Starting a Medical Billing Business > Starting Your Own Medical Billing Business

New Business - Pricing Questions...

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Hello, All!  I'm basically new to this...although I have been billing for a Friend/Provider for a while now...with very good results.  I am now ready to launch my own billing business in NJ focused on mental health.  There a few things I'm hoping those of you who have been "in the trenches" for a while will be able to help me with. 

First, could anyone more clearly define what is basically known as a "per claim" or "fee for service" billing structure?  I understand that the fee is based on the number of encounters/claims submitted and there is no tracking of the claims submitted, but do you usually post co-payments and insurance payments to client accounts (or do anything else) under this arrangement?

I was thinking of having a fixed-rate based on the number of encounters per month.  For example, a provider for whom we submitted 1-40 encounters per month would pay a fee of $200.00 for these basic services.  If they would like to have other services, such as confirming eligibility and benefits, securing prior authorizations, etc. they would pay an additional fee which would be based on the actual number of encounters submitted during the month.    The following calculation would be used for a provider who actually had 35 encounters during the month:

Calculation:  Monthly fixed rate + actual encounters x $X = Total Amount Due...or in this case
                    $200 + 35 x $X = Total Amount Due

Could anyone recommend a reasonable dollar amount for this additional level?  Any other thoughts you might have would be appreciated.  Also, does anyone know if percentage billing is a "no, no" in NJ?

Thank you!

Kathy G.

How you price your services is really up to you. Personally I like the flat fee model because i get paid for all of my time. The one thing I don't like about per encounter or per claim charges is that it seems to take away something professional.. it's more like a "menu" because you might have a client that wants full practice which might include benefit verifications, follow-up, appeals, etc. So if you were to do that you would need additional fee's for those services and that again, would result in a "menu" type and provider's don't seem to fair well being nickle and dimed.  If you take a look at some posts on the forum you'll see some examples of flat fee model's which more and more billing companies are moving to.  Percentage based billing is not prohibited for doctors in NJ, however again, more billing companies are moving away from it because of the potential of it becoming illegal in the future and based on the OIG's recommendation to stay away from it. Some billers will argue that it takes something away from them in marketing, by not being able to say "We don't get paid until you get paid" but really, this economy sinks that notion from the get go and I really believe provider's are fully going to comprehend a more professional way to charge for your services AND your time.

Oh in NJ you have to register with the state as a third party billing company. You can find the link and instructions here:    BE SURE YOU FOLLOW THE DIRECTIONS EXACTLY because they will send your paperwork BACK!  There are fines and penalties if you do not register so don't miss this very important step!! In the beginning it was very simple, but now it's become quite an involved process and you must do this BEFORE you take on that first client. It's a very well known regulation so providers WILL be asking for your registration from the state and it will not look good if you have not done the process.  The requirements are a business plan, projected earnings, contractual obligations, marketing plan, listing of all contractors/employees (includes clearinghouses) along with their contracts, Insurance policies, bonds if needed, etc.  Be aware that providers are even now given a place right on line to make a complaint against a NJ Third Party Billing Company.   

Thanks, Linda!

I did all I needed to do with the State of NJ.  I was ready to launch earlier this year, until I discovered that I needed to file all the things you mentioned.  Glad that's behind me.

I just wanted to "pick you brain" a little more about setting a flat fee, as you advised.  I realize you can't give me a perfect number, but if you could give me a "ballpark" figure it would be really helpful.  What would be a good "starting point" for billing for mental health services (no psychiatric service providers at this point) for a provider with less than 15 clients/encounters per week?  I would be billing per encounter.  Does $300 sound reasonable to you, or do you think it should be lower?  As you advised in another posting, I would be charging separately for postage, envelopes, etc. 

You also mentioned that for every 7 clients the provider adds you up your price $40. In the example you used earlier today you mentioned you charged a flat fee of $800 for a client you knew would involve 18-20 hours of work each week (plus your postage and other costs).  Could you give me the number of clients and/or encounters this account involves?  If this client's billings took you 8-10 hours per week, I assume you would set your rate at $400...and add the other costs.  Is that correct?

If you could give me any idea of a starting point for a small mental health practice with limited codes involved and averaging between 10-15 encounters per week, it would really be helpful. :)

Thank you!
Kathy G.

Kathy, my number wouldn't match because I don't do it per "encounter" the main basis of my flat fee is based on hourly rate (what I can do in an hour, on an average). My flat fee also includes all my costs for that client so I do a full analysis of the practice. There is another reason for the all "inclusive" fee.. generally someone acting as a "Private contractor" vs. third party billing company will break out these costs separately, even an "employee" (rare and non profitable for the provider) would break those charges out and could impact the provider's Tax return. I found this out when a biller I was working for got a call from the provider's accountant asking her to create an "all inclusive fee" rather than breaking out costs, something to do with the provider's itemized deductions.  Basically your hourly rate might be different as well as how many claims you can process, on the average in an hour.  Using your numbers is how "I" would compute "MY" monthly fee for this type of provider.

$25 per hour. Average of 6 claims per hour =$50.00
Costs for clearinghouse: @avg of .35 cents per claim  $5.00 (small wiggle room)
Postage, claim forms, envelopes, phone:  $150  (This is JUST rough estimate from top of my head!!!)

So you wouldn't be too out of line with this number. Based on how my flat fee is derived, I never let the provider know it's based on that hourly rate, there's no need for them to know that.  Now, if your going to charge your expenses separately in addition to the $300, I'd have to say that might be a little high for such a small provider. Expect never to get rich and even have hard time breaking even with mental health unless you have a few Psychiatrists.

Again, remember that how you want to charge (per encounter) is going to change my example and if you are going to charge separately for things you shouldn't even use my numbers. If I go by you wanting to charge by encounter, I'm coming up with $20 per encounter (300  divided by 15 ) and that seems extremely high which again, is another reason I prefer charging flat fee based on hourly rate minus costs. The average per claim fee is $4-$6. I am assuming your per encounter is a "per claim".   

NOW another thing to consider (to confuse you more) is that small mental health providers are "ok" submitting patient claims on monthly basis which means you could have 1 patient with 4 lines of service dates on one claim. Breaking it out per encounter may cause provider to think they could save money by giving you work monthly.  MH provider's a bit "frugal"  ::) With your fixed monthly fee based on hourly rate, your getting paid for the TIME you put in.

Thanks, Linda.  Still a little confused, but I think I'm getting closer.  Since you charge about $800 for 18-20 hours of work...and I read in a book that for about 12 hours of work for another biller that their charges came to about $750 per month, I'm trying to "back out" of both these figures to get my flat fee amount.  Here is what I came up with last night after I sent you my last message:

01-13 encounters per week or 4-52 encounters/per month.  All inclusive flat fee of $200/per month.
14-27 encounters per week or 53-108 encounters/per month.  All inclusive flat fee of $400/per month.
28-40 encounters per week or 109-140 encounters/per month.  All inclusive flat fee of $800/per month.

What do you think of this fee schedule?  It really doesn't seem worth it to charge any less than $200/per month...if you're checking eligibility & benefits, getting prior authorizations, and sometimes chasing down information from the provider!  Right now I seem to spend a lot of time "chasing down" my Provider/Friend for information, but it has been a great opportunity to learn in so many I let him slide to an extent.

I'm targeting single providers, who usually don't have any support staff at all, and I know if they are not consistent in providing the necessary information, it can get time consuming for the biller.  I am confident in my work and I don't want to deal with anyone who is going to be bickering over nickle and dime type issues.  They will be getting their money's worth and more if I handle their billings.  Since I started doing electronic billings about two years ago, repairable claims from the clearinghouse and insurance denials have been basically nonexistent.

Due to "word of mouth," two providers recently approached me so I really need to get my act and rates together!
I'm limiting my work to mental health right now (no psychiatrists) because that's what I know and feel comfortable with.  Once I get a good handle on everything, I'll expand to psychiatrists.  Since my husband is a psychiatrist, I should have some advantages there with regards to networking:)  I'll also expand to other specialties once I'm more sure of myself, especially with all these changes taking place in the system beginning in 2012. My son also takes his Certified Professional Coder exam in December, which will be helpful.

Could you take a look at these latest figures and let me know what you think?  Thanks sooooooooo much!

Kathy G.


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