A medical billing contract sets the term, the termination notice, the fee basis, the exclusions, data ownership, transition help and the HIPAA business associate agreement. The clause to read first is the fee basis: “percentage of collections” means nothing until the contract says which collections — gross or net, which payers, which dates of service.
Our September posts covered how to compare medical billing companies and flagged the contract items to check. This post goes a level deeper: the nine terms, what the standard language usually says, and what to ask for instead. One line before we start: this is operational guidance from a billing company, not legal advice, so review the final draft with counsel.
1. Term length and auto-renewal
A common structure is a multi-year initial term that renews automatically for a further year unless one side gives notice. The trap is the notice window: a 90-day window on a contract that renews on 1 January means the decision has to be made by early October, and most practices discover the date after it has passed.
Ask for a shorter initial term with renewal on written mutual agreement, or at minimum a renewal notice the vendor must send you 120 days before the window closes.
2. Termination notice and for-cause triggers
Two provisions matter. Termination for convenience: how much notice, and whether a fee applies. Termination for cause: what counts. Vague “material breach” language is worth little on its own; tie cause to measurable performance using published definitions (see term 9), with a cure period and a right to exit if the metric is missed twice.
3. Fee basis: gross versus net collections
This is the term that decides what you pay, and it hides in a definition. “Collections” can mean gross receipts before refunds, or net after refunds and takebacks. It can include or exclude patient payments collected at the front desk, capitation, incentive payments, and money recovered on old A/R the vendor did not work. Each inclusion moves the fee.
Get the definition in writing: net collections, meaning payments actually posted for dates of service on or after the start date, net of refunds and recoupments, with patient point-of-service cash and any capitated or bonus revenue explicitly listed as in or out. AMS Solutions charges a transparent percentage of collections, and the definition is written into the agreement before it is signed.
4. Exclusions and add-on fees
Read the schedule of charges, not the headline rate. Common add-ons: patient statements and postage, credentialing and enrollment, coding review, old-A/R cleanup, software or portal licences, and “special projects.” A low rate with five add-ons is a high rate. Our post on what medical billing companies actually charge has a list of the questions that surface each one.
5. Old A/R and tail claims
Two edges of the contract need explicit treatment. At the start: who works claims with dates of service before the start date, at what fee, and for how long. At the end: who works claims submitted before termination but paid after, and whether the vendor is paid on them. Silence here produces a fight, and the deadline behind that fight is real: Medicare claims must be filed within one calendar year of the date of service (42 CFR 424.44), and commercial payers set their own deadlines by contract. A gap of unworked A/R at either end of a contract turns into write-offs.
6. Data ownership and return
Your patient and claims data are yours. The contract should say so, and should specify the format the data will be returned in (a usable export, not a PDF), the timeline, and the cost, which should be zero. If the vendor’s own system holds your claims history, ask how you get read access after termination, and for how long.
7. Where the money goes
Medicare will pay a billing agent directly only if the agent’s compensation is not tied to amounts billed or collected (42 CFR 424.73(b)(3)). CMS’s Claims Processing Manual, Chapter 1, §30.2.4, explains that this condition does not apply where the agent only prepares claims and does not receive or negotiate the payments. A percentage-of-collections vendor therefore needs Medicare payments to flow to a bank account the practice controls. The contract should state that all payer remittances are deposited to the practice’s account and that the vendor’s access is posting and reconciliation, not custody.
Related: CMS requires each provider to give its Medicare Administrative Contractor written notice of which transactions a billing service or clearinghouse is authorized to submit or receive, and to notify the contractor of any change (CMS, EDI System Access and Privacy, last modified 10 September 2024). Put the responsibility for filing those notices, at start and at exit, in the contract.
8. The business associate agreement
A billing company is a business associate under HIPAA, whose definition expressly includes billing (45 CFR 160.103), and 45 CFR 164.504(e)(2) lists what the contract between you must contain. In plain terms: the permitted uses and disclosures of protected health information; a promise not to use or disclose beyond them; appropriate safeguards, including the Security Rule for electronic PHI; reporting of any impermissible use or disclosure, including breaches; flow-down of the same terms to subcontractors; support for patient access, amendment and accounting-of-disclosures requests; availability of the vendor’s books and records to HHS; return or destruction of PHI at termination where feasible; and your right to terminate if the vendor violates a material term.
HHS published sample BAA provisions on 25 January 2013 that track those elements clause by clause, and they are a fair baseline to compare against. Two negotiation points: a breach-reporting deadline tighter than the regulation’s outer limit, and clarity on which subcontractors (clearinghouse, statement vendor, anyone outside the vendor’s own workforce) will see PHI, and where the work is performed. Note also that 45 CFR 164.504(e)(1)(ii) puts an obligation on you: if you know of a pattern of violations by the vendor, you must take reasonable steps to cure it and, if that fails, terminate where feasible. Your termination right in term 2 needs to be workable for that reason.
9. Reporting and performance definitions
“Monthly reporting” is not a term; a list of metrics with definitions is. Write in the HFMA MAP Keys you will receive and the HFMA definition for each: Clean Claim Rate (CL-1), Remittance Denial Rate (AR-5), Aged A/R as a Percentage of Total Billed A/R (AR-1), Denial Write-offs as a Percentage of Net Patient Service Revenue (AR-6), and Net Days in A/R (FM-1). Using the published definitions stops a vendor from reporting a flattering version of the same number, and gives term 2 something to bite on.
A note on what not to negotiate
Do not negotiate away the vendor’s right to see your documentation, to ask providers for clarification, or to hold a claim until an enrollment is active. Those provisions protect you. A vendor that never pushes back on a chart is a vendor that will bill whatever it is given.
Before you sign
Read the nine terms against the draft, mark each one as present, missing or vague, and send the vendor the list. A billing company that has been doing this for a while will have seen every item and will answer in writing. Then have counsel review the final draft.
AMS Solutions has worked with physician practices since 1992. Ask us, or any vendor, to put the fee definition, the BAA and the exit provisions in the agreement rather than the sales deck. The billing glossary in our resources library defines the terms used above. If you would like to see how our medical billing services contract handles each of the nine, ask for the draft before the proposal.
