Cost to Start a Medical Billing Company
Many experienced billers, coders and practice managers eventually consider whether to start a medical billing company of their own. The business can be launched with less physical infrastructure than many healthcare ventures, but it still requires real investment in software, people, security and time before revenue becomes steady.
This article walks through the main cost categories, the factors that make budgets larger or smaller and how founders typically finance the launch. It does not provide specific prices, because costs vary widely by location, scale and business model. Rules vary by state and payer, and nothing here is legal, tax, billing or compliance advice.
Decide How You Want to Start a Medical Billing Company
Your budget depends on the model you choose. Founders may start:
- A small home-based or virtual firm serving a few local practices
- A specialty-focused firm serving one type of provider
- A full-service revenue cycle company offering billing, coding, credentialing and patient statements
- A firm that grows by hiring remote billers across multiple states
A lean, owner-operated firm may need far less capital than a company that plans to hire staff and serve larger clients from the start. Writing down your target clients, services and pricing model first makes every other budget decision easier.
Software and Technology
Technology is usually one of the largest ongoing costs when you start a medical billing company. Budget categories may include:
- Billing and practice management software, often licensed per user or per client
- Clearinghouse services for submitting claims and receiving remittances
- Secure email, file sharing and document management
- Computers, monitors, phones and network equipment
- Security tools such as encryption, backups and access controls
Some billing companies work inside their clients’ systems rather than their own, which can change the technology budget significantly. Hardware purchases may be financed; learn more about healthcare technology equipment financing and leasing.
Staffing
If you plan to grow beyond your own capacity, payroll will likely become the largest expense. Founders should plan for:
- Billers and coders, including any certifications clients expect
- Account managers or client service staff
- Training time before new staff are fully productive
- Payroll taxes, benefits and workers’ compensation where applicable
Hiring ahead of revenue is a key reason new billing companies need working capital. Worker classification, including the use of contractors, should be reviewed by qualified professionals.
Compliance, Security and Insurance
Billing companies handle protected health information, so security and compliance are not optional. Costs may include developing written policies, conducting risk assessments, staff training and business associate agreements with clients. HIPAA obligations should be reviewed by healthcare counsel, and billing practices should be reviewed by qualified billing or compliance professionals.
Insurance is also important. Founders may consider professional liability, errors and omissions coverage, cyber liability and general liability. A licensed insurance professional can help identify appropriate coverage.
Legal, Accounting and Formation
Start-up costs typically include entity formation, a standard client service agreement drafted by counsel, accounting setup and any state business licenses. A well-drafted client contract can protect the company and later make it more valuable to a buyer.
Office Space
Many billing companies start virtually, which keeps costs down. Others lease a small office for staff collaboration, training and client meetings. If you lease space, budget for rent, deposits, furniture, internet and security.
Sales and Marketing
Clients do not appear automatically. Founders should budget for a website, professional materials, networking and time spent meeting practices. Many new firms grow through referrals from physicians, practice managers and accountants, which takes time to build.
Working Capital and Runway
One of the most overlooked costs is the time between signing a client and receiving consistent fees. If you are paid a percentage of collections, revenue may lag while claims are submitted and paid. Founders need enough cash to cover payroll, software and personal expenses during that period.
Once the company has revenue, a health tech line of credit may help smooth timing gaps.
How to Finance the Launch
Founders often combine personal savings with outside financing. Options may include:
- SBA 7(a) loans, which can be used for working capital, equipment and certain start-up costs, subject to program rules and lender approval
- Equipment financing for computers and hardware
- Signed client commitments that help demonstrate early demand
Start-up loans tend to rely heavily on the founder’s experience, credit, liquidity and business plan. SBA eligibility and terms depend on the business, the borrower, the use of proceeds, program rules and lender review. Every loan is subject to approval, and nothing here is a commitment to lend. You can estimate payments with our SBA loan calculator. Estimates are for planning only and do not represent an offer or approval.
For more on funding new healthcare technology ventures, see our guide to health tech startup funding.
Start or Buy?
Some founders decide that buying an existing firm makes more sense than starting from scratch. An acquisition can come with clients, staff and cash flow from day one, though it requires more capital up front. Our guide on how to buy a medical billing company explains that path.
Final Thoughts
The decision to start a medical billing company can be a rewarding step for experienced billing professionals. A realistic budget covers software, staffing, compliance, insurance, marketing and enough working capital to reach steady revenue. Careful planning and the right financing can give a new firm room to grow.
US Medical Funding helps healthcare technology founders finance new ventures. Learn more about our healthcare technology start-up financing.
