How Much Does Outsourced Medical Billing Cost?

Outsourced medical billing commonly costs between 4 and 10 percent of the money the billing company collects for you, according to published pricing across the industry, with most small and mid-sized practices landing somewhere in the middle of that range. The alternatives are a flat fee per claim, often between $3 and $10, or a hybrid that combines a lower percentage with a monthly minimum. The rate depends on your specialty, how many claims you send, the average value of each claim, how much work is included, and the shape your accounts receivable is in when the company takes over. This guide explains each pricing model, what’s usually included and what isn’t, what the transition costs, and how the total compares with paying a biller in-house.

Percentage of collections

This is the most common model, and it’s the one most practices mean when they ask what billing costs. The company takes a percentage of what it collects on your behalf each month. If it collects $80,000 and the rate is 6 percent, the fee is $4,800.

The rate moves with a few things:

• Claim volume and average claim value. A practice that sends many high-value claims is cheaper to bill per dollar collected, so it gets a lower rate. A practice with many small claims, such as primary care or behavioral health, often pays toward the top of the range.
• Specialty complexity. Surgical specialties, anesthesia, and anything with heavy prior authorization or modifier work costs more to bill correctly.
• Scope. A rate that includes coding, denial appeals, patient statements, and A/R follow-up will be higher than a rate that covers claim submission alone.
• The condition of your A/R. A practice that arrives with a large backlog of old claims is more work, and some companies price that cleanup separately.
• Number of payers and locations. More contracts and more sites mean more rules to keep straight.

The appeal of this model is that the company earns more only when you do, which keeps its incentives pointed at collecting. The thing to watch is what “collections” means in the contract. Some companies take their percentage on everything that comes in, including patient payments collected at your front desk and payments on claims your own staff worked. Ask for the percentage to apply only to money the company’s work actually brought in.

Flat fee per claim

Some companies charge a fixed amount for every claim they submit, commonly between $3 and $10 depending on the specialty and what’s included. This model is easy to budget and works well for practices with steady volume and high-value claims, because the fee doesn’t grow with the dollar amount of the claim.

The weakness is the incentive. A per-claim fee is earned when the claim goes out, not when it gets paid, so the company has less reason to chase denials and old balances. If you choose this model, make sure denial management and follow-up are spelled out as included work with reporting attached.

Hybrid and flat monthly models

Hybrids pair a lower percentage of collections with a monthly minimum, so the company is protected in a slow month and the practice still benefits from the aligned incentive. Flat monthly fees, where the company charges a set amount regardless of volume, are less common and tend to suit very stable practices or practices that only want a limited scope of work.

Whatever the model, the contract should state the fee, what triggers it, what it covers, and how it changes if your volume or scope changes.

What’s usually included, and what often isn’t

A full-service billing agreement commonly includes:

• Claim creation, scrubbing, and submission through the clearinghouse
• Payment posting from electronic and paper remittances
• Denial and rejection management, including corrections and appeals
• Insurance follow-up on unpaid claims
• Patient statements
• Monthly reporting on collections, denials, and A/R

Items that are often priced separately, or not offered at all, include:

• Coding from the clinical documentation, as opposed to submitting the codes your providers select
• Eligibility verification and prior authorization
• Credentialing and payer enrollment
• A cleanup of old A/R that existed before the company started
• Patient collection calls and payment plans
• Practice management software licenses, clearinghouse fees, and statement postage
• Custom reporting or financial management beyond the standard monthly package

Two practices paying the same percentage can be getting very different amounts of work, so compare scope before comparing rates.

Setup and transition costs

Setup fees range from nothing to a few thousand dollars, depending on whether the company has to build your payer connections, configure your software, or migrate data. Ask whether the fee is waived with a contract term, and what it buys.

The transition itself has a cost that doesn’t show up on an invoice. Most changeovers take 60 to 90 days to settle, and during that window someone at the practice has to answer questions, grant system access, and review the first batches of claims. Claims that were in progress when the switch happened need an owner, and some companies charge a different rate, or decline the work, on claims they didn’t create. If you’re leaving another billing company, check your current contract for notice periods and for what happens to claims that are still open when you leave.

How it compares with an in-house biller

The honest comparison puts everything on both sides of the ledger.

An in-house biller costs a salary first. The Bureau of Labor Statistics reported a median of about $48,000 a year for medical records and health information specialists in May 2023, and experienced billers in higher-cost markets earn more. BLS employer cost data shows benefits and payroll taxes commonly adding 25 to 30 percent on top of wages, which brings one full-time biller to roughly $60,000 to $62,000 before anything else. Add practice management and clearinghouse fees, coding references and continuing education, the manager’s time spent reviewing A/R reports, and coverage when the biller is out or leaves, and the total for a single-biller practice commonly lands between $70,000 and $90,000 a year.

Now take a practice collecting $1 million a year. At 6 percent of collections, outsourced billing costs $60,000 a year, and that fee usually covers a team rather than one person, so vacations, sick days, and turnover stop being your problem. At 4 percent it’s $40,000, and at 9 percent it’s $90,000. The two options overlap, which is why the fee alone rarely decides it.

What decides it is the revenue each option collects. A single biller who is also covering the front desk tends to work the easy denials and let the rest age. MGMA has reported that as many as 65 percent of denied claims are never resubmitted, and Change Healthcare’s denials index has put initial denial rates near 10 percent of claims. For a $1 million practice, even a few points of unworked denials and aged A/R add up to more than the difference between any two fees above. The example is a hypothetical, not a result, but the arithmetic holds for most small practices.

When outsourcing comes out ahead

Outsourcing usually wins on cost when:

• Billing is one person’s part-time job and that person is a single point of failure
• Days in A/R are above 40 and the share of A/R over 90 days is growing
• Denials are tracked loosely or not at all, and appeals are rare
• Turnover keeps resetting the team’s payer knowledge
• The practice is too small to justify a dedicated, experienced biller plus backup

Keeping billing in-house usually wins when:

• An experienced biller is dedicated to the work and not pulled to the front desk
• Clean claim rate is at or above 95 percent and denials are under 5 percent
• A/R is current and reports are reviewed every month
• The practice has enough volume to keep two trained people busy, so coverage exists

Questions to ask about pricing

• Does the percentage apply only to money your work collects, or to everything that comes in?
• Exactly which services are included at that rate, and which cost extra?
• Is there a setup fee, a monthly minimum, or a contract term, and what happens if we leave early?
• How are claims that are already in progress at the switch handled and priced?
• Is old A/R cleanup included, and if not, how is it priced?
• Who pays for the clearinghouse, the practice management software, and patient statement postage?
• Do you work inside our existing system, or does the rate assume we move to yours?
• What reports do we get each month, and do they show denials and A/R at the claim level?
• Will you sign a Business Associate Agreement?
• What happens to our data and open claims if we part ways?

How to decide

Before you compare fees, measure what your billing collects today. Your clean claim rate, denial rate, days in A/R, and the share of A/R over 90 days tell you whether the problem is cost or performance. Our guide to outsourced vs. in-house medical billing covers the decision in full, and in-house vs. outsourced collections looks at the follow-up side on its own. Elevate’s medical billing and coding team works inside your existing software, and a free Revenue Rescue Assessment will show where your billing stands before you decide anything.