What a medical billing company does

Every visit a practice bills goes through the same cycle, whoever runs it: confirm the patient is covered, get approval where the payer requires it, send a claim that will pass the payer's edits, collect what is owed, and work whatever comes back unpaid. A billing company takes some or all of that cycle off your staff.

The billing cycle, and who usually does each step when a practice outsources
StepWhat happensUsually done by
Eligibility and benefitsConfirm active coverage, the patient's plan and their share before the visit. HIPAA sets the electronic standard for this check (CMS).Billing company, front desk, or both
Prior authorizationGet the payer's approval for services that require it before they are delivered.Often split: billing company files, clinic supplies notes
CodingTurn the clinical note into diagnosis and procedure codes.Coders or clinicians, a separate discipline from billing
Claim scrubbing and submissionCheck the claim against payer and federal edits such as Medicare's NCCI edits, then send it, usually through a clearinghouse.Billing company
Payment postingRecord what each payer paid and adjusted, using the remittance and its adjustment reason codes.Billing company
Denial management and appealsFind why a claim was denied, fix and resubmit or appeal, and stop the cause recurring.Billing company
Patient billingSend statements for the patient's share, take payments, answer billing questions.Billing company or practice
ReportingShow collections, denials, days in A/R and aging so the practice can see how billing is going.Billing company

Read the full walk-through, step by step: what a medical billing company actually does.

Why practices outsource billing

Billing is expensive work to staff, and payers keep adding to it. In a peer-reviewed time-and-cost study at one large academic health system, billing and insurance-related work cost an estimated $20.49 and 13 minutes per primary care visit, about 14.5% of the professional revenue for that visit (Tseng et al., JAMA 2018). Those are academic health system figures, not a small-practice benchmark, but they show the scale of the work.

Prior authorization alone is a large share. In the AMA's 2024 survey of physicians, respondents reported an average of 39 prior authorizations per physician per week, 13 hours of physician and staff time each week, and 40% said they employ staff who work only on prior authorization (AMA).

And claims come back. KFF's analysis of ACA Marketplace insurers on HealthCare.gov found they denied 19% of in-network claims in 2024, and fewer than 1% of denied claims were appealed (KFF). That is one market (individual Marketplace plans), not your payer mix, but it is why denial follow-up is most of what you pay a billing company for.

The main types of billing companies

Companies sort into four broad models. The model matters more than the brand: it decides who does the work, who you call when something breaks, and what you are paying for.

Four models, compared on the same criteria
ModelWho does the workFitsCheck before you sign
Traditional full-serviceThe company's billers work your claims in your system or theirs.Practices that want billing off their plate entirely.Biller-to-account ratio, turnover, who covers when your biller leaves.
Software-based (you run it)Your staff, using the vendor's billing software and clearinghouse.Practices with experienced billers in-house.Who works denials, what support covers, data export.
AI-assisted service, e.g. Altair HealthAutomation does the routine checks and submissions; in-house billers work the exceptions it surfaces.Independent and small-to-mid-size practices that want a service, not a tool.How exceptions reach a person, which payers' rules it tracks, EHR integration.
HybridSplit: the practice keeps some steps (often front-end), the company runs the rest.Practices with a strong front desk but no back-office billing team.Exactly where the hand-off is, and who owns each denial.

More on each, with how they charge: types of billing companies and how they charge.

How medical billing companies charge

Most fee structures fall into a few patterns. This guide does not quote rates: there is no government or peer-reviewed source for what billing companies charge, and quotes depend on specialty, volume and scope. Get written quotes and compare them in the same unit.

  • Percentage of collections. A share of what the company collects for you. Ask what counts as a collection (patient payments? payments that would have arrived anyway?) and whether the percentage applies to old A/R it inherits.
  • Per claim. A fee per claim submitted. Ask whether resubmissions and appeals count as new claims.
  • Flat monthly fee. A set fee for a defined scope. Ask what is out of scope and what triggers a price change.
  • Add-ons. Setup, credentialing, patient statements, old A/R cleanup and reporting are sometimes priced separately.

How to choose one: the short version

  1. Write down your numbers first

    Pull your last 12 months of claims, collections, denials and A/R aging from your EHR or current biller, so you can compare proposals against your own baseline. How to measure them.

  2. Confirm EHR and clearinghouse fit

    Ask whether they work inside your EHR, integrate with it, or need you to change systems, and what that costs your staff each day.

  3. Test how they handle exceptions

    Ask them to walk through a real denied claim from your specialty: who sees it, how fast, what they do, and how you find out.

  4. Read sample reports

    Ask for the monthly report you would get, with denial reasons, days in A/R and aging. If they can't show one, you won't get one.

  5. Read the exit and data clauses

    Term, auto-renewal, notice period, termination fees, who works claims in flight after you leave, and how you get your data back, in what format.

  6. Get the HIPAA paperwork

    A billing company handling your patients' information is a business associate and needs a signed agreement (HHS).

The full framework, with what to check at each step: how to choose a medical billing company. The question list to take into the call: questions to ask before you sign.

Worked examples

Worked exampleTurning three quotes into one comparable number
  1. Quote A is a percentage of collections, Quote B a fee per claim, Quote C a flat monthly fee. None is comparable as written.
  2. From your own last 12 months, take average monthly net collections and average monthly claims submitted, including resubmissions if Quote B charges for them.
  3. Monthly cost A = your monthly net collections × A's percentage. Monthly cost B = your monthly claims × B's per-claim fee. Monthly cost C = C's fee plus any add-ons you would use.
  4. Add each quote's one-time costs (setup, data migration) divided by the contract's minimum term in months.

Compare the three monthly costs side by side, then compare them against what each company commits to do. The cheapest quote with a narrower scope is not cheaper.

Worked exampleReading a denial rate a company quotes you
  1. A company says its clients' denial rate is low. Ask: denied claims divided by what? Claims submitted, or claims adjudicated? First pass, or after rework?
  2. Hypothetical numbers for the arithmetic: 1,000 claims submitted in a month, 90 denied on first pass, 60 of those paid after rework.
  3. Initial denial rate = 90 ÷ 1,000 = 9%. Final denial rate (still unpaid after rework) = 30 ÷ 1,000 = 3%.

Both are true numbers for the same month. Ask which one is being quoted, and ask to see it for practices of your specialty and size. More on the metrics.

Go deeper

Glossary

A/R (accounts receivable)
Money billed but not yet collected, from payers and patients.
Days in A/R
How long, on average, it takes to collect what you bill. See benchmarks for the formula.
Business associate agreement (BAA)
The HIPAA contract a practice must have with a vendor that handles its patients' protected health information on its behalf (HHS).
CARC
Claim Adjustment Reason Code: the standard code on a remittance saying why a claim or line was paid differently than billed (X12).
Clean claim
For Medicare, a claim with no defect or missing documentation that prevents timely payment (SSA §1842(c)(2)).
Clearinghouse
The service that checks claims and passes them between practices and payers in the standard electronic formats.
Denial
A payer's decision not to pay a claim or line, with a reason code. Many can be corrected and resubmitted or appealed.
Eligibility check
Confirming a patient's active coverage and benefits before the visit; a HIPAA standard transaction (CMS).
ERA / remittance
The payer's electronic explanation of what it paid on each claim, and why.
NCCI edits
Medicare's coding edits that flag code pairs that shouldn't be billed together (CMS).
Prior authorization
A payer's approval required before certain services; without it the claim is usually denied.
Timely filing
The deadline to submit a claim. For Medicare, one calendar year after the date of service (42 CFR 424.44).

Questions people ask

What does a medical billing company do?

It runs the work of getting paid for care: eligibility checks, claim scrubbing and submission, prior authorizations where it's in scope, payment posting, denial follow-up and appeals, patient statements and reporting. Coding is usually a separate service. Full walk-through.

How much do medical billing companies charge?

There is no government or peer-reviewed source for billing company prices, and this guide doesn't quote any. Fees are most often a percentage of collections, a per-claim fee or a flat monthly fee, with possible add-ons. Get written quotes and convert each to a monthly cost at your own volume. How they charge.

Is it better to outsource billing or keep it in-house?

It depends on whether you can keep experienced billers staffed and covered. In-house gives you direct control; outsourcing trades that for coverage and specialist knowledge. Compare your current cost and results (see benchmarks) against written proposals.

Can a billing company charge a percentage of collections for Medicare claims?

Medicare pays an agent on your behalf only if the agent's pay isn't tied to amounts billed or collected (42 CFR 424.73(b)(3)). CMS's manual says those conditions don't apply when the agent only prepares bills and doesn't receive and negotiate the payments (§30.2.4). Keep payments flowing to your own account and ask your counsel to review the contract.

Does a billing company need a HIPAA business associate agreement?

Yes. HHS lists billing and claims processing among the activities a business associate performs for a covered entity, and requires a written agreement (HHS; sample provisions).

What is a good denial rate?

No federal agency publishes a denial-rate benchmark for physician practices. Track your own initial and final denial rates by payer and reason, month over month. For context, KFF found HealthCare.gov Marketplace insurers denied 19% of in-network claims in 2024 (KFF). Benchmarks.

Who owns my billing data if I leave?

Your contract decides. Make sure it says you own your data, that the company will export it in a usable format within a set time, and who works claims still in flight after you leave. Questions to ask.

Sources

Every figure and rule on this page links to the organization that produced it. Check the source before you rely on it: payer and federal rules change.

  1. Tseng P, Kaplan RS, Richman BD, Shah MA, Schulman KA. Administrative Costs Associated With Physician Billing and Insurance-Related Activities at an Academic Health Care System. JAMA. 2018;319(7):691–697 · JAMA (PubMed record 29466590)
  2. Physicians concerned AI increases prior authorization denials (2024 AMA prior authorization physician survey, February 24, 2025) · American Medical Association
  3. Claims Denials and Appeals in ACA Marketplace Plans in 2024 (March 24, 2026) · KFF
  4. Administrative Simplification: Transactions overview (HIPAA standard transactions, including eligibility) · Centers for Medicare & Medicaid Services
  5. National Correct Coding Initiative (NCCI) edits · Centers for Medicare & Medicaid Services
  6. Claim Adjustment Reason Codes · X12
  7. 42 CFR 424.73: Prohibition of assignment of claims by providers (billing agent conditions, paragraph (b)(3)) · Electronic Code of Federal Regulations
  8. 42 CFR 424.80: Prohibition of reassignment of claims by suppliers · Electronic Code of Federal Regulations
  9. Medicare Claims Processing Manual, Chapter 1 (§30.2.4 Payment to Agent; §80.2 clean claims and interest) · Centers for Medicare & Medicaid Services
  10. Business Associates (HIPAA guidance and FAQs) · U.S. Department of Health & Human Services, Office for Civil Rights
  11. Sample Business Associate Agreement Provisions · U.S. Department of Health & Human Services
  12. Social Security Act §1842(c)(2)–(3), 42 U.S.C. 1395u: clean claim definition and payment timing · U.S. Code, via Cornell Legal Information Institute
  13. 42 CFR 424.44: Time limits for filing claims · Electronic Code of Federal Regulations
  14. Altair Health · altair-health.com