Improve Your Bottom Line

by Susanne Madden [published in Physician’s Practice PEARLS newsletter]

Whenever possible, you should negotiate with your payers for better contract terms and payment rates. However, in this economic climate negotiations are becoming tougher and many payers are refusing negotiation requests outright.

So what can you do? Consider adjusting your payer mix to create optimum value. That means evaluating your payers to determine your participation costs, as well as your reimbursement rates. Once you figure out which payers are good and which are bad, you can put a plan in place to allow you to reduce the percentage of visits for the high-cost, lower-paying plans, and grow your business in low-cost, higher-paying plans instead.

The simplest way to evaluate cost and payment is by doing a quick “litmus test” to look at your effort vs. reward ratio. This requires only six simple steps:

1. Pick a time frame to measure, preferably one at least three months in the past to allow for most claims in that period to have been paid.

2. Total all of the revenues received from all your payers during that period, breaking out the revenue received from each payer.

3. Total the number of procedures (or visits, if you prefer) performed in that period and then break down that number by payer.

4. Divide each payer’s revenue by the total revenue to determine the percentage received for services rendered to that plan’s members in that time period.

5. Divide the number of procedures for each payer by the total number of procedures to calculate the percentage of “effort” rendered to each payer’s members.

6. Compare the percentage of revenues for each payer to its corresponding percentage of effort. The higher the percentage of revenue compared to the percentage of effort, the better. Equal ratios, for example, 14 percent of effort and 14 percent of revenue, mean you are getting out only what you put in, with little margin. Where the revenue ratio is less than the effort ratio, it indicates very poor performance indeed.

Looking at your numbers this way helps to identify problem payers quickly. It is a good way to measure both payment and cost together — that is, slow payers and payers who routinely don’t pay procedures or have a high denial rate will be the ones that stand out in this brief analysis. However, it is only a quick and easy method to begin quantifying your payers and should only be used as such.

To really understand a plan’s performance drivers, you should compare specific rates for specific codes across your payers, as well as analyze participation costs for each individual payer; for example, the amount of time spent following up on claims, the denial rate, the resubmission rate, and so forth.

The next step is to put a plan together that will allow you to minimize the bad and optimize the good. Participating with only those plans that offer reasonable rates and have reasonable costs will ensure that your payer mix is blended for optimal value.