The Death of Percentage Billing

Percentage Billing – Dying Like the Dinosaurs

Many people in the medical profession do not realize that percentage billing, or charging a percentage of what the provider brings in, is considered fee splitting in several states.  Fee splitting is an arrangement between a medical professional and a colleague to share a fee.  It is illegal in certain states for a medical provider to enter into a fee splitting arrangement.

Although we live in a fee splitting state, New York, most doctors we talk to still want to pay a percentage to a billing service rather than a flat fee or other method.   Their thought process is often that other billing services charge a percentage so they want to be able to compare apples to apples when looking for a billing service.  They sometimes know that it is considered fee splitting and don’t care but sometimes they are totally unaware.  Although it is not common to be charged with fee splitting for such an arrangement it has happened.

There are other methods of charging for billing services such as a flat fee, a sliding scale based on number of claims, per claim or hourly.  Ideally we prefer a flat fee or sliding scale when negotiating with a provider.  A flat fee can be a little more difficult to determine but it definitely has its advantages.  The best way to determine a flat fee is to estimate the amount of time required to handle that account and multiply it by what you need to charge per hour.

In addition to being illegal percentage billing can have other disadvantages.  Each year co-pays are raised by the insurance carriers.  It is now very common to have a $40 or $50 co-pay.  Patients often find that they pay more out of pocket for doctor visits than the insurance carrier pays for that visit.  This is affecting many billing services.
If the billing service has agreed with their provider to charge a percentage based on what the insurance pays they are finding that they are doing the same amount of work each year but getting less for it.  Unless their agreement with the provider is to bill (and collect a percentage on) patients for co-insurance, deductibles and  co-pays that weren’t collected at the front desk when the patient was seen, these billing services are making less money on the same work they did the previous year.

This has greatly affected specialty billing such as chiropractic where it is common to charge $30 – $50 for a visit.  Often the insurance pays nothing but the patient may want the visit billed so it is applied to their out of pocket expense for the year.  If the billing service is charging the chiropractor based only on the receivables from insurance billing they will find they are billing many claims that get no pay but cost them money to submit and track.

If the billing service is doing a full practice management and is also handling the patient billing by keeping track of the co-pays and sending patient statements out when patients owe money they are generally getting paid on the patient payments also.  So the fact that insurance carriers are paying less doesn’t affect them so badly.  But it is common in many offices for the provider to want the billing service to only handle the insurance billing while they handle the patient receivables in the office.

In order for billing services to stay in business they are finding that they must either increase the percentage they are charging or be more selective in the work they accept.  Increasing the percentage is difficult as many providers are looking for the best price.  With as many other options available for charging providers for billing services we expect to see more alternative ways of charging becoming much more common.

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14 Responses to “The Death of Percentage Billing”

  1. John Fontenot Says:

    This would have been more helpful if you pointed to references or a list of States that are fee splitting and those that are not.

    • solutionsmedicalbilling Says:

      Sorry John, I didn’t have time to research each state and make you a list. There is no one place to find this information. It is a very grey area of the law. The point of my article was that with increasing patient costs it affects percentage billing. Each state must be researched individually. I only know of NY and Fl, possibly NC and Il but I am not sure of those.

  2. Liz McNutt Says:

    How do I find out which states it is illegal to bill by percentage? I am in Virginia and do billing in multiple states as well as Virginia & Kentucky.

    • solutionsmedicalbilling Says:

      You will have to do a little research. Try “googling” fee splitting Va and fee splitting Ky. Unfortunately there is no one place to find this info.

      • Liz McNutt Says:

        Thank you for the prompt response. It was a helpful article about fee splitting, I had heard that before and often wondered about where to find the information.

  3. rtambo Says:

    Charging medical practices by `Billing for Revenues Generated is `Fee Splitting’ and illegal in some states’ ???…typical illogical conclusion from an uneducated bureaucrat and charging $10.00 – $15.00 per visit is not `fee splitting’? Again, where’s the logic?

  4. dee Says:

    What are the guidelines you use to determine how much your fees will be?

  5. Crystal Says:

    Can you elaborate a little bit more on “The best way to determine a flat fee is to estimate the amount of time required to handle that account and multiply it by what you need to charge per hour.”

    • solutionsmedicalbilling Says:

      How long will it take you to enter the estimated number of claims? How long will it take you to enter the payments? How long will it take you to run aging reports and work them? Do you expect any extra time will be required with this account? Add these estimated hours up for a month’s work and multiply it times what you expect to charge per hour. This would be your monthly fee. We take the figure that the provider says is their monthly income from insurance payments and multiply that times our desired percentage to see if these two numbers are close – the percentage and the total monthly fee determined by adding the hours.

  6. Debora Says:

    I agree that you are doing more work for less money and have become more selective as to who I choose to provide the services. I have slowly been transitioning to an hourly rate. This article has been very helpful and supportive to my decision. Thank you.

  7. Bradley Says:

    I, for one, appreciate the time you took to write and research this article, Nice work, and thank you.

  8. Renee Says:

    New business looking for clients. Any suggestions?

    • solutionsmedicalbilling Says:

      You really need to concentrate on marketing. Find some good marketing techniques that work for you and use them.


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