When it comes to considering third-party medical billing companies, the structure of your fee-for-services agreement could be costing you thousands of dollars in lost cash for your practice. And the most damaging and insidious part of this scenario is this lost cash flow could be very well hidden from view – like a thief in the night.  How could this be?

It depends on how you pay for these billing services.  Whether it’s a percentage amount of insurance reimbursements collected arrangement or a monthly flat fee arrangement.

If you’re like many medical practices who have made the decision to retain the services of a third-party billing company to handle a portion, or all, of your revenue cycle activities, it’s quite possible you’ve agreed to a fee based on the percentage of reimbursements collected.  And on the surface, this certainly makes sense.  Common sense assumes this type of agreement automatically carries a built-in incentive for your billing company partner to perform at a high level to maximize receipt of payor reimbursements versus paying a monthly flat fee for the same services.

However, the above assumption may or may not be true.  It greatly depends on how efficiently upfront revenue cycle management (RCM) tasks are conducted (i.e. Eligibility Verification, Prior Authorizations, Time of Service to Billing, etc..) and how closely your billing partner monitors and manages these, as well as claim denials and appeals.  Anything less than best practice performance can easily eliminate this built-in incentive (i.e. % of reimbursement agreement) resulting in upwards of 38% to 40% in lost profitability.

To better explain the insidious nature of how these losses in the tens of thousands can happen, let’s take a snapshot look at a prospective client’s A/R report we reviewed a few months ago:


Ins. Claims Aging Amt. Billed % Total of Receivables Probability % Amt Collected Estimated Amt Collected Projected Collections LOST
 0 to 30 days $44,000 26.7% 90% $39,600 $  4,400
31 – 60 days $25,000 15.1% 80% $20,000 $  5,000
  61 to 90 days $19,000 11.5% 68% $12,920 $  6,080
  91 to 120 days $12,000 7.3% 55% $  6,600 $  5,400
   Over 120 days $65,000 39.4% 30% $19,500 $45,500
Total Receivables $165,000 100% 59.8% $98,620 $66,380 (40.2%)


The outstanding claims amounts above were for their insurance payors, broken down by aging category (i.e. 0 to 30 days, 31 – 60 days, etc.), along with the percentage of receivables in each category. The “Probability % Amt Collected” was determined by the likelihood of collection from the payor based on ARM industry collection stats.   

The concept is: the longer a claim remains unpaid, the more likely revenue will be lost.

So, in our example, the last column “Projected Collection LOST” reflects the estimated amount of money that could be irretrievable.

And, because this health care provider was under a percentage fee arrangement for monies collected, the monthly fee for services received from their 3rd third-party billing company was understandably LOWER (about $400) than the flat fee we quoted for similar service. The main reason their fee was lower than ours was based on the fact they were ONLY collecting 60% of the money due on claims filed. Much of this loss can be attributed to poor administrative procedures in ensuring clean claim submissions upfront, as well as lack of focus in researching reasons for claim denials and working to process the appeals.

For an additional $400 per month, our best practice medical billing support services would enable us to collect 85% to 90% of the money due on their claims filed.

Unfortunately, in this above scenario, the provider was only able to see the lower monthly fee they were currently paying. What they did not realize in comparing our proposal in this way was for every additional 1.2 cents on-the-dollar savings in service fees, they were ACTUALLY LOSING $105.00!

Better stated, for an additional $400 per month (under a flat-fee service arrangement), for our best practice medical billing support services, they would have been able to reduce their potential lost revenue by at least $42,000.  

As shocking as this is, this type of situation is not uncommon in many small to medium-size practices who have a percentage fee of collections received arrangement with their 3rd party billing company. If left unchecked, tens of thousands of dollars can go down the drain on the back end, potentially oblivious to practice management.

Particularly, if the billing company is mostly focused on earning their fees on your easier-to-collect claims, but negligent or unwilling to allocate resources to more complex claims, because they may require researching reasons on why they were rejected or denied and work to process the appeals.

The best way to avoid the situation this healthcare provider was facing is to look beyond the surface for savings. Be sure your 3rd party billing partner is adept in the key performance areas of timely clean claim filings and efficient collection efforts to improve the receipt of payor reimbursements, ideally within 45 days of claim submission.

With over 85 years of experience, our team of professionals offers customized medical billing services based on the needs of your practice and specialty. Contact Reliance Medical Billing Solutions at 717-740-2622 or visit our website at www.reliancembs.com to see how a partnership with us can save you money.