Federal payment rules constrain how a third party may be compensated out of Medicaid dollars, and several states add their own restrictions. That is one reason a billing company may price differently by payer rather than applying a single percentage across the board.
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.
Two layers, and they differ
Federal rules set the outer boundary, and individual state Medicaid programs add their own conditions on top. A structure that is acceptable in one state is not automatically acceptable in the next, which matters for any practice operating across state lines.
That is a question for your own counsel rather than for the vendor’s reassurance, because the obligation ultimately sits with the provider.
What to ask when you are buying
How the fee is calculated for Medicaid volume specifically, whether it differs from commercial, and what the vendor relies on for that treatment. A confident, specific answer is a good sign; a blanket percentage with no distinction is worth probing.
Why this shows up as a pricing quirk
Practices frequently read differential pricing as the vendor charging more for harder work. Sometimes it is. Often it is a compliance structure, and understanding which changes how you negotiate it.
Common questions
- Can a billing company charge a percentage of Medicaid collections?
- It is constrained by federal reassignment and payment rules and by state Medicaid requirements. Many companies price Medicaid differently for exactly this reason.
- Why does my billing company charge different rates by payer?
- Usually because Medicaid and sometimes Medicare dollars carry compensation restrictions that commercial dollars do not. A flat percentage across all payers can be a warning sign.
- Is percentage-based billing legal?
- Generally yes for commercial payers, with more constraint around government program dollars. The structure matters, so it is worth confirming rather than assuming.
- What should I ask a billing company about this?
- How they price government versus commercial payers, and how they satisfy the applicable restrictions. A vendor who has not considered the question is telling you something.
- Does this apply to flat-fee arrangements?
- Flat-fee and per-claim structures avoid much of the difficulty, which is part of why some vendors prefer them for government payer volume.
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