How to Start a Home-Based Medical Billing Service

There’s a reason your mother said that if you can’t be a doctor, marry one — because there’s lots of money to be made in health care.

But if you missed the bus to medical school and you haven’t married a doctor, there’s still lots of money to be made from being a health care professional, especially if you want to be in business for yourself.

Starting a business of any kind requires know-how, planning, resources, and, most importantly, a product or service for which there’s a market. Love it or hate it, the Affordable Care Act (aka Obamacare) has changed the health care landscape in a big way.

By insuring more people through both private insurance and Medicaid, it has increased the number of patients doctors see, which means more bills to more insurance companies. The health care industry in the United States is so large that, if it were a country, it would have the world’s 10th-largest economy!

What Is a Medical Billing Service?

Any time anyone with any type of health care coverage visits a doctor or health care provider, the doctor must submit their bill to the insurer for payment. Medical billing services process those transactions for health care providers.

You’re no doubt wondering why health care providers don’t just send out invoices on their own and save the expense. The reason is that insurance companies, along with Medicare and Medicaid, don’t like to pay unless they absolutely have to. So they require that bills for services rendered be submitted using specialized software, and that they conform to strict rules.

Medical billing services provide expertise in navigating the requirements of various insurers to get the doctors paid quickly. While doctors are amazing when it comes to their understanding of the human body, they can be technologically challenged when it comes to the intricacies of electronic billing. That’s where medical billing services fill the void. For example, claims submitted on paper take an average of almost 30 days to get paid versus 10 days to two weeks for electronic submissions.

Education Requirements

Health care billing differs from the billing process in most other businesses in two important ways. First, most bills for treatment are submitted to insurance companies rather than directly to patients, or customers. Second, when medical bills are submitted to insurers for payment, they require highly specialized descriptions and codes. If the code doesn’t match a description exactly, the payment will be denied. And because some procedures may have similar names, the billing clerk must have an understanding of anatomy, physiology, and pharmacology as well as other medical and insurance terms.

Certificate programs are available both online and in person at a wide range of colleges and universities, including state schools and private non-profit and for-profit schools. The programs usually require the completion of 18 credits, which in most cases can be fulfilled in nine to 18 months.

When considering a certificate program, it’s important that it provide training in the three primary coding manuals:

  • CPT: Current Procedural Terminology, which is set by the American Medical Association
  • HCPCS: Healthcare Common Procedure Coding System
  • ICD-9-CM: International Statistical Classification of Diseases and Related Health Problems, which is maintained by the World Health Organization. This system will be replaced by ICD-10-CM in October 2015.

Courses should also prepare you to sit for the national certification exams offered by each of the three medical billing and coding associations:

First Steps

Before you start soliciting clients and ordering business cards, software, and office equipment, you should set up your business. This will enable you to more easily make decisions like choosing a name and track profits and losses. It can also save you time and money down the road when it comes time to file tax returns. You should contact a Certified Public Accountant or an attorney to discuss your options for setting up your company.

Each of the business structures — sole proprietorship, S-Corporation, C-Corporation, and partnership — have their own advantages and disadvantages, and the one that is best for you depends on your individual circumstances and goals. Finding and working with a good accountant right from the start is the best way to avoid unpleasant tax and accounting problems down the road.

Setting Up Shop

For many people, the primary attraction of starting a medical billing service business is the ability to operate from the comfort of your own home. This is because prospective clients will seldom, if ever, need to visit your workplace.

Setting up your home-based business is much the same as if you were going to operate from a commercial location. That means starting with a quiet, permanent work space. Ideally, a separate room is best because it will provide quiet privacy and ensure that your work is undisturbed. If a spare room is not an option, find a spot where your computer, supplies, and equipment won’t be in the way.

Equipment Costs

A significant advantage of a home-based business like a medical billing service is the relatively low cost of getting started. Typically you will need a new computer and quality printer (preferably laser). You will need a fax machine or fax software, along with a land line connected to your computer, and an answering machine or voicemail. Stationary such as business cards and letterhead don’t have to be fancy or expensive, just professional looking.

Software Costs

The most expensive item you will need in order to get started is your billing software. There are lots of choices, and they range in price from a few hundred dollars to $10,000 or more.

The cost depends not only on the bells and whistles, but on the capabilities of the software package. Billing software functionality ranges from minimalist to complete business suites that include marketing and lead generation assistance.

Take the time to thoroughly evaluate as many software options as you can. Most offer free demos, which you should take advantage of so you can get a hands-on feel for the product.

Clearinghouse Costs

No matter which software you choose, you won’t be able to directly submit claims to insurance companies, Medicare, or Medicaid. You will need to pass your claims through a third-party medical billing clearinghouse. Like software, the cost of a clearinghouse membership can vary from less than $100 to several hundred dollars, and may involve additional fees for each doctor or account you add.

Finding Clients

The hardest part of any new business is building a customer base, and a medical billing service is no exception. The universe of potential clients for your new business is very diverse and includes all healthcare providers — from hospitals and clinics to podiatrists and dentists and every specialty in between.

Other potential customers include pharmacies, ambulance and medical transport companies (both for non-profit and for-profit), medical equipment providers, home health practitioners, nursing homes, and assisted living facilities. In fact, anyone that provides a product or service that is eligible for payment by private or government health insurance is a prospect.

Marketing a medical billing service to doctors, dentists, and hospitals can be a little trickier than other types of businesses, because these health care professionals are less likely to wade through marketing material such as letters and brochures that arrive in the mail than others. They are also going to be nearly impossible to reach by phone. That leaves in-person visits to drop off marketing materials and establish a relationship with an office manager.

If you are intent on marketing to physicians, your best bet may be to start with those you already know. Talk to your family doctors, such as your pediatrician, OBGYN, cardiologist, and dentist and ask for their business, or at least a reference that you can use to solicit others.

Think About a Specialty

Specializing in one or two types of health care providers — such as cardiologists, psychiatrists, nursing and assisted-living facilities, and labs — is a great way to hone your skills by becoming knowledgeable about the specific terms and requirements of those specialties.

This is important because a big part of marketing yourself to prospective customers is being able to speak their language and having a deep understanding of their particular needs.

Business for Sale

Buying an existing medical billing business is an alternative to starting from scratch. Businesses are sold all the time, both directly from seller to buyer and through business brokers, but this route requires that you do your homework before you sign an agreement and write a check. Among the questions you should ask as part of your due diligence are:

  • How many clients do you have?
  • How long have you had them?
  • Are they under contract?
  • What are the prices they pay?

Pricing and Income

There are three ways that medical billing services charge clients: per-claim, hourly, and percentage of claims paid. The prices for each of the billing methods vary from specialty to specialty and region to region. The best way to determine what the going rates are in your area and the specialties you will be pursuing is to ask. Polite inquiries made of potential clients and even competitors will help you gauge how much you should charge.

  • Per-claim billing: This billing method uses a fixed amount for each claim submitted regardless of whether it is paid or not. In the event a claim is denied due to faulty information provided by the client, you will be able to charge a new fee for resubmissions.
  • Hourly: Hourly billing may be the best choice if you are performing complimentary services in addition to billing such as practice management. According to the Bureau of Labor Statistics, the average hourly wage for medical billing clerks is about $16.50 per hour. Of course there are regional differences and this rate is for an employee — providers can expect to pay more to an independent contractor.
  • Percentage of collections: This method is the most popular of the three since it incentivizes the billing specialist to get the maximum reimbursement.

Income Potential

The amount you earn will depend upon how much effort you put into growing and working your business and whether you choose to work full-time or part-time. Industry averages range from $20,000 to $100,000 per year.

It’s important to understand that it will take time for your income to ramp up as you seek and gain clients. In all likelihood a medical billing service won’t make you rich overnight, but it can be a great source of income from a business you own that affords you scheduling flexibility.

For some more ideas on carving out a home-based career in the insurance industry, read up on how to set up shop as an independent insurance agent. For even more at-home job ideas, check out ‘10 Work-From-Home Jobs.’

This post was updated on Jan. 26, 2015.