask each company to define the fee base in writing. Does it include insurer payments, patient payments, old A/R recoveries, and payments on claims submitted before the relationship began? How are refunds, reversals, and recoupments handled? Is the fee calculated on cash received or another measure?
Confirm minimum monthly charges, setup costs, separate project fees, and any circumstances that change the rate. Use the same collection period and scope when comparing quotations. A percentage without its billing basis is an incomplete price.
Put required extras and retained work beside the fee.
Identify the services included and the work priced separately. Check claims transactions, statements, postage, patient support, coding, authorizations, appeals, reporting, enrollment, and historical A/R. Then identify the staff time and systems you still need internally.
HFMA defines cost to collect using total revenue-cycle costs relative to patient-service cash collected. Its definition includes outsourced arrangements, staff costs, technology, transaction fees, and associated support. [R10] This provides a useful discipline for your comparison: assess the cost of operating the agreed scope. Keep costs that would exist under either option visible and consistent.
Compare quotations on the same numbers.
Consider two hypothetical proposals for $100,000 in monthly collections. These figures illustrate the method; they are not BillerBay prices or an industry benchmark.
| Proposal | Rate | Required additional services | Monthly vendor cost |
|---|---|---|---|
| A | 3% ($3,000) | $1,000 | $4,000 |
| B | 4% ($4,000) | Included | $4,000 |
The quoted vendor cost is equal for that month. Compare any differences in retained staff work, systems, minimum charges, and transition expenses before deciding.
Separate four different types of financial benefit.
A proposal may describe improved collections and reduced workload together. Ask for separate assumptions so you can judge each benefit on its own terms.
- Recurring improvement
- Additional collections on comparable ongoing activity. Account for changes in visit volume, providers, payer mix, and reimbursement when evaluating the result.
- Historical A/R recovery
- Cash collected from an existing backlog. Treat it as a separate recovery project unless there is evidence supporting a recurring effect.
- Avoided expense
- Spending you will actually stop or reduce. Freeing staff capacity can be valuable, but it does not automatically remove the corresponding payroll cost.
- Faster cash
- Earlier receipt of money that would otherwise arrive later. This can improve liquidity without increasing the total amount ultimately collected.
Check the arithmetic behind “pays for itself.”
Hypothetical example
Suppose monthly collections rise from $100,000 to $104,000 under a hypothetical 4% fee. If the fee applies to all $104,000, it is $4,160. That leaves $99,840 before other costs. The $4,000 collection increase alone has not covered the fee.
This simplified example assumes no existing billing fee is replaced and no internal expense is avoided. A real assessment must include both. It must also account for retained costs, additional services, and transition expense. Ask for the calculation, the assumptions behind it, and a conservative scenario if improvements take longer than expected.
Now suppose the practice was already spending $3,000 per month on billing, and the new arrangement replaces that expense. Its starting position was $97,000 after that cost. The new position is $99,840 after the hypothetical fee, a $2,840 improvement before other costs. Both examples are hypothetical. Your calculation needs your actual costs, service scope, and assumptions.
Agree on how value will be reviewed.
Before the work starts, record the baseline, service scope, collection definitions, and costs used in the comparison. Agree on the review period and distinguish early transition activity from ongoing performance.
Your review should explain the relationship between results and work performed. An increase in gross collections may reflect more visits; a smaller internal queue may reflect work transferred to the vendor. Both observations need context before you assign financial value. Keep the measurement practical enough to review consistently.
Bring a complete comparison to the decision.
Place each proposal beside the same scope and financial assumptions. Record the quoted fee, required extras, retained expenses, transition costs, and evidence supporting expected improvements. Identify unresolved items before signing.
The resulting comparison should make it easier to discuss affordability and service quality together. It also creates a shared starting point for evaluating whether the engagement is delivering the value your organization needs.