Billing a patient for medical services can be 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), it can be confusing and difficult to know which documents need to go where. If a hospital or doctor messes things up, it's a huge legal liability.
This is where a medical billing businesses can help. They take care of billing clients on behalf of doctors, hospitals, and other healthcare providers. Medical billing companies try to simplify the process by coordinating multiple providers and billing systems, while incorporating processes to adhere to changing regulations, so healthcare providers stay compliant and can get paid for their services.
Ready to form your LLC? Check out the Top LLC Formation Services.
Learn how to start your own Medical Billing Business and whether it is the right fit for you.
Start a medical billing business by following these 10 steps:
- Plan your Medical Billing Business
- Form your Medical Billing Business into a Legal Entity
- Register your Medical Billing Business for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Medical Billing Business
- Get the Necessary Permits & Licenses for your Medical Billing Business
- Get Medical Billing Business Insurance
- Define your Medical Billing Business Brand
- Create your Medical Billing Business Website
- Set up your Business Phone System
There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your medical billing business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Exploring your options? Check out other small business ideas.
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?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a medical billing business?
Software for a startup can be outsourced 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. A medium-to large-scale operation requires professional, in-house, systems which 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 just 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 just to keep the business running.
Who is the target market?
The target market is as wide as the healthcare industry. You can narrow your focus, of course, and target specific types of practitioners and providers. 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 any of several ways: billing by the hour, billing by the claim, or taking a percentage of the money 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 charge 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 collecting current and past-due medical bills.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Medical Billing Business Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your medical billing business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
- LLC Taxes
- Sole Proprietorship vs LLC
- LLC vs Corporation
- LLC vs S Corp
- How to Start an S Corp
- S Corp vs C Corp
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
Besides being a requirement when applying for business loans, opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
Open net 30 accounts
Net 30 accounts are used to establish and build business credit as well as increase business cash flow. With a net 30 account, businesses buy goods and repay the full balance within a 30-day term.
NetMany net 30 credit vendors report to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our best net 30 vendors, guide and start building business credit.
Get a business credit card
Getting a business credit card helps you:
- Separate personal and business expenses by putting your business' expenses all in one place.
- Build your company's credit history, which can be useful to raise money later on.
Recommended: Apply for an easy approval business credit card from Divvy and build your business credit quickly.
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 greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
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 be shut down.
Federal Business Licensing Requirements
Medical billing companies are legally required to operate under federal regulations regarding health information set forth by the Health Insurance Portability and Accountability Act (HIPAA).
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a medical billing business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A medical billing business is generally run out of an office. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a medical billing business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your medical billing business will be in compliance and able to obtain a CO.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market a medical billing business
Promoting and marketing your medical billing company isn't easy. Since this market is saturated, it's best to build up a good referral network. Network with individuals just graduating med school, those in residency, and those who are just starting their practice.
Make contacts with hospital administrators. They may not need your services, but may be able to help you better understand the medical billing industry.
How to keep customers coming back
Keeping customers is easy if you do a good job on the billing. Since it's difficult to change billing companies, it's difficult to take business away from your competitors. Providers simply don't like switching. At the same time, it's difficult to take away your business once you become established.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
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.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
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 that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
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 you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2023 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
Start a Medical Billing Business in your State
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
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Is this Business Right For You?
This business is perfect for individuals who are passionate about running a business in the healthcare industry and want to help both patients and providers make the billing process easier and more streamlined. Business owners should be naturally detail-oriented and task-focused thinkers. Medical billing is all about systems, processes, and completing tasks in a specific order to comply with federal regulation as well as internal healthcare provider policies.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a medical billing business?
A medical billing company stays busy. The owner of the business oversees day-to-day operations which include collecting delinquent accounts and establishing payment arrangements with patients, monitoring patients' payments, and following up with patients when payments do not arrive on time.
The business also subcontracts business out to collection companies when payments cannot be collected within a reasonable amount of time. It maintains a medicare bad-debt cost report, which tracks billings and collections. It also initiates claims against estates for backpayment of medical bills. Medical billing companies maintain an active list of contacts with various legal departments and law firms as well as local governments (e.g. clerk of the court), which they use to help with collection attempts.
Medical billing companies also do normal bill collections by sending out bills for payments on behalf of hospitals, doctors, and other healthcare providers.
What are some skills and experiences that will help you build a successful medical billing business?
To run this business, you'll need data entry skills, management skills, and knowledge of the healthcare and billing industry.
What is the growth potential for a medical billing business?
Medical billing can be done on a small or large scale. Starting out of your home, you can get a medical billing company up and running with a laptop computer and basic accounting and billing software. Larger operations require a staff, ranging from 5 to 10 employees up to thousands.
Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a medical billing business?
Make contacts early on to get up and running quickly. This is a saturated market. If you know anyone in the healthcare industry, find out what events they go to and network with them. Find out who does their medical billing. New doctors just out of residency can also be a good source of leads.
Since many hospitals already have a medical billing system, it's best to stick with practices that are just starting.
How and when to build a team
Building a team isn't necessary in this business. However, if you want to grow your business, add medical billers as fast as you can. They are the core revenue generators of the company.
- American Medical Billing Association
- ClaimTek (franchise opportunity)
- American Family Care (franchise opportunity)