Medical billing/coding business income potential

[sbgradinnb]

When generating a business plan how do you calculate the potential revenue/income stream that will be expected?

For exmaple: (all figures hypothetical for sake of argument)

Lets say you are charing 7% on all your accounts.  You subtract approximately 2% for expenses such as software, marketing, and other fixed costs which will net you 5% (just an approximation) monthly.

Lets say you have gotten to a certain point where you have contracted 4 providers who each bill 25k/mo.  That is 100k/mo in billing that you will be responsible for, and you have a 5% profit margin.  

So that means that for billing for 100k worth of claims your entire business will only be generating 5k/mo in profit?  Am I incorrect here?  I am trying to foresee the income potential vs. the sacrifices in time, money, and effort that will be required.

Any comments are appreciated.  I know this is a bit of an unusual scenario/post.  Thanks for looking.

[medauthor]

Lets say you have gotten to a certain point where you have contracted 4 providers who each bill 25k/mo.  That is 100k/mo in billing that you will be responsible for, and you have a 5% profit margin. 

So that means that for billing for 100k worth of claims your entire business will only be generating 5k/mo in profit?  Am I incorrect here?  I am trying to foresee the income potential vs. the sacrifices in time, money, and effort that will be required.

Not necessarily.....BILLING 25K does NOT mean each provider will BRING IN 25K, so your figure of 5K per month is NOT accurate, unless you are charging a % based on what you BILL OUT, and NOT what is collected.

[sbgradinnb]

Yes, I see the difference.  My mistake.  So assuming the above is the amount collected, your business will be earning approx. 5k/mo.  Is this correct?

Is this below the industry avg?  Near?  

How many providers would you need to actively have contracts with to have substantial income?

Thx

[Michele]

That depends on what you are looking for, what is substantial income.  Are you doing all the work yourself?  Will you have employees?  Did the 2% for expenses allow anything for labor?   

[sbgradinnb]

I will be partnering up with someone who will be handling most of the workload, while I will be out there marketing our services, making contacts and contracting providers. 

For the sake of argument, lets assume the 2% includes labor, so 5% would be the profit margin.

Substantial income lets assume 10k+/mo.

Based on these assumptions, its seems that in order to hit that target income, we would have to have 200k/mo in collections.  How long do you think that would take to build up to that level?  6 months?  1year?  2 years?  (I know this all depends but im just looking for general ballpark information)

Thanks for the input.

[PMRNC]

Lets say you are charing 7% on all your accounts.  You subtract approximately 2% for expenses such as software, marketing, and other fixed costs which will net you 5% (just an approximation) monthly.

Here's where most people make their mistakes when pricing on a %.   YOU do NOT charge the client for expenses incurred as the price of "doing business"  for example, why on earth would you include a charge for "marking" .. attorney, coding books, etc.  THOSE are charges that are incurred to YOUR business and are the "PRICE of doing business"  same goes for training, and if you have paid one fee for your software. The only time you might charge a client for software is for the use/licensing of that client if the software vendor charges a per provider/client fee.  costs/expenses are to be related to costs incurred for THAT client. (postage, envelopes, ink, clearinghouse, etc) Costs such as marketing, attorney, compliance, training, continued education, coding books, those are all costs your business will absorb and should not be the clients cost, that's why they are outsourcing!
 

[DMK]

I hope I'm not chiming in out of turn, but this business has the potential to make decent money but takes a lot of effort to obtain and retain clients.  You also need to understand that what the doctor bills and what he gets are very different.  Each insurance has a different allowed amount for services, so the amount billed out against what is collected can vary each billing cycle.  We have some months where we bill a ton of Medicare.  They cut our fees by 50%, so there's a large amount billed and only 50% will be collected.  Blue Shield is better, Blue Cross is worse, Worker's Comp. is on a set fee schedule and cascaded, Personal Injury is 100%. 

It is VERY difficult to nail down exactly what your collections will be unless your doctors have a very specific patient base. 

The gurus on this site have said over and over that flat fee works better than %, and in some states % is illegal.

[pattil88]

You will also need to consider the specialty that you will be billing and the volume of claims that you will be responsible for. A practice that has a high volume of E&M services (internists, GP's, etc.) will require much more FTE effort to process all of those encounters while giving you a lower net revenue per patient visit. On the other hand, a surgical practice will generally have a lower number of encounters but a much higher net revenue per patient.  Before I decide on what type of pricing to charge a practice (net percentage of collections, flat fee per month, per claim, etc.) I make sure I have as much understanding as possible of the volume and work effort involved to get the claims processed while still making a decent profit. I also estimate a reasonable number of claims that can be processed per hour (again, based on the type of practice) so I can get an idea of how much volume I can reasonably process without working 24 hours a day! Hope this helps.....

[sbgradinnb]

You will also need to consider the specialty that you will be billing and the volume of claims that you will be responsible for. A practice that has a high volume of E&M services (internists, GP's, etc.) will require much more FTE effort to process all of those encounters while giving you a lower net revenue per patient visit. On the other hand, a surgical practice will generally have a lower number of encounters but a much higher net revenue per patient.  Before I decide on what type of pricing to charge a practice (net percentage of collections, flat fee per month, per claim, etc.) I make sure I have as much understanding as possible of the volume and work effort involved to get the claims processed while still making a decent profit. I also estimate a reasonable number of claims that can be processed per hour (again, based on the type of practice) so I can get an idea of how much volume I can reasonably process without working 24 hours a day! Hope this helps.....

Patti,

This helped, thanks.

[aksharhealth]

When generating a business plan how do you calculate the potential revenue/income stream that will be expected?

For exmaple: (all figures hypothetical for sake of argument)

Lets say you are charing 7% on all your accounts.  You subtract approximately 2% for expenses such as software, marketing, and other fixed costs which will net you 5% (just an approximation) monthly.

Lets say you have gotten to a certain point where you have contracted 4 providers who each bill 25k/mo.  That is 100k/mo in billing that you will be responsible for, and you have a 5% profit margin.  

So that means that for billing for 100k worth of claims your entire business will only be generating 5k/mo in profit?  Am I incorrect here?  I am trying to foresee the income potential vs. the sacrifices in time, money, and effort that will be required.

Any comments are appreciated.  I know this is a bit of an unusual scenario/post.  Thanks for looking.

I assume that all your expenses (including attorney, marketing, employees, space, software, system maintainence, etc. ) will eat 4% of your revenue/month. Then difference between your expense and your gross % will be your net profit.

Gurus,

Pleas correct me if I am wrong.

[Michele]

The difference between gross & expenses and the net profit.  I did think that 2% was a little low to allow for expenses.