Pricing Guideline

In “Hiring a Billing Company – Due Diligence (Part 1)” we discussed the steps in determining a suitable billing company for your practice. One key point in deciding the best fit is to ensure that you are going to save money and also increase your revenue. At this stage of your due diligence you should inquire about the billing company’s pricing. Most often medical billing companies bill a percentage of the collections they bring into your practice. This means that the amount they take in is completely dependent on their success. So the more they collect, the more they earn. In the natural, it may be lucrative to try to get the lowest percentage you can. However, the real bottom line number for your business is your net income after you account for the billing service fees. This may be true even though a better service might demand a higher percentage of your collections. Their total collections can make up for that difference and still result in more income for your practice. Keep in mind that one of the biggest differentiator between billing companies is how good they are at resolving denied claims and collecting on your outstanding accounts. This is the most time consuming part of their workflow. Simply choosing the lowest cost option is unlikely to get you the best provider. The percentage billing companies charge depends on a couple of factors. The most significant is the average volume and size of your claims. The more claims you bring in and the larger dollar amount per claim, the lower the percentage you will have to pay. Surgeons, whose average claims run into the thousands of dollars, get charged less per claim than therapists who only get $25 to $40 per claim. The total volume of claims is also important. A single psychologist who treats 20 or 30 patients a week will pay a much higher rate than a five doctor practice that sees 150 patients or more. You will have to work with the billing company to estimate the total volume and average amount of claims you process to help determine your exact pricing. The other major pricing component is which services you add onto the basic billing responsibilities. For example, accounts receivable collections from patients instead of just claims handling can increase the percentage you will pay. Faster turnaround of your claims or 24 x 7 support will also command a higher percentage. Given those factors, the fees for medical billing services typically range from 5% to 8%, with most types of practices paying 5% to 7%. You may also wind up paying additional set fees for patient statements, delinquency notices, data exports, and other activities. Make sure you get a full breakdown of all the costs associated with your account before you sign a contract. Adding Practice Management (PM) software or Electronic Medical Records (EMR) packages can change how you are billed, in addition to how much you pay. Typically, these services are priced either with an upfront licensing fee or a per user monthly charge, independent of your collection activities.

Contract Terms to Look For in Your Written Agreement

Once the pricing is agreed on, it is highly recommended to formalize your relationship with a written contract and along with the required Business Associate Agreement (BAA) as mandated by HIPAA. The written agreement should include terms that are mutually agreeable. The contract should clearly define the responsibilities of each party. Some important terms to look out for listed below: Termination The term of the agreement should be set forth (e.g., one (1) year), along with the starting and ending dates. However, a physician may wish the agreement to be “evergreen”–automatically renew from year to year–unless terminated, to avoid having to reenter into the agreement every year. Nevertheless, either party may terminate the contract at any time with or  without cause upon a certain number of days (e.g.,thirty (30) days) prior written notice. However, upon the expiration or termination of the agreement the billing service could be required to diligently continue to work the remaining accounts with outstanding balances for a set amount of time, e.g. 90 days. The contract should state that any of the physician’s confidential business records must be returned upon termination/expiration. Also, upon termination or expiration of the agreement the billing service should provide the physician with the original or copies of all information concerning the practice’s billings and collections which have not already been provided to the physician, including any computer disks containing such information, at no extra fee. Make sure, in advance, that such data will be transferable to your in-house computer system. To achieve the best level of integration, make sure the systems use industry-standard HL7 protocol. Software Compatibility The billing agreement should indicate that the billing company is using a practice management software that can handle multiple fee schedules (at least, up to 100) and capitation. Furthermore, the software should also have the capability to allow data to be transferred to another system, in case the practice terminates its agreement. Confidentiality The billing service should be required to maintain the confidentiality of all data and information concerning the practice, its patients as well as its billings and collections. Any disclosure of such information should only be to the extent authorized by the physician and necessary to carry out the purposes of the written agreement. The contract should specifically require the billing agent to agree to comply with and observe all laws relating to the confidentiality of patient records and information. Liability of Errors The billing service should agree to be liable for any loss or damage that the practice suffers as a result of any error, delay or failure of the service in connection with its billing and collection obligations under the agreement. The billing service should also agree to indemnify and hold the practice harmless against any and all claims from any third parties arising out of the billing service’s erroneous handling of any claim on behalf of the practice, its unauthorized use or disclosure of any medical information received by the practice, or its breach of or failure to perform any provision of this agreement. The billing agent may also wish the practice to agree to hold it harmless against any and all claims of damages or liabilities from any third parties or state or federal agencies arising out of false or misleading warranties or misrepresentations made by the practice to the billing service. Protection There are a number of clauses that a practice can include in their contracts with billing services for protection. For example, some billing companies provide in their contracts that they may charge the practice each time a statement is sent to beneficiaries for copayments, etc. If several statements are sent out on a delinquent account, the practice could end up spending large sums of money to collect a relatively small bill. Thus, it is important that the contract limits the billing company to sending no more than three (3) statements for small accounts. In addition, a practice may want to ensure that their billing company does not repeatedly rebill Medicare for approved or denied claims. Medicare may view this activity as abuse, and may scrutinize claims activities of repeat billers. Thus, a practice would be wise to include wording that requires the billing company to rebill claims only when reasonably necessary. Practices are also well advised to require in the contract that the billing company notify the practice of any official correspondence. For example, the billing companies may receive warnings from Medicare or other third-party payers about improper claims, but not inform the practice. Practices need to know about these warnings in order to correct any improper billing practices and avoid fraud and abuse allegations by the Office of the Inspector General (OIG). Independent Status The contract should provide that the parties are at all times acting as independent contractors and that neither are employees or agents of the other. Accordingly, the contract should state that the billing service and its employees and agents shall have no claim against the practice for workers’ compensation, unemployment insurance, pension or profit sharing, or any other employee benefits, all of which should be the sole responsibility of the billing company. Further, the billing company should agree to indemnify and hold each party harmless against any claims, penalties, damages or lawsuits that either party suffer as a result of the service’s failure to make withholdings and contributions as required by federal and state law. Subcontracting In order to prevent the billing company from assigning its obligations to a completely different billing entity and thereby obligating the practice to have a contract with an unknown entity, the contract should state that neither party may assign nor delegate any rights or obligations under the agreement without first obtaining the written consent of the other party. Deposit of Practice Funds To comply with Medicare rules, ensure that the agreement specifies that all checks and payments for health care services rendered by the practice is only to be made out to the name of the provider and deposited into a bank account owned by the practice. Integration Clause To avoid assertions by either party that prior oral or written agreements, whether formal or informal, are part of the contractual arrangement, the contract should provide that it constitutes the entire agreement between the parties and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, except as specifically set forth within the contract. Errors and Omission (E&O) Insurance To protect the practice, the billing company should agree to acquire and maintain sufficient insurance coverage against theft, dishonesty or infidelity of the billing company, its officers and employees. Benchmarks Consider including specific and mutually agreed upon standards, such as:

  • Maximum average number of days in Accounts Receivable
  • Maximum number of charge lag days
  • Maximum number of payment posting lag days

[box type=”info” style=”rounded” border=”full”]Important Notice: The tips in this article are not intended to be all-inclusive with respect to that which should be included in an agreement between a practice and a billing company, nor does this discussion constitutes legal advice. For legal advice regarding billing and other arrangements between a practice and any third party, an experienced healthcare attorney should be consulted.[/box] Upon completion of your due diligence, agreeing on a price and contract terms, you should ensure that your selected candidate has an active compliance plan. In “Hiring a Billing Company – Compliance Plan (Part 3)” you will read more about what you should look for when inquiring about a billing company’s compliance plan.

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