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Industry Insights

What’s Standard for Medical Lab Billing Contracts?

Update: This article was reviewed in April 2024 to update the information within and ensure figures cited are still accurate.

Entering into an agreement for medical billing services is an important process for any clinical lab or pathology group who does not have this service provided by a hospital or other partner. But what metrics and capabilities should a medical group or lab be looking for when searching for an external partner to assist with their billing operations?

Fortunately, Lighthouse RCM Solutions has extensive experience helping our clients find and negotiate a contract with the biller who is right for them. Whether understanding basics like collection fees, or taking a harder look at coding and appeals services, we have the background necessary to help explain pros and cons of any agreement. To offer a better idea of industry standards for labs and pathologists entering medical billing contracts, below is an examination of collection fees, contract lengths, and coding and appeals.


Collection fees – 6% to 7%

Typically, labs should aim for the biller’s collection percentage to be no more than 6% to 7% of their monthly net collections. However, labs should be careful not to become fixated on the rate alone since some billers may offer a cut rate but skimp on the services they offer.

Labs must also understand the level of automation in the biller’s process and whether they have familiarity billing for services offered by your lab.

Ann Lambrix, VP of RCM Consulting

Ann Lambrix, VP of RCM Consulting, LLS

“Look for an agreement that’s all inclusive, even if that means paying a slightly higher cost,” says Ann Lambrix, Vice President of RCM Consulting for Lighthouse. “It’s much easier for a small business to project its annual billing costs when they’re fixed as opposed to needing to estimate for a la carte services such a credentialing, coding, and providing patient statements.”

According to Lambrix, the ideal contract will include credentialing, billing, submitting statements to patients, a standard bill cycle of two to three statements to patients, and follow-ups on outstanding receivables (i.e.: calling the patient, payer, or hospital to obtain necessary information).

Finally, you should also keep in mind is that while smaller billers may sometimes have higher rates, they usually are more capable of providing better and more responsive customer service because they deal with fewer clients.


Contract length and termination clauses – 2 to 3 years

Expect any billing agreement you enter to range from two to three years for the initial term to allow the biller time to integrate the new client and absorb the startup cost of doing so.

However, Lambrix points out that while the initial term length is fairly standard industrywide, ominous renewal clauses that have started to sneak into these agreements during the past decade can make getting out of a contract difficult for a group who’s not prepared to act during the narrow termination window.

A prime example of this tactic involves agreements that lock in clients in for multiple years beyond their initial term if the client doesn’t indicate three to six months in advance of renewal they intend to terminate the contract.

Such evergreen clauses are deceptive. Instead, look for agreements that allow you to terminate with 90 days’ notice after the initial term.

You should also be aware of how a biller intends to work your outstanding accounts receivable in the event you elect to terminate your agreement.

“They’re going to want to work those receivables because there’s still money to be made,” Lambrix says. “So be sure to look for a clause that stipulates what happens to your outstanding AR.”


Coding and appeals – wide variance

Under traditional billing arrangements, physicians do their own Common Procedural Terminology (CPT) coding, and the biller handles diagnosis codes. However, some billers have shifted this responsibility away from themselves in recent years, placing added strain on the clients they serve.

“There’s so much room for error when a doctor is responsible for both CPT and diagnosis coding,” Lambrix says. “It’s good for the biller to do some sort of coding because it makes them responsible for at least the back-end piece.”

Unfortunately, some billers have a Certified Professional Coder on staff, which can make it difficult to properly work denials.

In addition to the wide variance of coding support offered, there has also been an attempt in recent years by some billers to try to limit the number of appeals they’ll perform for their clients.

“It’s important to clarify how many appeals the biller will perform on your behalf,” Lambrix says, adding that some billers perform only one level of appeals before writing a case off as bad debt. “You have to understand how they’re following up on denials and what’s ultimately happening if they don’t get paid.”

In the end, the decision essentially comes down to the capabilities of your staff and what you’re seeking in a billing partner. Large groups with certified coders on staff may be comfortable working with a biller who provides little coding support in exchange for a lower reimbursement rate. Conversely, groups who lack the manpower or resources to staff their own coders should be prepared to pay higher rates for those coding services.


Choosing the right biller

These are just a few of the items to consider before entering into an agreement for a third-party to provide billing services for your medical lab. Other variables include the biller’s policy on requests for audits, whether they offshore any of their operations, and if the biller provides assistance with quality reporting initiatives such as MIPS.

If you’re searching for a new biller or simply looking to strengthen your existing billing relationship, don’t hesitate to reach out to us for a free consultation.

We also offer free trials of our AI-powered denial management tool, RCM Spotlight. Check out the following case study to see if it’s the right fit for your lab!


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