One Insurance Plan Was Filling Our Client’s Schedule. It Was Also Hurting the Practice.
By ProfitWise - A Visa Business Plans company
One of our medical-practice clients came into a monthly meeting frustrated with an insurance plan she accepted.
A significant portion of her patients were covered by this insurer, so it accounted for a meaningful part of the practice’s appointment volume. The problem was that reimbursement had not kept pace with the cost of providing care, and she was beginning to question whether continuing to accept the plan made financial sense.
She was seriously considering dropping it, but the decision wasn’t easy. If she stopped accepting the insurance, how many of those patients would leave? And if they did, would she be able to replace those appointments, or would she end up with a less profitable practice because fewer patients were coming through the door?
Because we handle the practice’s specialized bookkeeping, we already had the financial history needed to start answering those questions.
A Full Schedule Doesn’t Mean Every Appointment Contributes Equally
Every appointment requires practice resources. There is staff time involved in scheduling and checking in the patient, clinical staff may assist with the visit, and of course the physician’s time has to be considered. All of that takes place within a business that also has payroll, rent, technology, insurance, supplies, and many other expenses to cover.
What the practice ultimately collects for that appointment, however, can vary considerably depending on the payer.
We wanted to understand how this particular insurance plan compared with the rest of the practice’s payer mix, including how many visits were associated with it, what the practice was actually collecting from those visits, and how those collections compared with other insurers and self-pay patients.
Looking at the numbers this way gave the physician a much clearer picture of how much those appointments were actually contributing to the practice.
Dropping the Plan Wasn’t Automatically the Answer
Lower reimbursement alone wasn’t enough to conclude that the practice should stop accepting the insurance. Those patients were still generating revenue, and losing a meaningful portion of them could leave openings in a schedule that had previously been full.
What happened to those appointments afterward would have a significant effect on whether leaving the plan ultimately helped or hurt the practice.
If demand was strong enough to gradually fill those openings with patients covered by better-paying plans, the practice could potentially improve its financial performance even with fewer visits initially. If those appointments remained empty for an extended period, the revenue loss could outweigh the benefit of eliminating lower reimbursements.
We needed to understand that risk before our client made the change.
We Looked at Several Possible Scenarios
Leaving an insurance network didn’t have to be evaluated as a single all-or-nothing scenario.
We could estimate what might happen if a large percentage of those patients left and compare it with a situation in which only some of them did. We could also look at what might happen if the practice stopped accepting new patients from the plan while continuing to treat existing ones, or if the physician left the network completely and gradually replaced those appointments with patients from other payers.
Using the practice’s actual financial information, we could estimate how different levels of patient loss and replacement would affect revenue and cash flow over the following months.
That gave our client a practical way to think about the decision. If she left the plan, she could see approximately how many appointments would need to be replaced, at what reimbursement levels, and over what period of time for the change to work financially.
We Also Needed to Understand the Practice’s Capacity
The amount of unused capacity in the practice could completely change the analysis.
If there were already open appointments every week, voluntarily losing a group of patients could make those gaps even larger. A practice in that position might have difficulty replacing the lost revenue quickly enough to justify leaving the plan.
Our client’s situation would look very different if she were consistently booked and regularly turning away patients because there simply wasn’t room on the schedule. In that case, lower-paying appointments were occupying capacity that could potentially be filled by patients with better reimbursement.
Of course, decisions about patient care and longstanding patient relationships involve considerations that go well beyond financial performance. Our role was to help the physician understand the business side of the decision so she could weigh it alongside everything else that mattered to her.
The Bookkeeping Gave Us the History We Needed to Look Ahead
Because we work with the practice’s books every month, we already had a clear picture of revenue, payroll, operating expenses and collections over time. During our monthly meetings, we could review those numbers with the physician and connect them with what she was experiencing inside the practice.
When the question about leaving the insurance network came up, we could use that financial history to build out the different scenarios through our Fractional CFO work. We could estimate the effect of losing part of the patient base, determine how quickly appointments might need to be replaced and evaluate how much of a transition period the practice could comfortably absorb.
Instead of making the decision based primarily on frustration with the insurer or fear of losing patients, our client could see the financial implications of the different options and consider them alongside the operational and patient-care issues that were equally important to her.
The Number of Patients Was Only Part of the Picture
Our client initially saw the situation as a difficult tradeoff. She could continue accepting reimbursement she felt was too low, or she could leave the plan and risk losing a significant number of patients.
Once we worked through the numbers, there was much more to consider. We knew how dependent the practice was on that payer, what it was actually collecting from those visits and how much of the schedule those patients occupied. We could also evaluate whether there was enough demand from other patients to realistically replace some of that volume over time.
With that information, the physician could decide whether staying with the plan, leaving it or making a more gradual change made the most sense for her practice.
For a medical-practice owner, a full schedule is certainly important, but the number of appointments only tells part of the story. Understanding what the practice actually collects from those appointments, what it costs to provide the care and what other demand exists for that capacity gives the owner a much clearer picture of how the business is performing.
