How to Start a Medical Claims Processing Business A doctor's attention should be on patients--not money matters. Help medical professionals focus on their core competencies with a medical billing service.

Editor's note: This article was excerpted from Start Your Own Medical Claims Billing Service (Entrepreneur Press).

A medical billing service is a doctor's key to getting paid. Despite the fact that the health-care industry is alive and well in America, most doctors and other health-care providers have no idea how to get themselves paid quickly and efficiently, if at all, by either insurers or patients who are also waiting for that check to arrive in the mail. Private and government-administered insurance companies, HMOs, PPOs and a host of other mysteriously initialed plans have conspired to make physician reimbursements as elusive as the pot of gold at the end of the rainbow. Doctors, once the lords of the health-care world, are fast becoming the underdogs.

Not to worry--the medical billing industry is on hand to save the day. A billing expert can dramatically increase a doctor's immediate revenue. Through the miracle of cyberspace, the biller electronically transmits insurance claims directly to the insurance company or, in other words, into the company's check-generating computers.

Medicare gives priority to any claims submitted electronically. Claims received online are paid in 10 to 14 days, as opposed to paper claims, which are set on the back burner for at least 27 days. Most other insurers now follow this same tenet--electronic claims before paper. The results can be dramatic.

Amazingly, however, while electronic claims processing is the method for getting providers paid, most providers are still stuck in the Snail Mail Age. This makes electronic billing a thriving field with room for growth.

Not a Small World

With legions of providers and an ever-expanding patient pool, the health-care industry is flourishing. According to a recent study by the government's Health Care Financing Administration (HCFA), national health-care expenditures totaled $1.3 trillion in 2000. Medicare spending accounted for $224 billion of that total. So let there be no doubt: Health care is big. And, like Jack's legendary beanstalk, its growth shows no signs of slowing. This makes it fertile ground for the medical billing entrepreneur.

Target Market

Your target market--the clients you're aiming for--can be as diverse as the field of modern medicine. Any healthcare provider is fair game. You can go after family practitioners, providers of every specialty from geriatrics to pediatrics, chiropractors and osteopaths, obstetricians and oncologists, proctologists and podiatrists. You can target mental health professionals, psychiatrists and psychologists. And don't forget the groups of providers not normally associated with doctoring, such as dentists, social workers, nursing homes, ambulance services, pharmacists, home-health practitioners, providers of durable medical equipment and providers of bionic body parts.

If you've had previous experience working in a particular medical specialty, you might want to target that market first. You'll feel comfortable with the jargon and procedures so your sales pitch--and your initial billings--will go more smoothly. As an added bonus, you may already have contacts in the field who can either become your first clients or steer you to colleagues in the field.

If you're a newbie in the world of medicine, you might want to start off targeting doctors in a single specialty, such as psychiatrists, chiropractors, cardiologists or dentists. These providers' practices involve a narrower range of diagnoses and procedures than a family practitioner, general surgeon or internist, so you'll have fewer new codes tossed in your lap at the get-go. This is a good, starting-from-scratch strategy, but don't let it dictate or limit your contacts. Most MIBs (medical insurance billers) find that the first client they land, through whatever means, is the specialty they end up going with.

Does Size Really Matter?

OK, you've decided--or are thinking about planning on deciding--which areas to specialize in. Good! But you're far from laying your decision-making skills to rest. Next you have to think about what size practices you'll want to focus on. Any size is fine, of course, but you might consider starting off with small to midsized practices. This way, you won't be overwhelmed by your workload while you're on the upside of your learning curve.

You should also consider the size to which you ultimately want your practice to grow. "If you don't want to be big, you don't want to grow a whole lot," medical billing service owner Mary V. counsels. "[Then] you want three or four doctors. That's going to give you a very good income, depending on the type of doctor you have."

"We love our chiropractor," Mary adds as an example, "but I will never take on another one."

Why? "Sheer volume," Mary says. "A chiropractor can see a hundred patients a day in one fell swoop, and then you've got all this paper, whereas a neurologist sees 20 to 26 [patients per day]."

Even though both doctors bring in the same amount of money for a day's work, Mary explains, the chiropractor, billing at $30 per visit, must generate far more claims--and more work for the medical claims processor--than the neurologist, who's billing $70 and up.

Practice Particulars

What, specifically, you will be doing during your peak hours and beyond will depend on how you've structured your services. Some MIBs perform full practice management for their clients--they handle all aspects of the doctor's accounting from submitting electronic claims to billing patients to tracking accounts payable and receivable. Other MIBs prefer to deal only with insurance claims submissions. Most medical billing specialists, being savvy businesspeople, take on whatever is required to land the client and therefore find themselves working in different ranges of practice management for different clients.

"I'm kind of an a la carte," Vicki D. says of the services she offers. "[The doctors] just tell me what kind of services they need. That's what I try to provide and then I charge them accordingly."

Mary V. and her partner discovered that smaller practices, those with one or two doctors at the helm, have no business background and desperately need assistance. "We don't like to say full-practice management," Mary says of the accounting services they offer these small practices, "because we're not in that office. We call it accounts receivable management."

Startup Costs

One of the many nifty things about a medical billing service is that its startup costs are comparatively low. You have the advantage of homebased-ability, which cuts office lease expenses down to nothing. You have almost no inventory, which means no outlay of funds for pretty doodads to grace display spaces (you have no display spaces!). Your major financial outlay will go toward office equipment and your software and/or business opportunity--and if you're like many moderns, you already have a computer.

But let's take it from the top. The following is a breakdown of everything--from heavy investment pieces to flyweight items--you'll need to get up and running:

• Computer system with modem and printer
• Fax machine
• Software and/or business opportunity fee
• Clearinghouse
• Reference materials
• HCFA 1500 forms
• Phone
• Voice mail or answering machine
• Stationery and office supplies
• Postage

Software Solutions

Your medical billing software is going to be your closest partner after your significant other, so choose carefully. The list of suitors is lengthy, with medical billing/patient accounting programs and packages ranging from $500 to $10,000. Different packages have different capabilities, but more expensive is not necessarily better or worse. You can buy the bare-bones software or purchase a complete business opportunity package, which can include lead generation, seminars, marketing help and hold-your-hand technical support along with the software.

"You can hire a [local] marketing guru for lots less than [you can buy] a business opportunity," advises Gary Knox of Resource Books, which publishes The Directory of Medical Management Software. Don't ignore the business opportunities, he says, but look carefully to make sure you're getting your money's worth. Whichever option you choose, you'll want to make sure the software is the suitor of your dreams.

Once you identify the software of your dreams and pocketbook, make sure it has a good reputation. Find out how long the vendor or developer has been in business and how many people (preferably thousands) are using the product. Get references, and don't be shy about calling them. Most medical claims processors are only too happy to share their experiences and will be glad to give you tips other than just a software reference. It can be one of your first forays into networking. Ask lots of questions, such as, Is the program user-friendly? How good is the technical support? How available is the technical support? How long has the person you're talking to been using the program? Are they happy with it? Have they heard any rumbles about possible problems in the future, such as the vendor leaving for a permanent Tahitian vacation?

Clearinghouse Costs

Hiring a clearinghouse--the companies that receive and transmit claims electronically--requires research on your part. If the software is like a marriage partner or significant other, then the clearinghouse is the brother or sister-in-law that comes to visit for what seems like the rest of your life. You'd better be sure you're happy living under the same roof with it.

Also like software, clearinghouse costs vary radically. You should allocate from zero to $300 for "membership" fees and from zero to $50 per doctor for sign-up.

Reference Books

Although your reference library can comfortably contain a wealth of texts, we'll consider here only the very few that are real must-haves, the ICD-10, CPT and HCPCS Expert 2000 coding books. If you're billing for dentists, you'll also want the CDT-3, which is the dental version of CPT codes. You can sketch in about $200 total for the first three on the list, plus another $60 for the CDT book.

Operations

Editor's note: This article was excerpted from our Medical Claims Processing Business start-up guide, available from the Entrepreneur Bookstore.

A medical billing service is a doctor's key to getting paid. Despite the fact that the health-care industry is alive and well in America, most doctors and other health-care providers have no idea how to get themselves paid quickly and efficiently, if at all, by either insurers or patients who are also waiting for that check to arrive in the mail. Private and government-administered insurance companies, HMOs, PPOs and a host of other mysteriously initialed plans have conspired to make physician reimbursements as elusive as the pot of gold at the end of the rainbow. Doctors, once the lords of the health-care world, are fast becoming the underdogs.

Not to worry--the medical billing industry is on hand to save the day. A billing expert can dramatically increase a doctor's immediate revenue. Through the miracle of cyberspace, the biller electronically transmits insurance claims directly to the insurance company or, in other words, into the company's check-generating computers.

Medicare gives priority to any claims submitted electronically. Claims received online are paid in 10 to 14 days, as opposed to paper claims, which are set on the back burner for at least 27 days. Most other insurers now follow this same tenet--electronic claims before paper. The results can be dramatic.

Amazingly, however, while electronic claims processing is the method for getting providers paid, most providers are still stuck in the Snail Mail Age. This makes electronic billing a thriving field with room for growth.

Not a Small World

With legions of providers and an ever-expanding patient pool, the health-care industry is flourishing. According to a recent study by the government's Health Care Financing Administration (HCFA), national health-care expenditures totaled $1.3 trillion in 2000. Medicare spending accounted for $224 billion of that total. So let there be no doubt: Health care is big. And, like Jack's legendary beanstalk, its growth shows no signs of slowing. This makes it fertile ground for the medical billing entrepreneur.

Income and Pricing

What can you expect to make as a medical insurance biller? The sky's the limit, depending only on how serious you are and how willing you are to expand. Annual gross revenues for the industry range from $20,000 to $100,000. Some MIBs are happy working part time at home, bringing in enough to supplement the family income. Others have launched thriving, full-time businesses that employ dozens of assistants.

Kim H., a medical biller in rural Virginia, runs her business in conjunction with a full-time career as a high school teacher. At the other end of the spectrum, Jan D., an MIB in Walnut Creek, California, who's well into her ninth year in business with a staff of 22, is pleased with her income as well.

However you choose to tailor your business--part time or full time, at home or in an outside office--the income potential is excellent. But almost everyone in this particular industry is quick to point out that medical billing is not an easy business.

"This is definitely not something that just anybody could do," explains Curt J., a biller in Illinois. "Between the personal marketing skills and relating to professionals, and the learning curve on the code side and the computer side, it's been a challenge. [But] I enjoy a challenge."

How soon can you expect to start making money? "You have to have a business plan, and you have to be realistic about it," O'Connor advises. "We usually tell [people] 'Don't stop your full-time job because you're going to be working in the red for a while.' It's usually about five months before they start making money because it takes a while to get set up with the clearinghouse, to get the doctor's conversion done, to do everything. If you think you're going to start doing it tomorrow, it's not going to happen."

Talking Money

Medical billing services charge their clients by three methods: percentage, per claim and hourly. The percentage basis is generally used by MIBs who do full-practice management or a combination of patient billing and claims billing and, just as it sounds, the MIB charges the provider a percentage of the money he or she collects per month as opposed to the amount of money billed. The percentages you'll charge will depend on several variables: the going rate in your part of the country, the sorts of procedures your doctors are providing and their patient volume.

"We charge [the doctors] on collected revenues, not on their production levels," Jan D. explains. "The money all comes to us, and we put it into their own personal checking accounts, and then I'll bill them, depending on how big the practice is, sometimes twice a month, sometimes once a month. And they pay the bill in a timely manner or we stop doing their work."

Some MIBs prefer to charge on a per-claim basis rather than by percentage. This is the method of choice for billers whose workload consists mainly of straight claims billing with little or no practice management tasks.

The third, and least popular, method of charging clients is per hour. "I think it would be a really hard selling feature for doctors," says Felicia T. "They're already paying somebody on an hourly basis. Why would they want to hire somebody outside the office and pay them hourly as well?"

You might want to consider this option if you have a client whose billing rate is so low that charging per claim or on a percentage basis is not feasible. Or you might run into a client who's comfortable working under this arrangement and does not want to deviate from his or her norm.

Marketing

The absolute best way to attract clients is through word-of-mouth. Doctors have a set of jungle drums, a grapevine. Doctors gossip. Like that shampoo commercial where the silken-tressed model tells two friends and "they tell two friends and they tell two friends," doctors also pass the word on.

People Will Talk

The first option is referrals, or networking, which is really a variation on word-of-mouth. The difference is that with word-of-mouth, you sit back and wait for others to talk about you and send business your way. With networking, you actively seek referrals.

Talk to everybody you know. Let them all in on the exciting news that you're now running a medical billing service. You can start with your own doctor. Next time you see your doctor on a professional basis, tell him or her about your service. But don't ask directly for their business, as this might put a strain on your relationship.

Chances are, however, that your doctor will have referrals and probably some tips on how to approach other doctors. Terrific! It's always easier to call other doctors when you can say "Dr. Whatsit suggested I call," or "Dr. Whatsit referred me." People always pay more attention when someone they know has given you a green light.

After you talk to your doctor, call other providers you know directly or indirectly: your children's pediatrician, your husband's internist, your father's cardiologist, your pharmacist and your dentist. Using the name of a recognized patient, or being one, can act as a foot in the door.

Once you've tapped out those resources, start approaching physicians who specialize in an area you're interested in. If you have small children, for instance, begin with pediatricians; if you're into athletics, you could try to sports medicine practitioners.

There are lots of other people you already know you can put on your networking list. Your attorney, accountant, insurance agent and real estate agent probably have their own little card files full of physicians and will be happy to make referrals. (After all, you are their client. They want to keep you happy. Besides, most people like helping a fellow businessperson.)

Resources

Associations

• American Association of Healthcare Administrative Management
• American Dental Association
• American Medical Association
• Blue Cross Blue Shield Association
• National Electronic Billers Alliance

Helpful Government Sites

• The Centers for Medicare & Medicaid Services (CMS)

Professional Journals

• Medical Economics Magazine