Best Practices: How Do Your Payers Stack Up?

Judy Capko September 12th, 2011

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In general business, there’s an old saw known as the 80/20 rule: i.e., 80% of your business comes from the top 20% of your clients.

For a medical practice, the revenue story is rarely so straightforward – how many practices get 80% of their revenue from 20% of their patients? But, if you look at the 80/20 idea at the payer level, it usually rings true. Practices often maintain dozens of payer relationships while getting most of their revenue from a select group. On the flipside, practices may also find that 80% of their billing hassles are caused by 20% of their payers! Worst of all, sometimes you’ll find a key player is also delivering more than its share of aggravation.

In today’s insurance-oriented medical environment, too many physicians feel powerless against troublesome payer relationships. However, analyzing your practice’s high-maintenance payers can be an important step to greater profitability – and to taking control of your practice’s efficiency and long-term health. For example, you may be able to determine that it’s more profitable to drop a particularly troublesome payer if it accounts for a small portion of revenue. On the other hand, a difficult payer relationship might have room for improvement –a path worth pursuing if the payer in question accounts for a large proportion of your revenue base.

Hassle factors

Some billing hassles are more costly than others – these four are among the most common and most costly to practices:

  • Repeated requests for referral or authorization
  • Consistently slower claims processing than other payers
  • Dissatisfied patients (frequent complaints)
  • Poor support when problems arise

To get a sense of which payers create the most costly trouble, compare your payers by “hassle quotient” in a spreadsheet alongside reimbursement rates for key codes. To determine the hassle quotient, give payers one point for each hassle factor they’re routinely causing.

Here’s a sample:

See how your medical billing payers measure up with this Payer Comparison Worksheet

Note: you can download this Payer Comparison Worksheet spreadsheet for your own use.

If a payer offers high reimbursement for some of your most important codes, it might be worthwhile to endure some hassle – for example, it might be worth waiting an extra week or two for reimbursement if it is significantly higher.

Of course, reimbursement rate alone can’t tell you how important a payer is to your practice – since a high- or low-payer might be associated with just a few patients. For this reason, it’s useful to look at the hassle quotient in comparison with overall volume as well.

Analyzing your highest and lowest volume payers

Identifying your top and bottom payers by volume and then isolating those rows in your hassle quotient spreadsheet allows you to look at a few important measures at one time.

For example, are you regularly comparing your top payers’ reimbursement patterns for your most common codes? If not, before even considering the hassle factor, do a quick comparison. Are there wide disparities? While it can be next to impossible to improve reimbursement rates across the board with any payer, many payers will negotiate with practices on a few key codes – especially if you can point out that a large number of your patients belong to their plan. Earning even a few dollars more on a key code for an important payer can translate to thousands of extra dollars that will go directly to the bottom line. (And, that extra revenue can make up for the costs of extra processing if the payer is less-than-perfect to work with.)

Next, consider your least important payers by volume. Do any have hassle quotients greater than 1? It may be time to drop payers who deliver low volume with a lot of associated effort. Besides eliminating costly hassles, dropping poor performing payers could free up time in your schedule for more patients from the better payers. Of course, before you drop a payer, consider all the repercussions: for example, is the payer associated with a key referral relationship? What are my contractual obligations with respect to termination? How will patients be affected? Etc.

You might also find you’ve got some low payers that offer high reimbursement, hassle-free. These are high profitability payers, and you should look for ways to increase volume from these sources. What local businesses use these carriers? Is your practice properly represented in their materials? Can you target marketing towards these prospective patients?

Finally – consider your high hassle/high income payers. These providers can present a conundrum because you’ll feel you can’t afford to drop them under any circumstances. However, keep in mind that because your volume of business is high, it could be significant to the payer as well. You may be able to improve the situation – for example, by working with patients and their employers. (If many patients are complaining about a carrier, odds are their benefits administrators won’t be happy with this situation, either – and, larger companies may have some clout with their insurers, especially around open enrollment time.) If customer support for your billing team is the issue, you might be able to change assignments to a different payer representative, or obtain the name of a supervisor your billing manager can work with when the same questions arise repeatedly.

Taking responsibility

The key to getting the most from payer relationships is for physicians and practice managers to take responsibility for the practice’s side of the equation. If a relationship is broken, determine whether it’s worth saving from a financial perspective – and, if so, be proactive about working to improve it. While insurance companies do hold many of the cards when it comes to reimbursement, practices are not powerless. However, to tap into their leverage, practices must commit to disciplined data analysis and active negotiation with employers and plan representatives (or, in the worst cases, dropping plans altogether).

Judy Capko writes about how to evaluate your payers and improve your medical practice profitabilityJudy Capko is a healthcare management and marketing consultant, speaker and author or the best-selling book: Secrets of the Best-Run Practices. She is based in Thousand Oaks, CA, and can be contacted at In July, Judy wrote on The Financial Mindset – Improving Operations and Profitability.

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