Percentage-of-collections is the most common pricing model in medical billing — and the most misunderstood. Under this model, the billing company takes an agreed percentage of the money your practice actually collects. Simple in theory. In practice, the details of how that percentage is calculated determine whether the arrangement is fair.
How the model works
Each billing cycle, the vendor totals what was collected on the claims it managed, then invoices the practice for the agreed percentage of that total. If collections are strong, the vendor earns more. If collections are weak, it earns less. This alignment is the main appeal: the vendor only gets paid when you do.
There are variations. Some vendors apply the percentage to every dollar collected during the period. Others exclude certain categories, such as patient payments collected at the front desk, or collections on old accounts receivable the practice resolved itself. Which version you sign up for changes the effective fee substantially.
At MBSG, the exact scope — what is included in the collections base and what is excluded — is quoted and scoped in your written proposal after we review your volume and payer mix. We put the denominator in writing because that is where most disputes start.
What the fee usually covers — and what it might not
A percentage-of-collections fee typically covers the core billing workflow: claim submission, payment posting, denial follow-up, patient statements, and standard reporting. But “typically” is doing a lot of work in that sentence. Across the industry, the scope bundled into the percentage varies widely.
Services that are sometimes included and sometimes billed separately:
- Medical coding. Some vendors code from your notes as part of the percentage; others charge extra per encounter or require you to code in-house. Coding is one of the biggest scope differences between vendors, so pin this down.
- Eligibility verification and prior authorization. These can sit inside the percentage or sit with your front office, or be sold as an add-on.
- Credentialing and payer enrollment. Often a one-time or per-provider fee rather than part of the percentage.
- Patient collections calls. Reminder statements may be included, but phone-based collections work sometimes is not.
- Custom or ad-hoc reporting. Standard reports are usually included. Specialized analytics may carry a fee.
The practical rule: ask the vendor to list, in the contract, every service that falls inside the percentage and every service that does not. For our own services, see the breakdown on /medical-billing-pricing/ and compare it line by line against any other proposal.
The critical question: gross or net collections?
This is the single most important contract question, and many practices never ask it. “Collections” can mean several different things:
- Gross collections: everything collected, including patient copays and deductibles.
- Net collections: collections minus adjustments, contractual write-offs, and refunds.
- Net collections on claims the vendor touched: excluding revenue the practice collected on its own, such as point-of-service payments.
A percentage applied to gross collections is materially more expensive than the same percentage applied to net collections. There is no industry-standard definition, so the definition in your contract is the definition that matters. Get it in writing, with examples worked through using your own numbers.
What counts in the denominator?
Even after you settle gross versus net, the denominator needs its own definitions:
- Old accounts receivable. If you hand over a backlog of unpaid claims from before the contract started, is the percentage applied to those collections? Many vendors charge the same rate on old A/R; some charge a different rate or a flat project fee.
- Direct payer payments. Insurance payments that post without vendor intervention still count in most vendor definitions — but confirm this.
- Patient self-pay collected at the front desk. Some vendors exclude these from the base; others do not.
- Refunds and takebacks. When a payer recoups a payment, is the previously billed percentage credited back? It should be, but verify the mechanics.
Minimums and floors
Many percentage-of-collections agreements include a monthly minimum — a floor the vendor earns even if collections are low. A minimum protects the vendor’s costs on small accounts, but for a practice with seasonal volume or a slow credentialing period, minimums can make the effective rate much higher than the headline percentage.
Check how minimums interact with the percentage: does the vendor charge the greater of the two, and is the minimum credited against the percentage once collections recover? Also check whether the minimum steps up over time as you grow.
Contract terms to read before you sign
Beyond the math, review these terms with care:
- Contract length and renewal. Many agreements run one to three years with automatic renewal. Know your notice window — auto-renewal with a 90-day notice buried in the contract is a classic trap.
- Termination for cause. Define what counts as cause: missed filing deadlines, error rates above a threshold, failure to deliver reports. Vague termination rights protect the vendor, not you.
- Who owns the data. Confirm that your claims data, payer credentials, and clearinghouse connections remain yours and are returned or transitioned at exit.
- Transition assistance. Ask what the vendor provides if you leave: claims file exports, open A/R handoff documentation, cooperation during a defined transition period.
- Performance expectations. The contract should reference reporting frequency and key metrics — days in A/R, denial rates, clean claim rates — so you can hold the vendor accountable.
For more on these contract terms, see our guide to medical billing contract fees.
Questions to ask before you sign
- Is the percentage applied to gross or net collections? Show me the math with my own numbers.
- What is excluded from the collections base — old A/R, front-desk collections, self-pay?
- Is coding included in the percentage, or billed separately?
- Is there a monthly minimum, and how does it interact with the percentage?
- What happens to the fee when a payer recoups a payment?
- What are the termination terms, notice periods, and transition obligations?
- Which reports will I receive, how often, and what metrics do they track?
Why practices like this model — and where it breaks down
The percentage model works well when the vendor’s scope is clearly defined and collections improve over time: both sides share in the upside. It breaks down when the denominator is fuzzy, when minimums bite during slow months, or when the vendor is paid on collections it did nothing to produce.
The fix is not a better percentage number. It is a better contract — one that defines the base, the exclusions, the minimums, and the exit in plain language. Rates vary across the industry, and any honest comparison starts from terms in writing, not a headline figure.
If you want a second set of eyes on a proposal — yours or a competitor’s — Get a Free Billing Audit. We review the denominator definitions, exclusions, and contract terms and tell you what they actually mean for your practice.
Frequently asked questions
What does percentage-of-collections mean in medical billing?
It means the billing company earns an agreed share of the revenue your practice collects, rather than a flat fee. The key detail is how “collections” is defined — gross or net, and what is included or excluded — so always get that definition in writing.
Do I pay the percentage on money my own staff collects?
It depends on the contract. Some vendors exclude front-desk and point-of-service collections from the base; others include them. This is one of the most common sources of billing disputes, so confirm it before signing.
Is coding usually included in the percentage?
Sometimes. Whether coding is bundled into the percentage or billed separately is one of the largest differences between vendors. A lower percentage without coding included can cost more than a higher one that includes it.
Can the vendor raise the percentage later?
Only if the contract allows it. Check the renewal and rate-change terms: some agreements permit rate increases with short notice before auto-renewal. A rate lock for the initial term is worth asking for.
General educational information, not legal advice or a guarantee of reimbursement. Requirements vary by payer, plan, setting and date of service.