How to Start a Medical Billing Business

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Quick Reference

If you are thinking of starting your own business, you may have considered medical billing. Whether you have experience in medical billing or not, it’s a fairly inexpensive business to start, and you can work from your home and be your own boss. If you enjoy working online and have an eye for detail, a medical billing business may be for you.

Business Overview

Medical billing professionals 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. This process involves high liability if mistakes are made due to laws like HIPAA. Because it is complex and time-consuming, these companies outsource their medical billing to businesses that handle all of the functions for them. Medical billing companies use processes and systems to streamline the billing to make it simpler and avoid errors. The billing company handles not only the billing but also insurance claims, collections, and management of the entire process.

Industry Summary

Demand for medical billing services has increased significantly, and medical coding changes due to the pandemic increased it even more. According to IBIS World, the medical billing industry has increased 12.2% for the last five years and brings in $4.9 billion annually. Medical billing services are not particularly vulnerable to economic fluctuations because it is not a consumer-driven industry, and the demand for the healthcare industry does not decrease in times of economic downturns.

Industry Trends

The medical billing industry is expected to increase by 5.7% by the end of 2021. Code changes and increasing telehealth services continue to make the billing process more complex, driving more medical providers to outsource their billing. Medical billing companies must be focused on keeping systems and skills up to date to stay current with laws and procedures.

Target Market

Target customers for a medical billing business are healthcare providers, which include medical practices of any specialty, physicians, dentists, urgent care centers, laboratories, medical testing facilities, hospitals, and nursing homes.

Skills, Experience, and Education Useful in Running a Medical Billing Business

There are several specific skills that you will need to have or acquire in order to run a medical billing business.

  • Medical billing training. Medical billing requires knowledge of billing codes and medical terminology, and therefore training is a necessity. The completion of most billing certifications takes between 9 to 18 months.
  • Medical office experience. While not required, having some experience in a medical services environment will be valuable. Since medical billers directly influence when and how much doctors get paid by insurance companies, you’re more likely to win clients once you have some practical experience under your belt.
  • Computer and software experience. You will be doing everything online and working with complex software, so the experience will give you a lower learning curve.
  • Business knowledge and experience. You will need to have some basic knowledge of marketing, contracts, finance/accounting, and human resources.
  • Sales. You have to be able to make a sales pitch when you contact medical providers to offer your services.
  • Customer service. You’ll need to be able to build rapport with your customers so that you retain them as customers and gain repeat business and referrals.

Costs to Start a Medical Billing Business

The costs to start a medical billing business are relatively low compared to other businesses.

  • Setting up a business name and corporation costs approximately $200.
  • Initial marketing materials such as business cards, brochures, and postcards $200 – $300
  • Website setup $100 – $200 for a basic, do it yourself website, $1,000 – $2,000 for a professional site
  • Medical billing training $1,200
  • Clearinghouse membership – allows you to directly submit claims to insurance companies – $100 – $300
  • Medical billing software and licensing $2,500 – $10,000 depending on the size of your company
  • Office supplies – $100 – $250
  • Technology such as a computer, backup hard drive, scanner, printer, and fax machine $1,000 – $4,000

Steps to Starting a Medical Billing Business

Step 1: Write your Business Plan

After coming up with the idea, 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 do some research to calculate exactly what your startup expenses will be.

Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.

How to write a business plan
Free sample business plans

Step 2: Name the Business

Finding the perfect medical billing business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do. For a medical billing business, keep it short and simple.

Related: Tips & Ideas for naming a medical billing business

Step 3: Form a Business Structure

A business structure refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include a sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

RelatedComparison of Business Entities

​Step 4: Select your Location

You don’t need an office to have a medical billing business, and many start as a home business. If you do choose an office location, you’ll need to consider your proximity to potential clients so that you can call on them and meet with them conveniently later after they’ve become clients. The location also needs to have adequate space, internet connection, and accommodations for your equipment and employees.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

You may need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located. Some common local, state, and federal registrations a medical billing business may need include a sales tax permit and an Employer Identification Number if you plan to hire employees.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a medical billing business is another. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs. Startup costs for a medical billing business are mainly for equipment and software, so you are ahead of the game if you already have a computer and office equipment.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.

​Step 8: Get your Marketing Plan in Place

A medical billing business will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a medical billing business include social media marketing, online advertising, print advertising, and direct mail advertising. Developing a website can be a significant expense, but it can also give your medical billing business greater visibility online. Your main source of business, however, will be direct calls and visits to medical providers.

Related: Low-cost ideas to market a new business

Step 9: Get Insurance

A medical billing business needs several types of insurance for full coverage:

General liability insurance can help protect you from third-party claims of bodily injury and property damage.

Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.

Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.

Property and casualty insurance protects you if your equipment is damaged.

Insurance policies will vary. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.

Related: Common types of insurance a business may need

Step 10: Hiring Employees

You may need employees to help you in your medical billing business as you grow your customer base.

In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.

RelatedHiring your first employese

Step 11: Set up an Accounting System

Setting up an accounting system for your medical billing business is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How Much Can You Potentially Make Owning a Medical Billing Business?

You should be able to make $1,500 on average per client per month, so if you are able to land five clients, you will make $90,000 per year. Keep in mind that you will have ongoing expenses for things like software updates and marketing.

Things to Consider Before Starting a Medical Billing Business

Running a medical billing business or any business will have its challenges. You need to be prepared and make sure that you know what you’re getting into.

The biggest challenge in a medical billing business is getting clients. As a startup, you will have to make multiple calls to medical providers to find one who is willing to try a new provider. 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 medical providers and charge regular market prices.

The other challenge is always to keep your software and processes up to date as codes and laws change. You will have some ongoing expenses associated with this.

Talk to other business owners for tips on starting a business and do your homework to determine costs. Find some other medical billing businesses online (not your competition) and try to talk to the owners about how they run things and what they offer. Ask your own doctor’s office about how they do their billing and what they look for in a medical billing provider.

American Academy of Professional Coders (AAPC)
American Medical Billing Association (AMBA)

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