Practice financial analysis - part 2 -Decline in Reimbursement Rates

As you know, I have been focusing on a high-level financial analysis of your practice.

Part of this analysis involves looking into your collections and related gross collection percentages. However, collections do not always meet expectations and there are a few possible reasons you should look for:

1. Shift in your payer mix (click here for last week's article)

2. Decline in reimbursement rates

3. Poor follow-up on unpaid insurance receivables (Insurance A/R)

4. Poor front desk collections

5. Poor claim filings

6. Not sending out patient statements

7. Poor patient receivables management (Patient A/R)

8. Possible embezzlement

 

This week I will be focusing on the second reason : Decline in Reimbursement Rates.

 

Many insurance companies are changing the way they pay physicians. This is a very disturbing trend.

Physicians are receiving less for their services than they were before. Many commercial insurance carriers and managed care plans are adopting Medicare’s resource-based relative value scale system as a way to pay their position providers.

Then they select conversion factors that will place the new reimbursement rate structure as a percentage of the current Medicare fee schedule.

In many cases, this switch can cause up to 40% decline in surgical reimbursement rates in that service area. Some payers in some areas of the country are even paying contracted rates less than the Medicare’s rates.

As payers reduce what they pay physicians, you can expect decline in both the practices overall collections and related gross collection percentages over time. According to some reports 65% of physicians see declining reimbursement rates as the top issue negatively affecting practice profitability.


Unfortunately, many doctors who maintain independent practices are forced to change their business model. For example, reimbursement and other cost pressures have forced 26% of physicians to stop accepting Medicaid while 22% have reduced office support staff.

But it does not have to be this way.
 

 

What can / should you do about it?

There are many ways to effectively counter these reductions. While there isn’t much you can do to stop reimbursements cuts, a proactive approach will help you offset the negative effects of declining reimbursement rates.

 

Increase Your Patient Base

When margins decrease, increase volume. Decreased reimbursement means per claim revenue drops. To make up for this, you need to see more patients.

Finding patients to treat shouldn’t be a problem. Number of patients joining the healthcare system has been increasing.

Making use of good tools (healthcare IT systems) coupled with optimized workflow will help you take on the upcoming patient influx without having to add more staff. Find systems and tools that focus on workflow efficiency rather than fancy features.

Consider Outsourcing Medical Billing

Outsourcing billing can make up for declining reimbursement rates by bringing in higher net collections after cost. According to a report from Software Advice, outsourced billing can bring in $1,496,000 after cost for a typical three-physician practice, compared to only $1,241,800 for in-house billing.

The savings of outsourced billing come primarily from a decrease in staff costs plus the ability to bypass purchasing billing and collections software/hardware.

Reduce Claims Denials

You must battle declining reimbursement rates by reducing claims denials as much as possible. On average, denials cost practices $25 to $30 each. There are a couple routes you can choose for reducing claims denials.

Reduce rejections and denials through patient eligibility checks and code reviews. This is the speedier and more effective route to correct claims.

The other is to be meticulous when submitting manual claims. There are plenty of opportunities for your billers to make costly mistakes. It can be something simple like misspelling a patient’s name or something more complex like misusing CPT modifiers.

Maximize Your Tax Deductions

This sounds fundamental and basic. But my CPA says many Physicians don’t pay much attention to Tax-deductible expenses which are identified as almost any purchase that helps with operating a business.

Maximizing deductions can be a balancing act. For example, offering disproportionate benefits to your employees may reduce taxes, but may also be outweighed by the extra costs of benefits. Striking the right balance can mean an increase in revenue for your practice.

In summary

Being proactive about overcoming declining reimbursements is essential for the success of your practice. Remember, inflation didn’t suddenly go down along with reimbursement rates. The problem will only get worse if not confronted right away.