Pricing models
Medical billing percentage of collections: how the fee works and what federal rules say
A medical billing percentage of collections fee gives the billing company a set share of the money it collects for you, so its pay rises and falls with your collections. Federal rules limit how an agent that receives Medicare or Medicaid payments for a provider may be paid, and the OIG has long warned that percentage billing may raise the risk of upcoding. Whether those rules reach your contract is for counsel to decide. This is general information, not legal advice. Review your payer contracts and the rules where you practice with your compliance advisor.
Published by OffshoreMeds. Facts last checked October 10, 2026. How we check our numbers.
The model
How the fee works
A percentage-of-collections contract sets a rate. Each month the billing company’s fee is that rate multiplied by the money collected on your claims, so the fee grows with your collections and shrinks when they fall. The offshore medical billing cost page works through an illustrative 5% rate against one staffing seat. It is an example, not a market rate: use the rate in your own quote.
Incentives
What the incentive rewards
Pay tied to collections rewards a vendor for getting claims paid, which is useful to a practice. The OIG has also said, in its guidance for third-party billing companies, that it has a longstanding concern that percentage billing arrangements may increase the risk of upcoding and similar abusive billing practices (OIG compliance guidance, 1998). That is a concern about incentives, not a finding about any vendor. It is a reason to audit coding under any pricing model; see how offshore medical coding staff are audited against an accuracy standard.
The rules
What Medicare and Medicaid say about paying a billing agent
Medicare’s default is that it does not pay amounts due a provider to any other person under an assignment, a power of attorney or another direct payment arrangement. An agent that furnishes billing and collection services is an exception, if the conditions below are met. Medicaid has a parallel rule for a business agent such as a billing service.
| Program | Conditions in the regulation | Source |
|---|---|---|
| Program: Medicare | Conditions in the regulation: The agent receives payment under an agency agreement with the provider. Its compensation is not related in any way to the dollar amounts billed or collected, and does not depend on actual collection. It acts under payment instructions the provider may change or revoke at any time, acts only on the provider's behalf, and payment is always made in the provider's name. | Source: 42 CFR 424.73(b)(3) |
| Program: Medicaid | Conditions in the regulation: Payment may go to a business agent such as a billing service that furnishes statements and receives payments in the provider's name if the agent's compensation is related to the cost of processing the billing, is not related on a percentage or other basis to the amount billed or collected, and does not depend on collection of the payment. | Source: 42 CFR 447.10(f) |
Both provisions are written about who Medicare or Medicaid pays. How they apply to a vendor that a practice pays from its own account is a question for counsel, and so is whether a particular model meets them. This page quotes the rules; it does not say any contract complies.
Other models
Pricing models that tie pay to something else
Some vendors price per claim, per hour or per staffing seat. Each ties pay to workload, time or capacity instead of to dollars collected. For comparison: One flat monthly fee per seat, never a percentage of collections. Which model suits a practice depends on claim volume, payer mix and how much control it wants over the people and the process, and the cost page shows where the two models cross for an illustrative rate.
Before you sign
Questions to ask a vendor that quotes a percentage
- What is the percentage applied to: billed charges, allowed amounts or collections, and do patient payments count?
- Into which account do payer payments go, and in whose name?
- Who holds the payer portal credentials? CMS says a provider may not share its Medicare EDI access number and password with a billing agent (CMS manual; see the HIPAA compliant offshore medical billing guide).
- How is the fee calculated on corrected claims, appeals and recoveries, and after you end the contract?
- What coding audits can you run, and what happens if an audit finds upcoding? The sampling guidance is in how to audit medical coding accuracy.
- What are the exit terms, and do you keep your claim data and your payer enrollments? The HIPAA and Medicare rules are in ending a medical billing contract.
The how to outsource medical billing guide puts these questions in order, and the denial management staff page shows the benchmarks to measure any vendor against.
The terms behind each seat
One flat monthly fee per seat, never a percentage of collections. A Business Associate Agreement is signed before anyone touches protected health information. Clinical decisions stay with your US-licensed providers. See all OffshoreMeds services.
Related guides
- Offshore medical billing cost
Seat fee, US in-house cost and percentage-of-collections fees side by side, with the method shown.
- How to outsource medical billing
Five steps from choosing roles to go-live, with the compliance and cost checks in the right order.
- Offshore medical coding staff
ICD-10, CPT and HCC coders working in your EHR, audited daily against a published accuracy standard.
- Denial management staff
Appeals, A/R follow-up and root-cause work, measured against published denial-rate benchmarks.
- Vendor questions before you sign
Questions on contract, access, location, payer rules, pay and exit, each tied to the rule or source behind it.
- Ending a vendor contract
Return or destruction of data, ending access, the Medicare notice when a billing agent changes and who keeps control of payment.
- Auditing coding accuracy
OIG's sampling guidance, why no source sets an accuracy percentage, how to read the CERT rate and how to check a coder's credential.
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