Analyze payer mix before deciding how to change it
■ A column answering your questions about the business side of your practice
By Karen S. Schechter amednews correspondent — Posted Jan. 28, 2008.
Question: My practice's revenues and net profits are decreasing in spite of the fact that I am seeing as many, if not more, patients than I have in the past couple of years. My office manager feels that part of this situation is due to our payer mix. As a primary care physician, my payer mix consists of a large percentage of Medicare patients, followed by managed care companies and some Medicaid. Is there anything I can do to change the payer mix?
Answer: There are steps you can take to change your payer mix. However, before doing so you must analyze your practice's payer mix from several angles, including, but not limited to, reimbursement, productivity and profitability, and the employer presence of each plan. Once you have evaluated the plans, the next step is to develop and implement a strategy that will provide the practice with the best financial picture.
The first step is to identify the practice's payer mix based on charges per payer for the past 12 to 18 months. Only look at payers that represent a total of 80% of the practice's charges.
Reimbursement analysis may be performed several ways at several different levels. Once you've identified the top payers (by charges), compare the payments from those payers, along with the percentage of the total accounts receivable they represent.
For example, say that Payer A accounts for 20%of the charges, yet only 15% of the payments. Twenty-five percent of the accounts receivable comes from Payer A. This could indicate that Payer A is a slower payer than the other non-Medicare payers. This information should lead the analyst to the next step.
The next step is to perform the same analysis by CPT code for the top payers. The same method should be used. Look at the CPT codes that generate 80% of the total charges for the practice over a set period. This should probably represent a small number of codes.
If possible, use a report that matches payments one-to-one with charges -- the payment reflects the actual amount paid on a specific charge, rather than a general figure of total charges for a period, compared with total payments.
Look at productivity and profitability. Productivity is measured by the number of patients the physician cares for. The more patients seen, the more revenue generated. Therefore, it is important to review the physician's appointment schedule to identify ways to maximize revenue, if maximizing productivity is considered a priority.
To do this, look at the number of patients the physician sees each day. Divide this total by the number of hours worked each day. If a physician sees an average of 25 patients a day and works an average of 6 hours a day (at the office), then the average number of patients seen per hour is 4.2 or 14.3 minutes per visit. Determine if the entire 14.3 minutes is spent on direct patient care, or on other administrative or ancillary tasks.
Next, look at the average visit time by payer. Which payers have patients that take a longer time? (Most likely, Medicare.)
The key is to maximize productive time, which might lead to establishing a schedule that balances patients by type of visit and payer, as well as making better use of clinical staff and technology to support the effort.
In this discussion, profitability is defined as revenue minus the billing cost. There are other costs to consider, such as the expenses associated with clinical staff, supplies and medications. Typically, these costs are incorporated into the fee schedule.
The costs associated with billing and collections include more than the billers' salaries and benefits and the direct cost of the billing process. Among the costs:
- Front desk and billing/collection time and supplies
- Hardware and software
- Office space and equipment
It is important to note that these costs may vary tremendously by payer. It's often the "soft costs" associated with billing charges and claims processing that impact the profitability of a specific payer. These may include:
- Transparency of and adherence to published fee schedule
- Denial rate
- Payment turnaround time
- Hassle factors: user-friendliness of insurance cards, ability to easily access information on the Web, accessibility and knowledge of staff, number of reviews, response to appeals, and the referral/authorization process.
A better indicator of the profitability of a payer might be found by having the billing and collection staff track the amount of time spent dealing with any of the preceding issues.
For example, one payer might pay 15% more than another payer does for the same CPT codes. However, the first payer may also have a higher denial rate, which means more time spent by the billers trying to collect money due the practice. When this cost (or others) is subtracted from the profit of the first payer, it is possible that the second payer, the one that reimburses at a lower rate, might actually be more profitable.
Now that you've analyzed the profitability of each payer, it's important to look at the demographics of the community in which you practice.
Are there large employers who contract with a particular payer? Even if the payer is not as profitable as others, it might not be prudent to stop participating in its plans.
The challenge is that employers tend to change payers more frequently now than they did in the past. Therefore, keeping up with these changes might not be cost effective.
There are other community-based concerns that might enter your decision to change your payer mix. Does your community have a high number of older residents? A high number of low-income residents? A high percentage of children? A greater rate of chronic illness?
Generally speaking, managing your payer mix is an acceptable practice. This may be done primarily through scheduling and strategic networking with referral sources that participate in the most profitable payer plans.
Tactics may include not scheduling new patients from a particular payer so that its contribution to the payer mix will decrease. Another option is increasing the intervals between appointments for patients with payers that are less profitable. For example, some practices may only allocate a few appointments a week for patients from less-profitable plans. However, prior to implementing a new scheduling policy, it is important to review your managed care contracts to make sure the practice is in compliance.
Finding ways to network with other physicians who might refer patients from the more desirable plans is another important strategy.
It is possible for a practice to change its payer mix. And, the appropriate payer mix can have a positive impact on profitability. However, changes do require analysis and thoughtful consideration.
Karen S. Schechter amednews correspondent