The proposal is four pages and quotes 5.5 percent of collections. The demo looked clean, and every reference they offered was a multi-site orthopaedic group or a cardiology practice. Nobody said “revenue code” or “charge master” once. If you run a hospital outpatient department or an ambulatory surgical centre, the thing to notice in that document is not the percentage. It is that you are being sold professional billing by people who have never had to balance a UB-04.

So, the short answer for anyone outsourcing medical billing for a facility. Facility billing and professional billing are two different jobs that happen to share a patient: different claim formats, different payment systems, different upstream data. That is why a vendor with an excellent physician-practice record can be genuinely bad at facility work. The evaluation question is not “do you do medical billing.” It is “show me twelve months of 837I volume under OPPS, by revenue code, with your denial categories.” Get that right and the rest is ordinary procurement.

Why facility billing is not professional billing

The claim and the payment logic are both different

Institutional providers bill on Form CMS-1450, the UB-04, or its electronic equivalent, the ASC X12 837 institutional transaction. The Medicare Claims Processing Manual calls the CMS-1450 “a uniform institutional provider bill suitable for use in billing multiple third party payers.” Physicians bill on the CMS-1500 and the 837 professional. Not two skins on one claim. The institutional claim is organised around revenue codes: form locator 42 carries the revenue code for each accommodation or ancillary charge, every charge amount in FL 47 must correspond to a revenue code in FL 42, and revenue code 0001 carries the grand total. A professional claim has no such structure. It has service lines.

Then the money. Hospital outpatient services are paid under the Outpatient Prospective Payment System through Ambulatory Payment Classifications, where packaging rules decide whether a line is paid separately or absorbed into a primary service. Inpatient stays are paid per discharge under MS-DRGs, where, as CMS puts it, “each DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that DRG.” Neither is a fee schedule. The physician-billing mental model, in which a CPT code maps to an allowed amount and the job is getting code and modifier right, does not survive contact with either.

Ambulatory surgical centres sit in the strangest spot, and this is where generic vendors most reliably embarrass themselves. For Medicare, an ASC is not billed on a UB-04. The manual is explicit: a qualifying facility “bills the Medicare contractor using the ASC X12 837 professional claim format or, in rare cases, on Form CMS-1500,” with place of service 24. The payment is still facility payment: the lower of 80 percent of actual charges or the ASC facility rate, and “ASC payment rates for most services are based on a percentage of the hospital outpatient prospective payment system (OPPS) rates.” A professional claim format carrying facility logic derived from OPPS, while several of your commercial payers demand a UB-04 for the same case.

It shows up in the denial report: revenue code to HCPCS pairing failures, Outpatient Code Editor and NCCI edits, unit rejections, packaging surprises, inpatient-only and status disputes that do not exist in professional billing at all. So ask a candidate how they work a denial where the professional claim paid and the facility claim did not. The answer tells you most of what you need.

Nobody can outsource a broken charge master

Your charge description master turns clinical activity into a billable line: charge code, description, revenue code, HCPCS or CPT, units, price. If that mapping is wrong, the vendor submits wrong claims faster. A billing company can tell you a claim denied. It cannot tell you your infusion charges carry the wrong units.

Facilities also carry an exposure practices do not: gross charges are load-bearing. Under 45 CFR 180 the gross charge is the charge “reflected on a hospital’s chargemaster, absent any discounts,” one of five standard charges you must publish. Charges feed inpatient payment directly too, because under 42 CFR 412.84 the outlier calculation bases “the operating and capital costs of the discharge on the billed charges for covered inpatient services adjusted by the cost to charge ratios applicable to operating and capital costs.” So your charge structure drives outlier payment, cost report position, published transparency data and self-pay exposure at once. No billing vendor belongs near that, and none can repair it for you.

Keep these in-house permanently: charge master governance with documented change control, charge capture design inside each department, coding compliance policy and the audits behind it, clinical documentation improvement, and the payer rate tables. Own the chart and the charge. Rent the claim.

What to put in scope, and what to keep

Functions travel well when they are rules-based, high-volume and measurable from transaction data. They travel badly when they need a hallway conversation with a clinician.

Two opinions. Never leave credit balances with the vendor unsupervised: unresolved overpayments sit on the OIG’s published list of billing risk areas, and a vendor paid on collections has no incentive to find money you owe back. And if one vendor covers both the facility and your employed physicians, treat it as two scopes in one contract, separately reported. The failure mode is both halves running through one team, so the facility side gets worked on professional-billing assumptions.

The compensation model is a compliance question

Percentage-of-collections pricing is the default and most facilities accept it without argument. It deserves argument, and the reason is on the record. In the Compliance Program Guidance for Third-Party Medical Billing Companies, 63 Fed. Reg. 70138 (18 December 1998), the HHS Office of Inspector General states that it “has a longstanding concern that percentage billing arrangements may increase the risk of upcoding and similar abusive billing practices,” notes such arrangements may implicate the anti-kickback statute, and says compensation for coders and billing consultants “should not provide any financial incentive to improperly upcode claims.” The risk areas it lists are facility-flavoured throughout: unbundling, upcoding and DRG creep, billing for undocumented services, inadequate resolution of overpayments, outpatient services connected to an inpatient stay, discharge billed instead of transfer, modifier misuse.

Read that list beside a contract that pays your vendor more when your DRG assignment moves up. The exposure is not abstract, because the claim leaves under your provider number. OIG frames this as shared responsibility, telling billing companies to record in writing which functions are shared and which are “the sole responsibility of either the billing company or the provider.” Without that document, a regulator looking at a bad claim just sees the facility that submitted it.

It is not prohibited, and plenty of honest vendors use it. If you go that way: separate coding from collections, so whoever assigns the code is not paid on what the claim yields; define the collection base narrowly as cash received on claims the vendor worked, excluding settlements, capitation, grants, refunds and anything your own staff collected; and audit a sample of coded accounts quarterly, with the right written in. OIG’s 2023 General Compliance Program Guidance asks whether remuneration is “fair market value in an arm’s-length transaction for legitimate, reasonable, and necessary services that are actually rendered.” Run that on your own fee schedule before somebody else does.

Price transparency and billing data cannot tell two stories

Hospitals have a live, enforced disclosure duty sitting on top of the data a billing vendor handles. Under 45 CFR 180 a hospital must publish a machine-readable file of standard charges for all items and services in five forms: gross charge from the charge master, discounted cash price, payer-specific negotiated charge by payer and plan, and de-identified minimum and maximum negotiated charges. It must also display charges for at least 300 shoppable services, made up of as many of the 70 CMS-specified ones as it provides plus enough hospital-selected services to reach the total. That has applied since 1 January 2021, and CMS keeps tightening it, phasing in 10th percentile, median and 90th percentile allowed amounts from 1 January 2026 with an enforcement start date of 1 April 2026. Penalties run daily: $300 for a hospital of 30 or fewer beds, bed count times $10 in between, up to $5,500 at the top, cut 35 percent if the hospital waives appeal rights.

Three artefacts now have to agree: what your file says you negotiated, what your claims bill, and what you tell a patient in advance. If the payer rate table lives only in the vendor’s system, you cannot reliably produce the first and certainly cannot defend it. ASCs sit outside 45 CFR 180 but not outside the estimate duty. Under 45 CFR 149.610, providers and facilities, and facility there expressly includes hospital outpatient departments and ambulatory surgical centres, must give uninsured and self-pay individuals a good faith estimate within one business day of scheduling for services booked at least three business days out, and within three business days of a request. Whoever holds your rates feeds that clock. So put transparency-file and estimate support in the statement of work, or keep the rate table in your own system and treat the vendor as a consumer of it.

Six metrics that measure a facility billing vendor, and one that flatters them

• Clean claim rate. Claims accepted and adjudicated on first submission with no edit, rejection or manual touch. The trick to watch for is measuring acceptance at the clearinghouse rather than the payer, which hides a large rejection population. Make the payer’s 277CA the measurement point.
• Days in AR. Total receivables over average daily net patient service revenue. Watch for AR that quietly left the numerator by being written off or handed to an early-out agency.
• Denial rate by category. One blended percentage is useless. Split it by claim adjustment reason code group, arranged the way a facility actually fails: authorisation, eligibility, medical necessity, coding and bundling edits, status and inpatient-only, units, untimely filing. Categories let you fix causes instead of reworking symptoms.
• Appeal overturn rate, with volume. A 70 percent overturn on forty appeals and 70 percent on four thousand are different businesses. Ask for both numbers together.
• Cost to collect. Total revenue cycle cost over net patient revenue collected, counting the vendor fee, the internal staff you kept, and clearinghouse and technology fees. Outsourcing that moves cost between lines without moving this number achieved nothing.
• Net collection rate. Net payments over charges less contractual allowances. The honest one: how much of the genuinely collectible money was collected.

Refuse gross collection rate, payments over gross charges. For a facility whose charge master sits at a large multiple of allowed amounts, that mostly measures how high your prices are, and a vendor can improve it by doing nothing while you raise charges. It appears in facility billing pitch decks more than any other number. Not a coincidence.

Cutover is where facilities actually lose money

Selection failures are slow. Transition failures are fast and expensive, because proposals treat go-live as a date rather than a project.

Cash flow. Every payer needs EDI enrolment for the new submitter, and remittance and EFT enrolment has to be re-established so 835 files and deposits route correctly. Some payers take weeks. Claims slow, remittances land in the wrong place. Model a deliberate dip and identify a credit line before signing, and never go live in the same month as a fiscal year end, a payer renewal or an EHR upgrade.

Legacy AR. Decide in writing who works the accounts that exist on day one. Three workable answers: keep a small internal team on it for 90 to 120 days, pay the new vendor a separate lower rate for it as a defined project, or leave it with the outgoing vendor under a wind-down agreement. Filing and appeal deadlines keep running either way, so set a reporting cadence and a write-off approval threshold. An outgoing vendor working its own AR on a percentage after termination notice needs auditing, not trusting.

Access and file routing. Map the transactions before anyone flips a switch: 837I or 837P out, 999 and 277CA acknowledgements back, 835 remittances in, 270/271 eligibility, 276/277 status. Own the clearinghouse contract and trading partner agreements in the facility’s name. If the vendor’s clearinghouse is the pipe your claims travel through, they own your ability to bill. You find out the day you try to leave.

A parallel run. Thirty to sixty days of real overlap, with a held-back cohort your own team keeps working as a control, reconciled at the 835 level rather than by comparing reports. It costs money. Less than a cutover that fails in week three with nobody left who knows the old workflow. Expect performance to dip before it improves, and judge the vendor on trend across two quarters rather than month one, but insist on weekly transaction-level reporting from day one so you can see a cutover going wrong while it is still fixable.

Contract terms worth arguing over

• Compensation model and base. Flat fee per claim, per-FTE, or percentage of a narrowly defined base. No coding component of the fee may vary with claim value.
• Performance standards with remedies. Clean claim rate, denial rate by category, days in AR, appeal turnaround, each with a defined measurement source and a real share of fees at risk. A standard with no remedy is just a sentence.
• BAA and downstream subcontractors. A current named list of every entity touching your PHI, flow-down obligations, advance notice of additions, a right to object. Ask where the work is physically performed and by whom, and get that answer into the agreement rather than an email.
• Data return on exit. Format, completeness and timing specified before you need it: account-level AR detail, work notes and touch history, appeal files, statement history, denial data, rate tables. Cap extraction fees. A vendor that will not commit to a clean export has told you how this ends.
• Audit rights. Your right, or your auditor’s, to sample coded and billed accounts, see the vendor’s work queues and ageing, and review their internal audit results. You cannot monitor what you may not look at.

This is general information about a commercial decision, not legal, coding or compliance advice. Rules change and facts matter, so check anything here against current CMS and OIG material and your own counsel and compliance officer before acting.

If all of that has landed somewhere specific, it is probably this: charge master, coding policy and payer rates stay in-house, and what you want off your plate is institutional claim submission and edit work, denial management and AR follow-up on 837I and ASC claims, technical appeals, and patient billing done properly. That is the work AB7 Solutions does. Our healthcare support practice covers medical billing and revenue cycle management, including facility-side denials and AR follow-up, appeals packaging and patient billing support, delivered as a managed service or as remote professionals embedded in your own workflow so coding and charge master decisions stay with your team. Where the bottleneck is a queue rather than a headcount, our AI and automation team builds denial categorisation and worklist routing around the transaction files you already receive. And if your problem turns out to be a charge master or documentation issue rather than a billing one, we will say so, because selling you a contract that fails in month four is a bad trade for both of us.

Bring us the denial report and the last twelve months of 835s. That is usually enough for an honest conversation about what is worth moving. Call +1 321 341 7733, email ab@ab7solutions.com or director@ab7solutions.com, or start at www.ab7solutions.com.

Sources: CMS, Medicare Claims Processing Manual, Chapter 25 (Form CMS-1450) and Chapter 14 (Ambulatory Surgical Centers); CMS, Acute Inpatient PPS, Hospital Outpatient PPS and ASC Payment System; 42 CFR 412.84; HHS Office of Inspector General, Compliance Program Guidance for Third-Party Medical Billing Companies, 63 Fed. Reg. 70138 (18 December 1998) and General Compliance Program Guidance (November 2023); 45 CFR Part 180 and CMS, Hospital Price Transparency; 45 CFR 149.610.