Financial Analysis: Shift in Payer Mix

By Chandresh Shah

In the next few newsletters, I will be 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

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 first of the possible reasons.

Shift in your payer mix

Health plan penetration can change suddenly, depending on your geographical location and service area. The current state of healthcare in our country along with many unknown variables means health plans can change from commercial insurance to managed care. Within a short period of time of less than a year, your mix of 20% managed care penetration can change to 70% as an example.

Managed care plans usually pay less because the contracted fee tends to be lower than your offices normal fee schedule. Therefore, if managed care percentage of your payer mix arises your gross collection percentage should decline accordingly.

What can happen if you fail to analyze the shift

Many offices do not analyze their financials and therefore fail to identify such a shift in payer mix until it is too late to do anything about it. Not only that, people in your geographical location can change health plans more frequently than ever before which can have a direct financial impact on your practice.

Take action- analyze

If you suspect a shift in payer mix, the first thing you should do is to get a detailed breakdown of the current payer mix. Compare that with last year. Determine what percentage of the revenue is being derived from managed care, commercial insurance, self-paying patients, Medicare, Medicaid, and other insurance programs.

Once you have all this information, find out and determine how you can shift your mix of patients to the type of patients for whom reimbursement is the highest.

How do you do this? You can come up with marketing strategies to target specific payer class. Of course, if your entire geographical area has moved towards managed care you probably don’t have much leeway. In this case you may be stuck with a reduced managed care reimbursement because there may not be other alternatives.

In any case, an analysis of payer mix will certainly let you know if that is the reason for your lower collections, and if there is anything you can possibly do about it.

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