There is no single pricing model that fits every practice, but the calculation basis should be clearly defined before signing an RCM contract. Gross charges, insurance payments, and net collections produce very different results. Practices should compare the fee structure, included services, exclusions, and treatment of adjustments, refunds, patient payments, and legacy A/R rather than looking at the percentage alone.
How the Three Models Work
Gross Charges
The vendor’s fee is calculated from the total amount billed before contractual adjustments or actual payments. Because billed charges can differ substantially from the amount a payer allows, this model may not reflect the revenue ultimately received by the practice.
Insurance Payments
Here, the percentage applies only to money received from insurance payers. This can make the calculation straightforward, but the contract should explain how patient payments, refunds, recoupments, and secondary insurance are treated.
Net Collections
The fee is calculated using a defined collection amount after specified adjustments or exclusions. This can more closely connect the vendor’s compensation with money actually collected, but “net collections” must be precisely defined in the agreement.
The Contract Details Matter More Than the Label
Before choosing a model, ask:
- Are patient copays, deductibles, and coinsurance included?
- Are refunds and payer recoupments deducted?
- Who receives credit for legacy A/R?
- Are non-collectible contractual adjustments excluded?
- Are credentialing, Medical Coding, Prior Authorization, or denial work charged separately?
- What happens when a payer reverses a Payment Posting transaction?
Example: If an orthopedic practice has substantial contractual adjustments, the difference between gross charges and actual payer collections can be significant. Comparing percentages without examining the underlying calculation could therefore give a misleading picture of the total cost.
The Medicator’s can help practices evaluate their medical billing services requirements and clarify how billing, collections, denials, and AR Management should be defined in an outsourcing agreement.
