Physicians, practices, and other health care providers seem to face a continual decline in reimbursements. According to an AMA analysis, inflation-adjusted Medicare reimbursement rates for physicians dropped 22 percent from 2001 to 2021, and insurers of Affordable Care Act plans denied 17 percent of in-network claims in 2021.
The gut reaction is often to increase growth, but that brings on problems of its own, like reduced profitability from increased overhead and lowering the collection ratio. Here are four tips to combat declining reimbursements.
Reduce overhead through efficiency improvement. Efficiency improvement is a lifelong, critical strategy for every practice because it results in improved quality of patient care and higher profit. Overhead reduction is the ideal strategy for larger groups, but nearly every practice carries at least 10 percent excess overhead—some carry more than 40 percent excess overhead. For most busy practices, the opportunity to increase profit is greater through cost-cutting efficiency improvements than by increasing patient volume.
Improve your collection ratio. The percentage collection ratio, which is the net collections divided by the net billings times 100, often presents a problem for growing practices. Your target should be greater than a 95 percent collection ratio. One reason for a declining ratio is that each new patient can generate more data transactions that increase the probability that data will be omitted or fall through the cracks and end up in non-collection, underpayment, or denial when the bill is submitted to a payer. Practices experiencing this tend to hire more people. However, adding personnel to an inefficient reimbursement process cannot help the problems associated with capturing data at the point of service or moving that data through the patient care process. Improving the collection ratio presents an opportunity for many practices.
Improve productivity. Like efficiency improvement, this strategy focuses on using time effectively. The past luxury of low patient volumes and large profit margins is gone, replaced by large volumes of patients and razor-thin profit margins. Efficiency gains can increase productivity by eliminating wasted tasks and reducing doctor interruptions. Productivity can also be enhanced by increasing the number of treatment rooms, the type and location of equipment, or staffing ratios. Large practices can easily find an additional treatment room by consolidating two or three physicians into one private office. Time spent analyzing these areas may be more beneficial than treating additional discounted patients.
Merge with a nearby practice. Practice mergers are not easy, but the potential cost savings are sufficiently high to be worth the effort. A well-planned, efficient merger of two equal-sized practices can add at least 30 percent to the bottom line for both practices. An efficient merger will also reduce rent and staff size by at least 40 percent. Mergers require careful planning of the new business infrastructure. Otherwise, potential savings can evaporate as group decision-making begins to add unnecessary costs.
Bottom line: Today’s health care environment leaves little we can do about changing the reimbursements we receive from payers. However, we can significantly improve our practices’ efficiency and productivity. I think these suggestions are a place to start. If you try one or two, you will observe a positive impact on your bottom line.
Neil Baum is a urologist.
