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How To Start A Medical Billing Company

How To Start A Medical Billing Company

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How To Start A Medical Billing Company

How To Start A Medical Billing Company

The healthcare industry is a vast field with many potential opportunities for entrepreneurs. One such opportunity is starting a medical billing company. This business involves handling the important task of billing patients and insurance companies for medical services rendered by healthcare providers.

In this article, we’ll provide an overview of the medical billing industry, key trends, and steps to launch your own successful medical billing business.

Business Overview

A medical billing company handles billing and collections for healthcare providers like doctors, hospitals, labs, and rehab facilities. As a medical billing service, you take the doctor’s notes to accurately interpret and assign the correct CPT (Current Procedural Terminology) procedure code so they get reimbursement from patients, health insurance companies, Medicare, and Medicaid. You will also follow up on unpaid claims, appeal denied claims, handle patient billing and payments, and provide regular reports to healthcare provider clients.

Medical Billing Industry

The medical billing industry is a pivotal part of the healthcare sector, bridging healthcare providers and insurance companies. This industry ensures that healthcare providers receive timely payments for the services offered. Your role would be to relieve healthcare providers of the administrative burden, enabling them to focus more on patient care.

The medical billing services industry generates over $4.9 billion in annual revenue in the US. Industry growth is driven by rising healthcare costs and utilization, an aging population, and increased insurance coverage. Key clients include physician practices, hospitals, labs, rehab clinics, and other healthcare facilities. As healthcare administrative costs rise and the increasing complexity of the billing process, more providers are outsourcing billing to specialized third-party services.

Steps To Start A Medical Billing Company

Starting a medical billing company allows you to tap into the growing healthcare administration industry. With the right strategic vision, an understanding of the industry, and a customer service focus, a medical billing company can provide essential services to healthcare providers while earning significant revenue. Check out the steps below to help launch a thriving medical billing firm.

Step 1: Research the Industry

This vast and complex industry has intricacies that can seem overwhelming at first glance. However, by dedicating time to studying the industry, you can gain a solid understanding of its structure, operations, and key players. Resources such as the American Medical Billing Association (AMBA) and Healthcare Financial Management Association (HFMA) offer valuable information about the industry’s current trends and future projections. Engaging in networking events, subscribing to industry publications, and participating in online forums can also provide insights into the workings of the medical billing industry.

One key decision you’ll face when starting your medical billing company is whether to specialize in a particular area or to offer a broad range of services. Both approaches have their advantages.

Specialization allows you to focus on a specific niche, for example, billing for a certain type of medical practice like dentistry or dermatology. This can make your services more attractive to providers in that niche and allow you to charge premium prices. It also enables you to deepen your knowledge and streamline your processes, potentially leading to higher efficiency and quality of service.

On the other hand, operating as a generalist means offering medical billing services to a wide variety of healthcare providers. This approach can lead to a larger potential client base and a more diverse revenue stream. It can also provide resilience in the face of industry changes, as a decline in one area might be offset by growth in another.

In making this decision, consider factors such as your interests and expertise, market demand, competition, and long-term business goals. Whether you choose to specialize or generalize, success in the medical billing industry ultimately comes down to providing high-quality, reliable services that meet your clients’ needs.

Step 2: Write a Business Plan

After getting a handle on the industry, the next step in starting your medical billing business should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to research to detail what your startup expenses will be.

The business plan is optional unless you need funding to start your business, but it is an excellent document tool to work through your business’s goals, strategies for achieving them, potential challenges, and ways to overcome them.

Related: How to write a business plan

Step 3: Source Funding

Starting a medical billing company requires capital for equipment, software, marketing, and possibly rent or payroll expenses. Verifying that you have enough money available is critical, as running out of money partway through the startup phase will make things challenging.

A substantial number of entrepreneurs kickstart their medical billing business by themselves to keep startup costs low and use just their personal savings. It is a straightforward and uncomplicated way to fund your startup without involving third parties. However, if your personal savings fall short, you might consider exploring external funding avenues.

Here’s some of the most common sources for a medical billing company.

Lenders: Traditional bank loans are another common funding source. Banks typically expect you to contribute around 15% to 25% of your personal funds towards the total project cost. Additionally, having a good credit score and enough collateral to back up the loan is usually necessary. In cases where a bank perceives your business as a high-risk venture, you might have the option to secure an SBA loan guarantee to appease the lenders.

Friends and family: Friends and family can be another source of funding, particularly if they believe in your vision and have the means to contribute. However, borrowing money from friends and family can lead to strained relationships if things go wrong, so it’s essential to put all agreements in writing and treat these transactions as professionally as any other business deal.

Microloans: If your funding needs are relatively low or traditional credit isn’t available, microloans could be an option. Microloan programs, often run by economic development organizations, offer small loans to startups and small businesses. Some of these programs also provide business training, which can be an added benefit as you start your medical billing company.

Related: Finding the money to start a business

Step 4: Register the Business

To start a medical billing company, you’ll need to follow several legal steps to ensure your business is properly registered and compliant with the appropriate local, state, and federal agencies. Here are the key steps:

Decide on a business structure: Deciding on a business structure is an initial and important step. You have four main options here: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC).

  • A sole proprietorship is the simplest structure, offering ease of startup and lower cost. However, the owner is personally liable for all business debts and obligations.
  • A general partnership involves two or more people sharing ownership, each contributing resources and sharing profits and losses. Like a sole proprietorship, the owners of a general partnership are personally liable for the business.
  • A corporation is a separate legal entity owned by shareholders, providing the owners with personal liability protection, but it is more complex to set up and operate.
  • An LLC combines the benefits of a corporation and a sole proprietorship or partnership, offering liability protection of a corporation while allowing the ease of operation of a sole proprietorship or partnership.

Often, sole proprietorships and LLCs are the most popular structures. The sole proprietorship for the low cost and ease of startup, and the LLC for its liability protection.

Related: Comparison of business structures

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.

Some popular LLC formation services include:

IncFile - $0 plus state fees & free registered agent for 1 year!

ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!

Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

Related: Tips & Ideas for naming a medical billing business

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain business licenses and permits: There are no specific state or federal licensing requirements for a medical billing business, but most providers require that their billers be certified.

Consider enrolling in courses that focus on medical billing and coding. Many community colleges and online platforms offer such programs. For example, the AMBA offers a Certified Medical Reimbursement Specialist (CMRS) designation that covers medical billing, coding, and compliance. There are also helpful medical billing courses on Coursera and Udemy.

While there are no specific licensing requirements, general business registrations will be needed. These permits and licenses vary based on the state and town where the business is located. Some common registrations to research include a business license, sales tax permit, and an Employer Identification Number if you plan to hire employees.

Related: State guides for general business licensing

Step 5: Set Up Operations

Once you’ve navigated the financial and regulatory aspects of starting your medical billing company, it’s time to set up your office. This is an exciting step where all your planning and preparation begins to take physical form. It’s here that you’ll establish the workspace that supports your day-to-day operations and facilitates your business’s growth.

For many new medical billing companies, the initial office setup often starts in a home environment, utilizing a spare room as a dedicated workspace. This option keeps overhead costs low and allows for flexibility. However, if you anticipate needing a more professional setting, coworking spaces can be an excellent alternative. They offer the amenities of a traditional office, networking opportunities, and scalability for growing businesses. If your business plan involves hiring a team from the outset, leasing commercial office space might be needed.

Step 6: Create a Marketing Strategy

With the business properly set up and the launch date fast approaching, it’s time to let potential customers know you are open for business. As a startup with no track history to go off of, you will have to contact several medical providers to find one who is willing to try a new billing service. You may have to start with small providers and offer your services at a slight discount to gain traction. Once you have a few clients, you will have more credibility and can look for larger healthcare providers, clinics, and hospitals and charge regular market prices.

Creating a strong online presence is often an important strategy. This involves establishing a professional, clean website highlighting your service benefits and utilizing Search Engine Optimization (SEO) strategies to increase visibility. Social media marketing on physician-focused sites can also be an effective way to reach potential clients.

Cold calling, though sometimes overlooked, can be a powerful tool in your marketing arsenal. It allows you to directly reach out to potential clients, explaining the benefits of your services. Additionally, referrals play a significant role in this industry. Eventually, encouraging satisfied clients to refer others to your business can help build a list of prospective customers.

Claiming your business on relevant online directories, such as Google My Business and health-related directories, can enhance your visibility to potential clients. This step helps ensure that when someone searches for medical billing services, your business appears in the results.

Additionally, joining your local Chamber of Commerce can provide networking opportunities and increase your business’s visibility within your community. This can be especially beneficial if you’re targeting local healthcare providers.

Related: Low-cost ideas to market a new business

Step 7: Prepare to Launch!

As you prepare to open your medical billing company, there are several crucial steps to consider. These steps are common considerations, but your specific circumstances may require additional actions.

Business insurance: This is essential to protect your business from potential risks. Professional liability insurance, for example, can cover claims related to errors in the services you provide. We recommend getting at least three insurance quotes, including local insurance agents and online providers like Coverwallet or Hiscox to get the best coverage and price.

Hiring staff or freelancers: Depending on your business size and scope, you may need to hire employees or freelancers, such as a coding specialist or someone to handle specialized tasks.

Bookkeeping: Establishing a bookkeeping system is crucial for managing your finances. This includes tracking income and expenses, invoicing, and preparing for tax obligations. You can hire a bookkeeper or use software like Wave Accounting (FREE) or Quickbooks.

Contracts: Contracts are critical in the medical billing industry. They define the relationship between your company and the healthcare providers you serve. Some common contracts include Business Associate Agreements (BAA) required by HIPAA and service agreements outlining your responsibilities and fees.

Bank account: Opening a business bank account helps separate your personal and business finances, making bookkeeping and tax preparation easier.

Management software: You may want to invest in software to streamline medical billing process. Examples include Kareo, AdvancedMD, and eClinicalWorks, which offer features like electronic health records (EHR) integration, claim tracking, and reporting.

Pricing: Set competitive yet profitable pricing for your services. This will depend on factors like market rates, your costs, and the value you provide.

Greg’s Tip: Before starting your own medical billing company, it’s recommended to gain hands-on experience in the field to understand the day-to-day operations and challenges.

Greg's Business Tip

Common Questions When Starting A Medical Billing Company

How much does it cost to start a medical billing business?

The costs to start a medical billing business are relatively low compared to other businesses, typically ranging between $4,000 and $11,000.

Licensing & certification: Formation fees, business licenses, and permits may cost $500 to $1,000. Completing a medical biller certification course from AAPC or AMBA will cost around $300 to $500 per course.

Equipment & software: You’ll need a computer, printer, scanner, phone system, and medical billing software, which can run $2,000 to $5,000 upfront.

Location: Depending on whether you choose to operate from home or rent office space, your location costs will differ. If you decide to rent, you’ll need to account for the initial deposit, which can typically range from one to three months’ rent.

Insurance: Business insurance, including professional liability insurance, protects your business. The initial insurance cost can range from around $1,000 to $2,000 annually.

Marketing: Initial marketing efforts to promote your new business can cost anywhere from $100 to $2,000. This could include website setup, social media advertising, and print materials like flyers and business cards.

Other expenses: Don’t forget to account for smaller items like office supplies, which might run you around $200 to $500 for the initial stock up.

How profitable is a medical billing business?

The profitability of a medical billing company can vary widely based on several factors, such as the number of clients, the rates charged, and the operational efficiency of the business.

Typically, medical billing companies charge a percentage of the collected claims as their fee. This percentage can range from 4% to 10%, but let’s use an average of 6% for our calculations.

Let’s work through a hypothetical scenario to provide an estimate. Suppose you start off by securing contracts with 2 medical practitioners, each billing $60,000 monthly. If you charge a 6% fee on collections, your total monthly revenue would be $7,200 ($60,000 x 2 practices x 6%).

Next, we’ll deduct the monthly expenses, which might include software subscriptions ($500), insurance ($150), and miscellaneous expenses such as utilities, marketing, and supplies ($1,000). This brings the total monthly expenses to $1,650.

So, your monthly profit would be calculated as:
Monthly Profit = Total Monthly Revenue – Total Monthly Expenses
Monthly Profit=$7,200 – $1,650 = $5,550

Therefore, the annual profit would be: Annual Profit = Monthly Profit × 12
Annual Profit = $5,550 × 12 = $66,600

What skills are helpful in running a medical billing business?

Running a medical billing business requires a mix of technical, business, and interpersonal skills. Here are some key skills that can be helpful:

Medical coding and billing knowledge: This is the core technical skill needed in this business. Understanding medical terminology, diagnosis codes, procedure codes, and insurance specifications is very helpful.

Attention to detail: Medical billing involves dealing with lots of numbers and codes. A minor mistake can lead to claim denial, so precision and attention to detail are vital.

Analytical skills: You’ll need to analyze and interpret medical records and insurance policies, as well as financial reports for your business.

Business acumen: As a business owner, you will need to understand how to manage finances, market your services, negotiate contracts, and make strategic decisions to grow your business.

Communication skills: You’ll be interacting with healthcare providers, insurance companies, and possibly patients. Clear and effective communication is essential to maintain good relationships and resolve any issues that may arise.

Problem-solving skills: Dealing with denied claims or insurance issues will require you to be a good problem solver.

Customer service skills: Providing excellent service to your clients can help retain them and attract new ones. This includes being responsive, understanding their needs, and resolving their problems efficiently.

Organizational skills: Managing multiple clients, keeping track of numerous claims, and running your business operations smoothly will require strong organizational skills.

Ability to stay updated: The medical billing industry constantly evolves with regulations, coding standards, and technology changes. Staying updated on these changes is crucial to ensure your business remains compliant and efficient.

Tech-savviness: Since most of the work is done on computers using specific software, being comfortable with technology is important. Understanding how to use data for decision-making and digital marketing tools to promote your business is also beneficial.

What is the NAICS code for a medical billing business?

The NAICS code for a medical billing business is 541219.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?


  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

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How To Start A Medical Billing Company

How To Start A Medical Billing Company

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