On the first day, the physician earns $170 more, an 11.2% increase, because there are fewer Medicaid/Medicare patients and more patients with commercial insurance and self-pay, which provide better reimbursement. In contrast, a higher proportion of Medicaid/Medicare patients on the second day results in lower total revenue.
Over the course of a year, if the physician worked the same number of days (240 weekdays) with different payer mixes, a day with a more favorable mix could generate $405,600 in annual revenue, while a day with a lower-paying mix could generate $364,800. This means the physician could earn $40,800 more annually simply by having an optimized payer mix.
Why is the Payer Mix Important in Healthcare?
Financial management decisions
Use your payer mix to help make various financial management decisions, including forecasting future needs, monitoring the stability of your patient base, and offering insight into cost management. This may also help you with decision-making, risk management, regulatory compliance, staying informed for contract negotiations, and payer relationships. For example, if you know a large number of your patients pay with a specific private pay insurer, you certainly want to maintain a contract there, and you may want to negotiate better terms over time.
Patient demographics
If your practice has a large number of seniors using Medicare, you may wish to align some of the services you offer to those covered under Medicare itself rather than focusing on new services primarily for a young generation. A well-defined payer strategy ensures that a healthcare organization can sustain itself financially while delivering high-quality patient care.
Allocating marketing spend and resources
In many situations, a self-pay patient will pay you more out of pocket than what you would receive from government programs. Many times, government programs do not pay enough to fully cover the actual cost of treating patients.
Without knowing your payer mix, you could have too many patients who are not paying enough to cover your costs, which is a surefire way to revenue failure.
Maximizing Payer Mix in Healthcare
To keep your practice financially strong, staying competitive is a must. Evolving circumstances in society, such as the health of the economy, often play a significant role in payer mix changes. Practices can fine-tune their costs to attract the groups they need and want for a balanced payer mix.
Work on being an industry leader
Having a strong reputation helps attract a higher patient volume. This could include self-paying patients who do not have to restrict themselves to in-network providers, or employers who direct their employees to reputable providers in their community.
Look at the whole picture
Before you adjust any of your strategies, know what changes are necessary based on your geographic area, overhead costs, and how your patients find you. Stay informed on payer policy changes and patient insurance eligibility verification to ensure patients are enrolled in insurance plans that align with your payer mix strategy.
Improve patient collection activities
Collecting payments at the time of service reduces the risk of relying directly on payers, which can improve your payer mix over time. Consider payment plan options and tech solutions that allow patients to pay you upfront.
Reduce the number of underpayments
Improve strategies to receive full compensation by ensuring you are identifying all of your underpayments and recovering them. There are many key strategies to improve this metric such as verifying insurance information early on in the revenue cycle and/or implementing a clear billing policy for patients.
Improve denial and appeal management
If this is an area that is costing your organization money, then conducting a denial analysis allows you to have a better idea of how well your organization is optimizing claims and reduces any revenue loss from improperly denied claims. Start by keeping tabs on all billing and coding accuracy.
Monitor your performance over time
Establish key performance indicators (KPIs) related to your payer mix. This may include days in accounts receivable and collection rates.
Stay on top of and regularly negotiate contract terms
This can help improve reimbursement rates and achieve more favorable terms. Recognize that staying in-network for all providers is not always beneficial. If you are not earning enough in-network, it simply will not provide you with financial peace of mind. When you accept out-of-network, you can negotiate the fee for services directly with the patient or offer more flexible payment options. This is one area you’ll want to look at more closely based on your individual practice.
Most importantly, organizations need to monitor and then adjust their strategies gradually. When you consider the payer mix in healthcare, know that this is a number that could change often. Staying ahead of it allows you more control over how much fluctuation occurs.
