PVR

Medical Billing & RCM

How to choose a medical billing company

Who this is for: Solo and small-group physician practices, therapy and behavioral health clinics, and specialty practices under 15 providers evaluating billing service vendors or considering a switch from in-house.

By Jordan Alderman, MBA, CMPE · Reviewed by Rania Hassan, JD, CHC · Last reviewed · Methodology

Disclosure: Independent editorial. No pay-for-placement, no affiliate rankings. Full editorial standards.

The decision framework

  1. 01Baseline your current numbers first

    Before you talk to a single vendor, calculate your current cost of collection as a percentage of net collections. Include salaries, benefits, PMS/clearinghouse fees, and a share of overhead. Most independent practices land between 6% and 12%. That number is your break-even against any outsourced quote.

  2. 02Match vendor size to your claim volume

    National RCM giants price for hospital groups. Regional specialists price for small practices. If you send fewer than 3,000 claims a month you almost always get better attention from a firm under 100 employees with several accounts your size in your specialty.

  3. 03Understand every pricing model on the table

    Percentage of collections is the norm (typically 4%–9%), but per-claim, hybrid, and flat-fee models exist. Percentage aligns incentives on collections but penalizes high-reimbursement specialties. Per-claim rewards clean claims but can leave denials un-worked. Ask which claims are excluded (self-pay, small balances, patient billing).

  4. 04Demand real performance metrics from real clients

    First-pass claim acceptance (should be 95%+), net collection rate (should be 95%+ against contracted rates), days in AR (should trend under 35 for most specialties), and denial rate by category. Ask for a client of similar size and specialty you can call.

  5. 05Verify who owns the software and the data

    If the vendor forces you into their proprietary practice management system, migration off them is painful by design. Prefer vendors who can work in your existing EHR/PM. Confirm daily data exports, contract-end data handover, and clearinghouse account ownership in writing.

  6. 06Read the contract for the exit, not the entry

    Look for: month-to-month or 30-day termination clauses, no automatic multi-year renewals, no data ransom clauses, clear responsibility for legacy AR at termination, and a defined dispute process. A vendor confident in their service does not need to lock you in for two years.

  7. 07Insist on a named account manager and SLA

    Response-time SLAs for provider questions and patient billing inquiries, plus a named point of contact — not a ticket queue. Ask what happens when that person leaves.

Common mistakes

  • Comparing vendors on headline percentage only, ignoring what's excluded from that percentage.
  • Signing a multi-year contract with a large national RCM firm because it feels 'safe.'
  • Not benchmarking current in-house cost of collection before shopping.
  • Accepting 'we don't share client references' as an answer.
  • Letting a vendor put you on their PM system without a data-portability clause.

Red flags — walk away

  • Refuses to disclose first-pass acceptance rate or days-in-AR.
  • Requires a 2-year or 3-year initial term with auto-renewal.
  • Owns your clearinghouse account or payer credentialing on their tax ID.
  • Bundles credentialing 'for free' but won't quote it separately.
  • Cannot name a client of your specialty and size for a reference call.

Frequently asked questions

What percentage do medical billing companies charge?+

Most percentage-of-collections billing companies charge between 4% and 9% of net collections. Small practices and low-reimbursement specialties trend toward the higher end; large-volume or high-reimbursement practices negotiate to the lower end. Per-claim pricing typically runs $4–$8 per claim depending on complexity.

Is outsourced billing cheaper than in-house?+

It depends on volume. Below roughly 3,000 claims per month, outsourcing is almost always cheaper than a full-time in-house biller once you include salary, benefits, software, and the cost of coverage during time off. Above that volume the math tightens and depends on your specialty's reimbursement and your current cost of collection.

What is a good first-pass claim acceptance rate?+

For most specialties, 95% or higher on first-pass acceptance is the mark of a competent billing operation. Below 90% signals rushed submission, weak scrubbing, or credentialing gaps. Ask any prospective vendor for their book-of-business average, then for your specialty's average within that book.

How long does a billing vendor switch take?+

Plan for 60 to 90 days from contract signature to steady-state. Weeks 1–4 cover credentialing verification, fee schedule loading, and clearinghouse setup. Weeks 5–8 run parallel processing on new claims. Legacy accounts receivable — who works claims filed before go-live — is the single most negotiated point; get it in the contract.

Should I let the billing company use their own practice management system?+

Only if the contract guarantees daily data exports, that you own the payer credentialing and clearinghouse account, and that data at contract end is delivered in a portable format at no cost. Otherwise the switching cost of leaving that vendor becomes a soft lock-in.

What's the difference between medical billing and revenue cycle management?+

Medical billing is the narrower activity of coding, submitting claims, posting payments, and working denials. Revenue cycle management (RCM) covers the full arc from patient scheduling and eligibility verification through final collections and reporting. Most modern billing vendors offer RCM; the label matters less than the scope of the statement of work.

Evidence & sources

Every recommendation on this page traces back to a primary reference — federal regulation, an industry benchmark, or peer-reviewed literature. Follow the links to verify claims independently.

  1. [1]Cost Survey for Physician-Owned Practices

    Industry benchmark

    Medical Group Management Association (MGMA) · 2024

    Supports: Baseline cost of collection benchmarks for independent physician practices (typically 6%–12% of net collections).

  2. [2]Medicare Claims Processing Manual (Chapter 1)

    Regulatory

    Centers for Medicare & Medicaid Services (CMS)

    Supports: Federal guidance on claim submission, timely filing limits, and clean-claim standards used to define first-pass acceptance targets.

  3. [3]National Health Expenditure Data — Physician & Clinical Services

    Primary source

    CMS Office of the Actuary

    Supports: Aggregate reimbursement and payer-mix data supporting the range of average reimbursement per claim used in cost modeling.

  4. [4]HIPAA Security Rule

    Regulatory

    U.S. Department of Health and Human Services (HHS)

    Supports: Basis for Business Associate Agreement (BAA), breach notification, and offshore staff safeguard requirements referenced in vendor compliance criteria.

  5. [5]HFMA MAP Keys

    Industry benchmark

    Healthcare Financial Management Association

    Supports: Industry-standard KPI definitions for days in AR, net collection rate, and denial rate used in the vendor scoring rubric.

Next step

In-house vs outsourced billing calculator

Enter monthly claim volume, average reimbursement, and current staff cost. Get a side-by-side monthly cost estimate and break-even point.

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Related guides & tools

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Decision tools

How we evaluated this category. This guide was written against our published evaluation methodology. We do not accept payment from vendors for placement or coverage. See Medical Billing Vendor Evaluation Criteria for the scoring rubric behind this guide.