Episode 15: Who Am I Taking Care of? Why Payer Mix Is Important
So the notion of picking and choosing patients based on their insurance coverage might be met with a little resistance, or maybe even frustration or righteous indignation! Bear with me. I’m guessing you went into medicine to care for ALL patients, regardless of gender, race, ethnicity or any other differentiating factor. Thank you.
It is important to understand that while all patients are created equally, not all insurance payers are created equally. Some pay above your cost, and some pay below it. In Episode 9, we talked about your cost structure per RVU and today, we’ll drill down on that a bit more, so that you can understand clearly how you are being reimbursed and what it means to your practice overall, especially if you are in private practice.
To begin, there are three major types of payers:
- Commercial – this includes Blue Cross, Aetna, Cigna and many regional payers, and this provides coverage for patients whose employers purchase it for them
- Medicare – this provides coverage for our elders in the US – generally age 65 and older, or patients who are disabled
- Medicaid – this provides coverage for our frail and marginalized populations – generally for patients who have family income below the Federal poverty level.
There are a few other minor ones like Workers Comp and Motor Vehicle Accident coverage, which we won’t worry about for today. We’ll cover those as a special case in a future episode.
As we’ve said, Commercial payers like Blue Cross, Aetna and Cigna will pay you somewhere between $45 – 75 per RVU depending on your market and your subspecialty, the size of your group and the sophistication of your contract negotiations.
Medicare is paying $33.06 per RVU for 2023, with some adjustments for geography, and Medicaid generally pays in the $25 – 30 per RVU range.
Now that we know what you’re getting reimbursed, let’s pause for a moment to think about what it costs to render an RVU. You can get there by doing the following calculation: take the total Expenses you used to calculate your Overhead after listening to Episode 9, and divide by the total number of RVU’s you generated in that same time period. That will get you your cost per RVU. For most groups, it will be in the $40 per RVU range. Remember to exclude any amounts paid to your providers in the group – you are simply trying to arrive at what it costs you to render an RVU before you pay yourselves. This will help to inform your contract negotiations as we reviewed in Episode 14. An important note here is to make certain you are using Non-Facility Total RVUs for this calculation, NOT just Work RVU’s. Your practice management system should be able to produce a report to give you those numbers.
So, if you’re running a private practice, and it costs you $40ish to render an RVU, there needs to be a balance with the patients you’re seeing – if you’re losing money on every visit, you can’t make that up in volume.
Now, you might be asking, if every practice limits their number of Medicare and Medicaid patients, where will they get care? An important point here is that there are quite a few hospitals and health systems who operate as not-for-profit entities. This means they get specific tax breaks, which allow them more working capital, and therefore, more bandwidth to take on patients whose payers don’t reimburse above cost.
There is also an entire system of clinics that operate as Federally Qualified Health Centers. They get large federal grants from the Department of Health and Human Services, and their primary focus is to provide care for Medicaid patients, as well as patients who are undocumented, or otherwise marginalized. If you would like to make serving these patients a central focus of your practice, my hat is off to you. And, the best move for your career and your finances is to work in an FQHC. They have specific funding, resources and systems to do a phenomenal job of caring for these patients, and supporting the professionals who do so.
If you’re working in a private practice, the financial reality is that you’ll have to balance your payer mix so that you can afford to take care of a broad spectrum of patients, and pay your staff and yourself and keep the lights on. In effect, you become a mini-insurance company, as you have to assure that you’re getting the right number of patients of each type, in order to balance out the finances.
So, now you’re probably asking how should my practice manage this for optimal financial health, AND still allow us to feel like we’re taking care of our whole community?
First of all is to understand where you’re starting. If your practice manager doesn’t report out your payer mix, ask him or her to do so. If this is a new metric for your group to track, you can check to see if your practice management system has a canned report for it. Many systems do, but if not, you can use your Accounts Receivable reports as a proxy. If you’re doing that, you should look at the percentage allocations between Commercial, Medicare and Medicaid in the 0-30 bucket, as that will be most representative of the mix of patients you’re seeing.
We typically look for our clients’ payer mixes to be greater than 50% Commercially insured patients. If it falls below that, it tends to have a depressive effect on the practice finances and the physicians’ take-home pay. The remaining 50% should be split between Medicare, Medicaid, Self Pay and the others we mentioned at the beginning of the episode. Many practices tend to serve older patients, so their Medicare percentage may be larger, which makes it even more important to manage the Medicaid mix. Again, this is simple economics.
Assuming that your schedules are generally full and that you are scheduling out several days or weeks, you can begin to add some intelligence to how your visits are scheduled to optimize your payer mix. You can utilize the scheduling module of your practice management system to create different appointment types to balance this out, and to assure that your payer mix is healthy. New patient appointments will be allocated based on payer type, and added to the scheduling template accordingly. This way, your team can manage the payer mix easily by offering the next available appointment to a new patient based on his or her appointment type.
We recommend training your front office very carefully and giving them a script so that this workflow is invisible to the patients. As they are gathering information from the new patient, one of the questions as part of the registration process should be what their insurance coverage is. Once they have that information, they can search on the appropriate appointment type. Your system will already be set up with new patient openings in the correct ratio to keep your payer mix in balance.
Some staff members of our clients have expressed displeasure with the notion of treating patients differently based on their insurance coverage – remember the righteous indignation we talked about at the beginning? In those cases, we have paused to explain a bit about the financial realities, and that if we care for only patients whose payers reimburse below the cost, we will eventually not be able to pay them, or keep the lights on. This usually helps them to understand the importance of balancing all of this out.
Once our team understands that we’re serving as many patients as we can in a financially responsible way, they can get behind a new system. If you underscore that they are doing important, meaningful work for all of your patients, that will make a tremendous impact on their professional satisfaction, and yours as well. And the good news is, the finances will all work out too.
Join me for our next episode, where I’ll interview Joe Mull, national speaker and leadership, engagement and retention expert, and author of three books, including his newest, called Employalty.