Medical Coding and A/R Services: What’s the Right Billing Model for Your Healthcare Organization?

By AGS Health

April 25, 2023

If your healthcare organization has engaged or is considering engaging an outsourcing partner for medical coding services or A/R services, it’s important to consider which billing service model best meets your needs. There are two primary models for outsourced medical coding and billing services:

  1. Dedicated Full-Time Employee (FTE) Based
  2. Transaction-Based

While choosing the right billing model largely depends on the comfort level of your organization’s chief financial officer and executive leadership, understanding the pros and cons of each model can help you make the right decision.

Let’s take a closer look at each.

Dedicated Full-Time Employees

With dedicated FTEs, your healthcare organization is charged a fixed, flat fee or hourly rate. This fixed cost can be helpful when budgeting.

For example, a provider organization may need five full-time medical coders to support their coding volumes. The organization is provided with a monthly fee for those FTE coders. That fee reflects all known costs for those five staff members for 40 hours per week for the month.

Typically, there are no other costs billed to the customer; however, if there are additional technology or add-on services requested by the customer, those additional costs get added to the invoice.

With this model, all the work is performed by the requested FTEs and supported by a customer success director.

FTE Model Pros FTE Model Cons
  • Budgeting is easier for the customer as it is a fixed monthly rate
  • It is an easier transition if the customer has never outsourced medical coding or A/R services before
  • If just FTE and no contingency, customers could see a loss of productivity.
    NOTE: At AGS, we combat this by including production and quality metrics into our Service Language Agreements. Meaning AGS staff are required to achieve and maintain production and quality metrics monthly. Those reports are shared with the AGS client.
  • Lack of strategic support – the FTE just does the work assigned. The engagement is not a true partnership, and the customer doesn’t fully benefit from having a strategic vendor partnership.&
  • Not a scalable solution – if there is more than 40 hours of work a week, it won’t get done, and work gets backlogged.

Transaction-Based Model

The transaction model is calculated based on how many charts the outsourced team can complete in a day/week/month. The customer is then charged according to the medical coding team or A/R team’s productivity. Pricing varies based on the volume of work and the service line, and pricing includes ongoing and future training based on coding changes and job knowledge requirements.

Transaction-based Model Pros Transaction-based Model Cons
  • This is scalable; if work increases, the number of staff supporting the customer increases to get the work done in a timely manner
  • Leverages job expertise; the outsourced vendor has the flexibility to assign team members based on their skill set and knowledge
  • Some healthcare organizations aren't as comfortable with this model yet because it is fairly new to revenue cycle management; however, it is growing in popularity

Ideally, the transactional model comes with a contingency, which helps measure the value of the work performed based on pre-defined outcomes.

Optional: Contingency Clause&

Both the FTE and transaction-based models can include contingency clauses, which define a performance-based bonus or penalty. The contingency clause is typically written into the Service Language Agreement (SLA).

Contingency clauses help mitigate risk for the outsourcing healthcare organization.

For example, during the pandemic, when companies around the world were on lockdown, a contingency clause included in each model would help to ensure quality work continues to be performed:

  • For FTE model: AGS assigned backup staff to customers using the FTE model. With this structure, if an employee got sick, another medical coder or A/R specialist would step in and continue the work. This helped to prevent customers from experiencing backlogs.

  • Transaction-Based Model: If there were a significant number of staff who were out sick and performance metrics were down, AGS would be able to add resources to get numbers back on track.

Contingency clauses act as an added layer of protection and help to ensure customer’s work is completed in a timely manner and that the work meets quality standards.

Regardless of the billing model used, it’s important to focus on flexibility and what your healthcare organization’s specific needs are – for budgeting and performance. It’s also important to have a billing model that scales with your needs.

If you have questions about what it’s like to work with a global outsourcing partner for coding and billing services, please contact our team today.

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AGS Health


AGS Health is more than a revenue cycle management company–we’re a strategic partner for growth. By blending technologies, services, and expert support, AGS Health partners with leading healthcare organizations across the US to deliver tailored solutions that solve the unique needs and challenges of each provider’s revenue cycle operations. The company leverages the latest advancements in automation, process excellence, security, and problem-solving through the use of technology and analytics–all made possible with college-educated, trained RCM experts. AGS Health employs more than 10,000 team members globally and partners with more than 100 clients across a variety of care settings, specialties, and billing systems.

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