The Executive Suite: Managing your payer mix to improve your medical practice's bottom line

Thursday, August 8, 2019

Managing your payer mix to improve your medical practice's bottom line

Your bottom line is a function of the money you receive and the money you spend. This article is the first of a two-part series that focuses on one facet of how your payer mix impacts your revenue. Before we discuss the importance of payer mix, let’s review some revenue math.

A dollar charged is not a dollar earned because the dollar just doesn’t go that far in a medical practice. You get the sum of the co-pay, the deductible and what the patient’s insurance pays, but that rarely equals the amount you charged. That’s part of revenue math, where the focus is on how much of that billed amount you actually receive.

A day in the life

Here are four examples of a day in which a physician sees 25 established patients in the clinic. The same CPT code, 99213, is used on all patients. The only difference is the payer mix.

Patient insurance	Monday patients	Tuesday patients	Wednesday patients	Thursday patients	99213 Reimbursement
Payer V	14	6	7	7	$75
Payer W	6	14	5	5	$55
Payer X	3	3	8	2	$95
Payer Y	1	1	3	3	$90
Payer Z	1	1	2	8	$80
Total	25	25	25	25	$79 Avg.

In each example, the same number of patients are seen. The total charges are the same. The same resources are used. The time spent is similar. These four days differ only in payer mix, and consequently so does revenue.

Pataient Insurance	Monday patients	Tuesday patients	Wednesday patients	Thursday patients	99213 Reimbursement
Payer V	$1,050	$450	$525	$525	$75
Payer W	$330	$770	$275	$275	$55
Payer X	$285	$285	$760	$190	$95
Payer Y	$90	$90	$270	$270	$90
Payer Z	$80	$80	$160	$640	$80
Daily Revenue	$1,835	$1,675	$1,990	$1,900	$79 Avg.

The only difference between Monday and Tuesday is the number of patients seen who have either Payer V or Payer W insurance. The physician has a higher number of patients with Payer V, which pays better than Payer W, on Monday, meaning the physician earns $160 (9.6 percent) more than on Tuesday.

Similarly, Wednesday and Thursday differ only in the number of patients seen who have either Payer X or Z. Wednesday includes more patients with the better-paying Payer X and thus produces more revenue $90 (4.7 percent) than Thursday.

Here’s another layer of complexity. Both Wednesday and Thursday generated more revenue than Monday or Tuesday because Payers X and Z reimburse better than either Payer V or W.

Let’s look at the impact over the course of a year (254 weekdays).

	254 Mondays	254 Tuesdays	254 Wednesdays	254 Thursdays
Annual Revenue	$466,090	$425,450	$505,460	$482,060

A physician working 254 Wednesdays will generate $80,010 (18.9 percent) more than a peer working 254 Tuesdays for the same amount of effort. In other words, payer mix matters. A lot.

Understanding payer mix

Payer mix is a function of how many patients you have for each payer and how much each payer reimburses at a CPT code level. A good first step to understanding payer mix is to look at your active patient panel size by payer. I like looking at both the total number of patients and the total number of visits for the past two years. Keep in mind that there may be several plans with different fee schedules under each payer, so do your counts at the plan level.

It’s also a good idea to compare how much each plan reimburses for each of your 20 most billed CPT codes. Knowing what different payers reimburse pay for the same service is a critical step to understanding payer mix.

Negotiating better fees is one option for improving your payer mix. Your leverage increases if you have a busy practice. Using the above example, you can give Payer W an option: “Increase our reimbursement, or we will limit our panel size.” If Payer W won’t give an across-the-board increase, ask for greater reimbursement for your most used CPT codes and/or those where Payer W is below market rate.

Another tactic is to recruit patients who have better-paying insurance, either by targeting zip codes where Payer X patients congregate or employers who offer Payer X to their employees. I have found that asking patients to refer friends and family members remains effective in our social media world.

Knowing — and managing — your payer mix is critical and has a significant impact on your bottom line. Part two of this series will address how you can use your appointment schedule to adjust your payer mix.