Key Takeaways:
- Percentage of collections pays on recovered revenue, not on cost to collect. A reworked claim that eventually pays generates the same fee as a clean claim paid on first submission.
- Most denials originate at intake and eligibility verification. That work sits outside the scope the percentage fee covers.
- Per claim pricing carries its own distortion. Under some structures, a corrected resubmission becomes a second billable event.
- FTE based models price capacity rather than outcome. Finance leaders keep the authority to direct that capacity upstream toward prevention.
Among medical billing pricing options, a percentage-of-collections agreement reads like shared risk. The billing partner gets paid when your organization gets paid. Nobody bills for effort that never converts. For a finance leader focused on cash flow, that sounds reasonable.
But there is another question worth asking: What work does the fee pay for? That question matters because collecting money and preventing denials are two different jobs.
A percentage-of-collections model is built around the money that comes back in. Denial prevention happens earlier in the process, before the claim is submitted. If your goal is to reduce denials, the way you pay your RCM outsourcing partner may be worth a closer look.
What Are Medical Billing Pricing Models?
Medical billing pricing models are the fee structures healthcare organizations use to pay external billing or healthcare RCM outsourcing partners. Common models include:
- Percentage of collections – The partner charges a set percentage of net collections. Published market ranges generally fall between 4% and 10%, with most agreements landing in the 5% to 7% band.
- Per claim – A fixed dollar amount for every claim submitted, typically in the low single digits per claim.
- Flat fee or retainer – A predictable monthly cost for a defined scope of service.
- FTE based – A known cost per full-time resource. You pay for capacity and decide how that capacity is deployed.
The structures are not interchangeable. The choice sets the terms of the relationship long before anyone reviews a performance report.
Why Percentage of Collections Became the Category Default
Under percentage-of-collections pricing, the billing partner shares some of the financial risk. If a claim does not get paid, the partner does not earn its percentage on that claim.
The model can also work well when a provider has:
- Large amounts of unpaid or overdue claims
- Unpredictable patient volume
- Limited internal revenue cycle leadership
- A need for someone else to manage collections from start to finish
Historically, one of the biggest problems in revenue cycle was simply failing to follow up on unpaid claims. Accounts receivable could sit untouched, appeals could go unfiled, and small balances could be written off. A fee tied to money recovered gave the billing partner a clear reason to pursue that unpaid revenue.
But the revenue cycle has changed. Today, healthcare organizations are putting more attention on preventing denials before they happen.
What the Percentage Fee Actually Rewards
Consider two claims.
Claim A: The provider submits the claim correctly. The insurance company pays it on the first submission.
Claim B: The provider submits the claim. The insurance company denies it. Someone investigates the problem, corrects the claim, appeals it, and eventually gets it paid.
Under a percentage-of-collections agreement, the partner earns its percentage on both claims. The amount collected is the same. The path to payment is different. That does not mean a billing company wants you to have denials. Denials create extra work, delay payment, and put revenue at risk.
The issue is more subtle: The percentage fee pays for the money that comes back. It does not separately pay for the work that prevented the denial from happening.
Most Denials Start Before the Claim is Billed
A denial often begins much earlier than the billing stage. For example:
- Patient makes an appointment
- Insurance information is collected
- Insurance coverage is checked
- Prior authorization is obtained if required
- Patient receives care
- Claim is submitted
- Insurance reviews the claim
- Claim is paid or denied
Denials happen when:
- The patient’s insurance information is wrong.
- The provider fails to get required prior authorization.
- The medical document does not support the service.
- The claim contains incorrect information or codes.
The billing claim is the final step in a much longer process. According to Experian Health, patient eligibility errors at intake accounted for roughly 56% of denials.
That means some of the most important denial-prevention work happens before billing begins. Yet a percentage-of-collections fee is usually tied to what happens after the claim is submitted.
What could this mean for your organization?
Suppose your organization submits $4 million in claims each month and has a 10% denial rate. That means about $400,000 in claims are denied each month.
Now assume 30% of those denied claims are never reworked. That’s $120,000 in potentially lost revenue each month. Over a year, that would be $1.44 million.
The point is that a denial rate can represent a significant financial problem, and recovering denied claims is not the same as preventing them.
Per Claim Pricing Solves One Problem and Creates Another
Per-claim pricing separates the fee from collections, but it creates a different issue: the model rewards claims processed, not necessarily claim quality.
Under some contracts, a corrected and resubmitted claim counts as a second billable event. Even when it does not, the focus remains on processing claims rather than preventing problems.
Per-claim pricing changes the incentive, but it does not solve the denial-prevention problem.
How FTE Pricing Changes the Math
FTE-based pricing pays for staff capacity rather than collections or claims processed. This gives the provider more control over where that capacity is used.
For example, teams can focus on:
- Insurance eligibility when coverage errors drive denials
- Prior authorization when missing approvals cause problems
- Coding and documentation when claim errors are the issue
The cost stays the same even when priorities change. That makes it easier to put people where they can prevent denials.
Much of this work happens before a claim is submitted. Checking insurance, securing prior authorization, and correcting documentation may not generate revenue directly, but they can prevent future denials.
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Comparing Medical Billing Pricing Models Side by Side
The useful comparison is not which model costs less but what each model pays for, and what it leaves unfunded.
| Model | What it pays for | What it leaves unpriced | Best fit |
| Percentage of collections | Dollars recovered, including recovered denials | Front end prevention, first pass yield, cost to collect | Aged AR recovery, unpredictable volume, limited internal RCM leadership |
| Per claim | Claims submitted | Claim quality, resubmission avoidance | High volume, low complexity claim mixes |
| Flat fee or retainer | A defined scope of service | Anything outside the defined scope | Stable, well understood workflows |
| FTE based | Capacity and coverage | Nothing structurally. Direction and outcome move to the client | Organizations with revenue cycle leadership and a prevention agenda |
When Percentage of Collections Is Still the Right Call
None of the discussion above means percentage-of-collections pricing is bad. It can be the right choice in certain situations, such as when:
- Your organization does not have strong internal revenue cycle leadership
- You want a partner to manage the entire process
- Patient volume changes significantly from month to month
- Your biggest immediate problem is recovering old unpaid claims
- You do not have the internal staff to manage the work
In those situations, paying a partner based on collections can make sense because you are paying them to take on more of the responsibility.
The real question is: Are you trying to recover money that has already been lost or prevent revenue from being lost in the first place? Those are different problems.
What AI Changes About This Decision
AI is also changing where healthcare organizations are investing in revenue cycle. An HFMA and AKASA survey found that 80% of health systems in 2025 were exploring, piloting, or implementing generative AI in revenue cycle management, up from 58% in 2023 that were merely considering it.
Many of these applications focus on preventing problems before a claim is submitted, including:
- Predicting denials
- Checking claims before submission
- Automating insurance eligibility checks
- Supporting prior authorization
In other words, technology is moving more revenue cycle work upstream. As these tools improve, the human work that remains is likely to involve more complicated cases:
- Understanding payer requirements
- Handling difficult prior authorizations
- Following up with clinical teams for missing information
- Resolving exceptions that automation cannot handle
That makes it even more important to ask whether your RCM contract gives someone responsibility for this work. A pricing model focused mainly on recovering money after a denial may not be aligned with a revenue cycle strategy that increasingly focuses on preventing denials in the first place.
Conclusion
The evaluation most finance leaders run on medical billing pricing models is a rate negotiation. That is the wrong frame. The rate determines what you pay. The structure determines what gets done.
Before you compare percentages, ask a different question. Under this agreement, who is paid to prevent the denial? If the honest answer is nobody, the rate is not the thing to negotiate. The scope is.
Rebuild the evaluation around that question and the shortlist changes. So does the denial rate.
Talk to Connext about building a revenue cycle team your leadership directs. Schedule a consultation.
Frequently Asked Questions
Published ranges generally fall between 4$ and 10% of net collections, with most agreements landing between 5% and 7%. Average medical billing collection rates vary by specialty, claim complexity, and volume.
Not reliably. A lower percentage applied to a weaker net collection rate can produce less revenue than a higher percentage applied to a stronger one. Compare total dollars retained rather than the headline fee. Ask what first pass resolution rate the partner delivers on accounts like yours, then model the outcome across twelve months.
It depends entirely on scope. Most billing agreements begin at claim submission, which leaves registration, eligibility verification, and prior authorization with your internal team. If prevention is a priority, name it explicitly in the statement of work and confirm which party staffs it. Assumed ownership is where prevention quietly falls through.
Track first pass resolution rate, not overall collection rate. Collection rate can look healthy while a large share of claims requires rework to get there. Pair it with denial rate by root cause and repeat denial rate on the same code and payer combinations. Recurring denials in the same category indicate recovery without correction.
Yes, and hybrid structures are increasingly common. A frequent pattern pairs an FTE base for front end and prevention work with a performance component tied to specific improvement targets. Hybrids add contract complexity, so define the boundary between scopes precisely. Ambiguity in a hybrid agreement usually resolves in the vendor’s favor.
Specify the target rate, the measurement method, the reporting cadence, and the remedy if the target is missed. Define the denominator explicitly, since partners calculate first pass yield differently. Require root cause categorization on denials rather than volume reporting alone. Without a defined remedy, a performance clause is a reporting requirement, not an accountability mechanism.
