Authored by: Steve Hunt
When you’re running a practice, revenue is tied to the number of patients you see and the procedures you perform. Under the traditional fee-for-service payment model, you get a set dollar amount for these services based on the terms of your contract with each payer. Of course, value-based contracting is on the rise, but at this point, the majority of revenue for most practices is still tied to fee-for-service.
There are generally two ways to improve profitability:
- Reduce your costs by becoming more efficient.
- Grow your revenue by increasing the number of patients you see and/or procedures you perform, or by adjusting your patient mix to higher paying contracts.
While you could certainly cut costs, a few other areas have high potential, including evaluating your payer mix, payer contracts, and practice efficiency. I’ll cover my favorite strategies for each to help improve profitability and medical billing processes.
Evaluate Your Payer Mix
Evaluating your payer mix is commonly overlooked when evaluating profit growth strategies, but it’s a important area to consider.
For example, let’s say you conduct a service, bill commercial payer A, and get paid $200. However, you complete the same service, bill payer B, and only get paid $50. You’ll want to take a closer look and ask:
- Has commercial payer B updated its fee schedule?
- Can I contact payer B and ask, “Is there a way for me to get into a better fee schedule?”
If not, you may want to change the payer mix of your practice. If only 5% of your practice revenue comes from payer B, maybe that’s acceptable to you. But if that percentage is much higher, say 50%, you may want to reevaluate.
Making strategic changes in your payer mix can help grow revenue and profit. When evaluating your payer mix and strategies for adjustment be aware that there are government payers (i.e. Medicare and Medicaid) with strict rules around equity of care so you can’t adjust your mix by giving preference (such as better/faster appointment times) to patients based on their insurance provider.
Evaluate Your Existing Payer Contracts
Evaluating existing payer contracts is low-hanging fruit when working to improve profitability. You’ll want to ensure you’re getting paid in accordance with the contracted rates. This might seem like common sense, but I often see practices lose a lot of money because they are being paid less than contracted rates.
A couple of things to consider:
- Medical billing process and outdated contract information. Has a payer recently updated their fee schedule, and are you still billing at older rates?
- Mistakes and oversights. Payer errors can result in your not being able to collect the contracted rate.
You can look for these issues manually, but it’s a time-consuming and challenging task to catch them and recover lost revenue. That’s why using technology often makes sense to ensure you’re collecting everything owed to you.
Efficiently Collecting Patient Responsibility
And speaking of medical billing and collection, I can’t emphasize enough the importance of collecting the patient’s responsibility at the time of the service. You can do this electronically through the use of the right technology when a patient makes an appointment, at check-in, or after the appointment. As a result, you’re no longer waiting 90 days to collect $20, which might seem like a small amount but adds up significantly over hundreds of patients.
Evaluate Your Practice Efficiency
Once you’ve looked at your payer mix, evaluated your contracts, and are efficiently collecting patient responsibility at the time of service, now you’ll want to dive into efficiency. Every dollar you add through efficiency is what I call a “pass-through dollar” because it passes through the top line of revenue down to the bottom line of your profit.
For example, when you pay fixed costs, such as electricity, rent, malpractice insurance, etc., you pay a set amount regardless of how many patients you see. But if you see 105 patients versus 100, that might add $500 in gross revenue. And that revenue goes straight to profit because those fixed costs haven’t changed. Of course, at some point you may have to increase staff and make other investments to accommodate the growth, but if you are increasing the efficiency of your practice operations to allow for a few extra visits or procedures, there is typically a sizeable amount of growth that can happen without adding those costs.
As a starting point, find any services you’re spending a ton of time on and that pay you less than the delivery cost. Then, ask:
- Can we afford to continue offering this service?
- Could a nurse deliver care instead of a physician to make it profitable?
You’ll also want to look for any inefficiencies in processes. For example, if inefficiency with a task costs you five or 10 minutes each time you do it, that doesn’t seem like a lot. But if you multiply that inefficiency by 20 or 30 occurrences a day, you’re losing significant efficiency, which cuts into your profit.
Four Areas to Grow Your Profit
Granted, when you’re spending your time working “in” your practice, it’s hard to spend time working “on” it, but your medical practice is a revenue generator. And spending time on the business is essential if you want to improve profit, grow your practice, and serve more patients.
Often, a helpful tool as you tackle these areas is revenue cycle management solutions. If you need guidance on evaluating the four areas discussed above, reach out. Our experts can help guide you through an evaluation of your:
- Contracts
- Payer mix
- Patient responsibility workflows
- Practice efficiency.