Why Percentage-Based Billing Gets Complicated With Medicaid

Percentage-of-collections is the standard way billing companies charge. Medicaid is where it gets constrained, for reasons that sit above any individual state.

The federal layer

Medicaid payment rules restrict who may receive payment for services and how those payments may be reassigned. The intent is that Medicaid dollars reach the provider who delivered the care rather than being split with intermediaries.

The practical consequence is that arrangements which are unremarkable on commercial claims require more care when the dollars are Medicaid dollars.

The state layer

Separately, some states restrict or prohibit compensating a billing company as a percentage of collections at all, under fee-splitting provisions that apply regardless of payer. A few attach criminal penalties. Others permit it subject to conditions.

So there are two independent constraints — one federal and payer-specific, one state and universal — and they do not overlap neatly.

What this means when you are buying

• A vendor offering one national percentage with no mention of state variation has not looked at this.
• A split arrangement — flat on government payers, percentage on commercial — is a common and legitimate response, not an upsell.
• Whatever the model, it should be stated in writing before work begins rather than assumed.

None of this is legal guidance, and the specifics for your practice belong with your own counsel. It is offered as the reason a billing quote may look different in your state than in the one next door.