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How To Start A Medical Billing Company: 2022 (Ultimate Guide)

Medical record specialists, including coders and billers, are in high demand.

According to the U.S. Bureau of Labor, the job outlook will increase by 7% by 2031 with an expected median pay of $22.43 per hour. 

Owning a medical billing company comes with numerous lucrative opportunities. However, getting into business can be challenging if you don’t know where to start. 

Here are the steps for starting a medical billing company:

1. Understand A Medical Biller’s Role

Starting a business in the medical billing industry seems exciting, but you must understand the role properly. 

A medical biller is a specialist trained in taking medical codes and using them to prepare and file insurance claims in a timely fashion. 

Medical billers aren’t responsible for interpreting doctor’s notes and operative reports, nor do they have to assign the correct Current Procedural Terminology (CPT) and International Classification of Diseases (ICD-10) codes for medical billing.

This is the responsibility of medical coding specialists. 

However, while medical billers don’t have to know coding – just as medical coders don’t have to understand billing – it might be a good idea to learn both. 

Understanding coding as a medical biller can help you do your job better. Knowing both billing and coding might also make you more employable

2. Learn Medical Billing (+ Acquire Credentials)

Starting a medical billing company can be overwhelming if medical coding and billing are new to you. 

You can acquire the essential knowledge by completing a formal education program or through hands-on experience in a medical role. 

There are three major types of medical biller certifications: 

  • Certified Professional Biller: This 16-week educational program developed by AAPC – one of the world’s largest healthcare training and credentialing organizations – enables the credential holder to work in most medical billing settings. 
  • Certified Medical Reimbursement Specialist (CMRS): This certification from the American Medical Billing Association (AMBA) doesn’t require formal coursework, but students can complete an 11-section course to prepare for the examination. You must be a member of AMBA to take the CMRS exam. 
  • Certified Medical Billing Specialist: The Medical Association of Billers also offers certification opportunities for billing specialists. This certification route is often preferred by individuals seeking work at independent billing centers, health insurance companies, or provider’s offices.

The same associations also offer medical coding training and certifications if you’re interested in learning both.

3. Get Hands-On Experience In A Medical Role

Earning a certification as a medical biller can help forward your career, but formal education in the field isn’t a prerequisite for getting hired as a medical billing specialist. 

Whether you decide to acquire the credentials or only go through coursework and seek employment without completing the exam first, getting hands-on medical experience before starting your own company is crucial. 

A medical record specialist position can help acquire the necessary coding and billing knowledge needed to ensure your future business’ success. 

4. Investigate The Industry 

While all medical billers work in the healthcare industry, there are multiple sub-sectors you can focus on. 

Typical work environments for independent billers include: 

  • Dentists’ practices 
  • Doctors’ offices 
  • Nursing homes
  • Outpatient surgery centers 
  • Healthcare consulting services 

Some hospitals may also prefer working with independent medical billers rather than hiring in-house staff. Providing consultancy services to law firms, insurance agencies, or governmental agencies is also possible. 

Choosing one or two healthcare sectors and specializing in those niches can typically land more clients, as potential customers feel more confident that you’ll do your job properly.

Focusing on a specific sector also eliminates the need to know a large volume of codes. 

5. Work Out Startup Costs 

Starting a medical billing company can cost anywhere between $2,336 and $14,658. This is a wide range, but the actual costs can vary from state to state and depend on your needs. 

The table below breaks up a medical billing company startup costs*: 

CostRangeCost type
Business registration  $0 - $500Required
Permit and license fees$50 - $700Required 
Small business insurance$500 - $2,000 per yearOptional (recommended)
Lawyer fees$0 - $1,500Optional 
Medical billing software$25 - $150 per monthRequired 
Other software costs$0 - $300Optional 
Small office rent$150 - $1,500 per monthOptional 
Office utility costsAround $1,150 per yearOptional 
Internet$36 - $58 per monthRequired 
Phone necessities $25 - $50 per monthOptional (recommended)
Payroll costs$150 - $250Optional 
Company website costs$200 - $6,000Optional (recommended)
Marketing costs$50 - $500 per monthOptional (recommended) 
Total startup costs$2,336 to $14,658-

*The costs above are industry averages correct as of October 2022. They should be used as reference only, as most prices vary from state to state. 

6. Choose The Legal Structure For Your Company

One of the required costs mentioned above refers to business registration. This is a legal requirement for all medical billing businesses. 

There are four possible options, briefly described below. The IRS website holds more information on each business structure type.  

Sole Proprietorship

The simplest business entity type, it is controlled by a single person who also owns it.

Sole proprietorship owners incur all profits, losses, and liabilities, but this legal form comes with advantages: 

  • No tax aspects
  • No registration costs 
  • No formalities necessary except for bookkeeping 
  • Easier to dissolve than other legal entities 

Limited Liability Company (LLC)

This business entity type can have one or more owners. Multiple owners usually own shares and claim part of the profits and losses.

Advantages include: 

  • Limited liability protection to all members 
  • Treated as sole proprietorship for tax purposes if it has only one member
  • Owner/s and business are treated as separate entities
  • The LLC is not subject to business income tax, but all members record part of profits and losses on their personal tax returns 

Partnership

A partnership is similar to sole proprietorship, but the business entity comprises two or more partners that share responsibility for the business activity, including profits, losses, and liabilities. 

However, partners don’t have to share equal amounts of responsibility. This can make taxation a complicated process, but it could be a solution if you want to start a medical billing company together with a friend. 

Corporation 

Corporations offer the same liability benefits as LLCs. However, they require more paperwork and formalities and are subject to more stringent regulations than LLCs. 

This type of entity is subject to business income tax and the profits are usually distributed between members. Members also have to file individual tax returns.

7. Draw Up A Business Plan 

Drawing up a business plan is an essential part of any startup process. 

This document can guide you through each stage of starting and managing your business. It can also help you set financial and growth goals that project 3-5 years ahead. 

A business plan can also help you access funding or attract investors if you want to start a bigger company but lack capital. 

Below are a few essential things your business plan should include: 

  • Executive summary: Describes your business idea and ideal customers. 
  • Market analysis: A competitive research of your area and how competitors do business. It can help you understand what makes other medical billing companies in your area successful. 
  • Organization and management: Describes the legal structure of your business and shows each person’s unique role into the company. You should include this section even if you’re a sole proprietorship and only employee of your medical billing company.
  • Marketing and sales: Strategies to attract and retain customers. 
  • Financial projections: A financial outlook covering the next three to five years. How much will you charge? Are you charging an hourly rate or a fixed rate/percentage per claim? Expected volume of work and how fast you plan to recover the investment.
  • Funding request: If you don’t have capital to start the business, this section should specify how much funding you need and what you need it for (e.g.: equipment or materials, software, licensing, salaries, to cover specific bills, etc.)

8. Decide Where To Start Up 

Choosing the right state or city for your business can also make or break the deal. 

You can decide whether you want to go to a city with the highest level of employment for these professionals or one of the states with the highest wages in the sector. 

The top five states with the highest level of employment for medical billing professionals, according to BLS, are: 

  • Texas
  • California
  • Florida
  • Ohio
  • New York

Within these states, the main metropolitan areas to focus onto include Los Angeles, Dallas, New York, Houston, and Miami. 

If instead you’d like to establish a business in areas paying the highest annual wages for billers and coders, you should look at New Jersey, District of Columbia, California, Connecticut, and Massachusetts. 

9. Register Your Medical Billing Company

Business formation laws and fees can vary from state to state.

So, once you decide where to establish your business and the business structure type, you should contact the business services division of your state and register your medical billing company. 

For a smooth and quick process, it is recommended to choose the business name beforehand – most states have online registries you can check to make sure the name isn’t already in use.

10. Obtain Licenses And Permits 

While there are currently no federal licensure requirements for medical billing companies, some states may require third-party billers to apply for certification

A medical billing business license and permits may also be required by your landlord, if you want to set up a home office. 

Permits are not typically required when renting out an office, but you may have to obtain them if the property you want to rent has previously been used for residential purposes.

11. Get Insurance For Your Medical Billing Company

Like licensure, insuring your medical billing company isn’t federally mandated – but only as far as general liability insurance is concerned and only if you don’t have employees. 

All states require businesses that employ workers to have worker’s compensation insurance. Sole proprietorships and partnerships between individuals are usually excluded, if the owner(s) are the sole employees of the company.

LLCs and corporations must have worker’s compensation insurance even if you’re the only employee.

While general liability insurance isn’t federally mandated, you should have it anyway. This policy type covers you against liability claims. 

Other insurance types you may want to consider include errors and omissions, business owner’s policy, cyber liability, and commercial auto insurance.

12. Choose A Billing Software 

The most important thing to check when choosing a billing software is its compliance with HIPAA requirements.

It must also have a high level of security and comply with all federal regulations regarding the handling of confidential medical data. 

Another thing to check before buying or subscribing to a service is its compatibility with your operating system. 

Most software options are compatible with macOS and Windows devices, but very few work on other operating systems.

Some cloud-based systems may also require you to install Android or iOS apps, so you may run into trouble if your mobile device doesn’t support these operating systems. 

Some of the most popular billing software options include*: 

  • Kareo
  • EZ Claim
  • Athena Health 
  • MediSoft
  • NueMD
  • Practice Suite 

*Disclaimer: Please note that we don’t endorse or prefer any of the medical billing software providers mentioned above. Companies are ranked in no particular order.

13. Partner With A Clearing House

A clearing house acts as an intermediary between your medical billing company and the insurance provider. 

When choosing your partner, consider the clearing house’s presence in all areas you want to cover and what insurance companies it works with. 

You should also consider the customer support they offer, contract options, fee structure, and how they handle situations where your insurance claim is rejected. 

A flexible contract that gives you the possibility to move to another clearing house if you’re not a good fit is your best bet. 

14. Develop Marketing And Sale Strategies

Whether or not you have included marketing and sale strategies in your business plan, developing a strategy before launching your business can help land the first clients. 

Business cards, traditional advertising, and word-of-mouth have helped businesses find customers for decades.

Nowadays, you can also take advantage of social media and online communication to move your marketing efforts into the virtual sphere. 

Winning strategies go from cold emailing to social media marketing, content marketing, and pay-per-click campaigns. 

15. Find Your First Clients 

As mentioned, offering specialized medical billing services to one sector (e.g.: cardiologists, physiotherapists, general practitioners, mental health centers etc.) is a winning strategy. 

While most healthcare practitioners feel comfortable outsourcing medical billing, most fear billing companies that specialize in dozens of areas. 

With a niche established, you can find the first clients through targeted marketing campaigns.

Traditional newsletters delivered into a practice’s mailbox and contacts you developed while working in a medical role can also help land your first customers. 

After the first contracts are signed, get some testimonials onto your website and ask your clients to refer you to other practices. 

16. Build A Professional Network

The last thing you have to do is to grow your network and business.

Once you have sufficient testimonials, sign up for LinkedIn and join medical biller groups. The platform also offers an easy way to advertise your services to healthcare practices in your area.

Becoming a member of professional organizations such as the Healthcare Financial Management Association (HFMA) or American Health Information Management Association (AHIMA) can also help you connect with professionals and healthcare providers in your field.

FAQs

Are medical billing companies profitable?

Medical billing companies can be profitable, as long as they have a good reputation and a high volume of clients/claims. 

According to the Entrepreneur, most independent medical billing companies earn $2 to $3 per claim processed. 

The low margin is one of the reasons individuals who want to go freelance or create a business in the field should get a certification and work in a medical role before launching their business – there is little room for error and mistakes. 

Medical billers can increase the turnover by charging an hourly rate rather than a per-claim fee. However, the medical billing industry is very competitive and your clients could move to another company. 

That said, determined entrepreneurs can earn $40,000 or more per year operating a home-based medical billing service.

Are medical billers in demand?

Medical billing is a good career choice, with employment opportunities projected to grow by 7% between 2022 and 2031.

BLS estimates about 14,900 new openings per year over the decade.