Billing a patient for any medical service can get a little complicated. Plus, not all patients can afford to pay the entire bill in full. And then there’s the paperwork. With laws like the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Knowing which documents need to go where can be confusing and challenging. If a hospital or doctor messes things up, it’s a huge legal liability. This is where a medical billing business can help. They take care of billing clients on behalf of doctors, hospitals, and other healthcare providers. Medical billing companies simplify the process by coordinating multiple providers and billing systems while incorporating processes to adhere to changing regulations. Hence, healthcare providers stay compliant and get paid for their services.

There is more to starting a business than just registering it with the state. Therefore, we have put together this simple guide to starting your medical billing business. These steps will ensure that your new business is well-planned, appropriately registered, and legally compliant.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

  • What are the startup and ongoing costs?
  • Who is your target market?
  • How much can you charge customers?
  • What will you name your business?

What are the costs involved in opening a medical billing business?

You can outsource software for a startup through a cloud-based billing software company. The price points here range from $60 per month per user to $250 per month per user.

Of course, you can grow your medical billing practice quite large. However, a medium-to-scale operation requires professional, in-house systems that can cost upwards of $50,000 to install. Servers add another $3,000 to $5,000 to the cost, and training adds another $3,000 to the startup total.

You’ll also need backup hard drives at $50 to $150 per drive, ethernet switches and wires at $50 – $100 per wire, depending on length, software licensing at $1,500 to $3,500 per user, software upgrades at $1,500 to $3,500 per year, and IT support at $150 to $200 per hour.

What are the ongoing expenses for a medical billing business?

Ongoing expenses include software, insurance, utilities, and office supplies, along with labor costs. These costs range from $100 per month for software up to $10,000 or more per month if you have a small medical billing company. Medium and large companies spend hundreds of thousands of dollars per month to keep the business running.

Who is the target market?

The target market is as broad as the healthcare industry. You can narrow your focus, of course, and target specific types of practitioners and providers. For example, this is what most small to medium-sized medical billing companies do.

How does a medical billing business make money?

A medical billing business makes money in several ways:

  • Billing by the hour
  • Billing by the claim
  • Taking a percentage of the funds collected from claims

How much can you charge customers?

The industry-standard rate is $4 to $6 per claim. If a company charges fees as a percent of total sums collected, fees range between 5% and 10%. Some companies charge upwards of 15%. Hourly rates are rare these days but may range between $20 and $50 per hour. You can also set a flat fee per clinician or an initial fee plus a percent of sums collected on claims.

How much profit can a medical billing business make?

Profit potential varies a lot, but typical gross margins are between 5% and 10%.

How can you make your business more profitable?

Making the business more profitable involves specializing. Most successful medical billing companies don’t work with everyone and anyone. A business might become known in the Chiropractic community, for example, or choose to work exclusively with veterinarians or family doctors. Some medical billing companies customize their services for specialists like cardiologists or ENTs.

Another way to improve profits for your company is to hire talented medical billing specialists who are good at collecting payments. Since this business only thrives when collections are high, your employees need good people skills, empathy, and raw sales talent to succeed at managing current and past-due medical bills.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your medical billing business is issued.

STEP 3: Register for taxes

You will need to register for various state and federal taxes before you can open for business.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also considerably simplifies your annual tax filing.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines or even cause your business to get shut down.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance to operate safely and lawfully. In addition, business insurance protects your company’s financial wellbeing in the event of a covered loss.

STEP 8: Define your brand

Your brand is what your company stands for, as well as how the public perceives your business. A strong brand will help your business stand out from competitors.

STEP 9: Create your business website

After defining your brand and creating your logo, the next step is to create a website for your business.

Here are the main reasons why you shouldn’t delay building your website:

  • All legitimate businesses have websites – full stop. The size or industry of your business does not matter when it comes to getting your business online.
  • Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website you own.

STEP 10: Set up your business phone system

Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.

We can tell you massively great news based on this guideline: we can help you start your very own Medical Billing Business. You can get access to 12+ years of crucial industry knowledge and learn from an expert who has been through the trial & error process.