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How to Start a Medical Billing Business

Written by:

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by:

Mark Stewart is the in-house Certified Public Accountant, an accomplished author and financial media specialist.

How to Start a Medical Billing Business

Fast Facts

Investment range

$1,900 - $7,800

Revenue potential

$50,400 - $360,000 p.a.

Time to build

1-6 months

Profit potential

$45,360 - $144,000 p.a.

Industry trend

Growing

Commitment

Full-time

Medical billing is complicated, largely thanks to the Health Insurance Portability and Accountability Act (HIPAA) and its many regulations. Yet this is why most medical practices outsource billing, making medical billing services a fast-growing $5 billion US industry.

If you have medical billing certification and experience, or even if you don’t, you could start a medical billing company and help ensure patient privacy while making a very good living. 

But in addition to medical billing knowledge, you’ll need some business savvy. Fortunately, this step-by-step guide lays out all the information you need to start a successful medical billing business. 

Step by Step Business prioritizes real-life experience. Our Entrepreneur Spotlight Series features interviews with diverse industry leaders, offering direct insights to readers.

If you’re venturing into the world of medical billing or insurance advocacy, this interview with Adria Gross offers invaluable insights.

Step 1: Decide if the Business Is Right for You

Pros and cons

Pros

  • Growing market
  • Provide a valuable healthcare service
  • Low startup costs

Cons

  • Education and certification required
  • Competitive industry

Medical billing industry trends

Industry size and growth

Medical Billing industry size and growth

Trends and challenges

Medical Billing industry Trends and Challenges

Trends

  • Technological advancements are automating many tasks in medical billing, boosting efficiency and enabling billing companies to handle more clients.
  • Cloud-based Software as a Service (SaaS) options are reducing hardware costs for medical billing businesses.

Challenges

  • Medical billing and privacy laws are updated often and medical billing firms need to stay up-to-date with continuing education.
  • Medical practices often fail to provide the correct information to billing companies, causing challenges and delays. 

Demand hotspots

Medical Billing demand hotspots

What kind of people work in medical billing?

Medical Billing industry demographics
  • Gender – 87% of medical coders are female, while 13% are male.((https://www.zippia.com/medical-coder-jobs/demographics/))
  • Average level of education – The average medical coder has an associate’s degree.
  • Average age The average medical coder in the US is 45.5 years old.

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

Startup costs for a medical billing business range from $2,000 to $8,000. Costs on the low end include medical billing software and a computer system, and assume that you already have medical billing certification. The higher end includes training and certification costs.

Learn more about training and certification at the American Medical Billing Association

You’ll need a handful of items to successfully launch your medical billing business, including: 

  • Computer system
  • Medical billing software
Start-up CostsBallpark RangeAverage
Setting up a business name and corporation$100 - $500$300
Business licenses and permits$200 - $300$250
Insurance$100-$500$300
Website$200 - $1,000$600
Medical billing software$300 - $500 $400
Computer system$1,000 - $2,000$1,500
Training and certification$0 - $3,000$1,500
Total$1,900 - $7,800$4,850

How much can you earn from a medical billing business?

Medical Billing Business earning forecast

Generally, medical billers charge 7% to 10% of monthly collections. These calculations assume an initial charge of 7% and a profit margin of about 90%.

In your first year or two, you could work from home and collect $60,000 per month, bringing in more than $50,000 in annual revenue. This would mean more than $45,000 in profit, assuming that 90% margin. 

As you gain traction, you could increase collections to $300,000 per month and increase your rate to 10%. At this stage, you might have an office and staff, reducing your margin to around 40%. With annual revenue of $360,000, you’d make a tidy profit of $144,000.

What barriers to entry are there?

There are a few barriers to entry for a medical billing business. Your biggest challenges will be:

  • Getting the training and certifications needed
  • Breaking into a competitive market

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Step 2: Hone Your Idea

develop a business idea

Now that you know what’s involved in starting a medical billing business, it’s a good idea to hone your concept in preparation for entering a competitive market. 

Market research could give you the upper hand even if you’ve got the perfect product. Conducting robust market research is crucial, as it will help you better understand your customers, your competitors, and the broader business landscape.

Analyze your competitors 

Research medical billing businesses in your area to examine their services, price points, and customer reviews.

  • Make a list of medical billing companies that offer similar services. 
  • Review your competitors’ services – their features, pricing, and marketing strategies. This should give you information about what kind of medical practices they target. 
  • Check their reviews and ratings on Google, Yelp, and Facebook to get an idea of what their customers like and dislike.
  • Identify your competitors’ strengths and weaknesses. You want to capitalize on their weaknesses. For example, maybe your competitors don’t work with small practices, and you could make that your niche market. 

This should identify areas where you can strengthen your business and gain a competitive edge to make better business decisions.

Why? Identify an opportunity

You’re looking for a market gap to fill. For instance, maybe the local market is missing a medical billing company that specializes in veterinary practices or has a streamlined, tech-friendly billing processes. 

You might consider targeting a niche, such as dental practices.

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your services

Your medical billing services are pretty straightforward. You’ll work with insurance carriers and patients to collect monies owed. 

How much should you charge for medical billing?

Typical fees are between 7% and 10% of collections, but you’ll also want to consider your costs when setting your rates. 

Once you know your costs, use this Step By Step profit margin calculator to determine your markup and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be medical practices. You might specialize in certain types of practices or work with a variety of clients. You can find medical practice managers on LinkedIn, but your best bet may be calling medical practices directly. 

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
Medical Billing Business idea rating

Step 3: Brainstorm a Medical Billing Company Name

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • Name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “medical billing” or “medical billing and coding”, boosts SEO
  • Name should allow for expansion, for ex: “HealthCharge Network” over “Dental Bill Solutions”
  • A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation. 

Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward. 

Step 4: Create a Medical Billing Business Plan

Here are the key components of a business plan:

what to include in a business plan
  • Executive Summary: Summarize the key points of your business plan, including your target market, unique value proposition, and financial projections.
  • Business Overview: Provide an overview of your medical billing company, its location, the healthcare providers you serve, and the specific medical billing services you offer.
  • Product and Services: Detail the medical billing services your company provides, such as claim processing, revenue cycle management, denial management, and electronic health record integration.
  • Market Analysis: Analyze the healthcare industry and the demand for medical billing services, considering factors like healthcare reforms, insurance trends, and the potential client base in your region.
  • Competitive Analysis: Identify and evaluate competitors in the medical billing industry, emphasizing your company’s strengths, such as specialized expertise or advanced technology solutions.
  • Sales and Marketing: Explain your strategies for acquiring clients, including outreach to healthcare providers, digital marketing, partnerships with medical practices, and referral programs.
  • Management Team: Introduce key members of your team, emphasizing their qualifications, experience in medical billing, and any relevant certifications.
  • Operations Plan: Describe the day-to-day operations of your medical billing business, covering areas like claims processing, compliance with healthcare regulations, software and technology usage, and customer support.
  • Financial Plan: Present financial projections, including revenue forecasts, pricing strategies, expense budgets, and cash flow analysis, to demonstrate the financial viability and growth potential of your business.
  • Appendix: Include any supplementary materials, such as client testimonials, case studies, or compliance documentation, to support your business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to medical billing businesses. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your medical billing business will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

types of business structures
  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts. Here’s how to form an LLC.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation. Read how to start a corporation here.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

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Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

types of business funding
  • Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a medical billing business. You also may be able to obtain student loans for your training and certification.

Step 8: Apply for Medical Billing Business Licenses and Permits

Business Licenses and Permits

Starting a medical billing business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your medical billing business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

types of business insurance
  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

Launching a Business

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

You may want to use industry-specific software, such as RXNT or Kareo, to manage your billing, workflows, accounts receivables, and reporting.  

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Create a website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. 

Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Schedule Consultation Now”. This can sharply increase purchases.  

Marketing

Here are some powerful marketing strategies for your future business:

  • Targeted Educational Content: Develop informative content that educates healthcare providers on the complexities of medical billing, showcasing your expertise and positioning your business as a valuable resource in the field.
  • Partnerships with Healthcare Consultants: Collaborate with healthcare consultants who can refer their clients to your services, leveraging their trust and expertise in the industry to build credibility for your medical billing business.
  • Specialized Webinars and Workshops: Host webinars or workshops focusing on specific medical billing challenges or updates, attracting healthcare professionals seeking insights and solutions while establishing your business as an authority in the niche.
  • Social Proof and Testimonials: Collect and showcase success stories from satisfied clients, using them as social proof on your marketing materials to build trust and demonstrate the effectiveness of your medical billing services.
  • Leverage Local Publications: Feature your business in local healthcare publications or community newsletters, reaching out to nearby medical practices and clinics to increase your visibility within the local healthcare ecosystem.
  • Targeted Direct Mail Campaigns: Develop targeted direct mail campaigns to reach healthcare providers in your area, emphasizing the cost-effectiveness and efficiency of your medical billing services.
  • Engage in Online Forums and Groups: Participate in online forums and groups where healthcare professionals discuss industry challenges and solutions, providing insightful contributions that position your business as a knowledgeable and supportive partner.
  • Utilize SEO for Niche Keywords: Optimize your online content for niche keywords related to medical billing challenges and solutions, ensuring that your business appears prominently in search engine results for relevant queries.
  • Referral Programs for Clients and Partners: Implement referral programs that reward both existing clients and healthcare partners for referring new business to your medical billing services, creating a mutually beneficial network.
  • Attend Healthcare Conferences: Actively participate in healthcare conferences and trade shows, where you can network with potential clients and showcase the benefits of your medical billing services through engaging presentations or booth displays.

Focus on USPs

unique selling proposition

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your medical billing business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your medical billing business could be: 

  • Streamlined collection to get your practice paid fast
  • Medical billing and coding designed for cardiology practices
  • Lowest medical billing rates in town

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a medical billing business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in medical billing for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in medical billing. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

Building a Team for a New Business

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a medical billing business include:

  • Medical Billers and Coders – assist with medical billing and coding
  • Sales Reps – call on medical practices, make sales
  • Marketing Lead – create and implement marketing strategies
  • General Manager – scheduling, accounting

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Medical Billing Business – Start Making Money!

Running a Business

If you’re experienced in medical billing, or if you want to learn, now’s a great time to get in on the action, as the industry is booming. You’d be providing an invaluable service while making a good living at the same time. Once you’re certified, you’d just need a computer and software and off you’ll go! 

You’ve now got some real business knowledge, so it’s time to start your entrepreneurial journey into medical billing. 

Medical Billing Business FAQs

Is a medical billing business profitable?

Medical billing can be quite profitable. The more you collect for your clients, the more you make. It is, however, a competitive industry and you need to be a good sales person to acquire clients.

What is the growth potential of a medical billing business?

Since so much is done digitally, you’re not limited by geography, so there’s really no limit to how much your business could grow. You’ll just need to grow your team of certified medical billers over time.

How do medical billing companies make money?

Medical billing companies provide billing and collection services for medical practices. They make a percentage of the monies collected, usually 7–10%.

Can you start a medical billing business on the side?

You could start a medical billing business on a small scale as a side hustle. Your regular job would probably have to allow flexible hours to make sure you can handle billing issues as they arise.

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How to Start a Medical Billing Business