May 10, 2016

Forecasting for Changes in Payor Mix

By David Murcko, Manager, Assurance Services

Forecasting for Changes in Payor Mix

Planning and forecasting financial budgets for hospitals or physicians practices is difficult in any period but especially in this presidential election year. The election results may dramatically affect the future of the Patient Protection & Affordable Care Act (ACA); however, it is probable that no matter who wins, aspects of ACA will continue as the large covered population will be hesitant to give up their coverage.

Premiums are set to rise for many individuals as actuaries for the big insurance companies assess the impact of lower than projected participation rates and as initial government subsidiaries begin to diminish. These rising premium costs likely will force many individuals and their families to choose the lower cost, lower tiered option, causing an increase in the patient’s responsibility for services provided by hospitals and physician practices.

The increased volume of large deductible health insurance plans is also a major contributor to the potential growth in patients’ responsibility for services provided. Healthcare costs are continually rising, and for many employers, large deductible plans are a popular solution to mitigate these rising employee benefit costs. Individuals are increasingly required to pay a significant amount out of pocket before insurance companies begin to pay a share of services provided.

These two factors combine for a potential shift in payor mix for many hospitals and physician practices, causing an increased percentage in the self-pay pay class in their accounts receivables; this, in turn, will increase the risk of nonpayment. Many hospitals and physicians practices should evaluate their exposure for unfavorable shifts in payor mix and build this exposure into their operational budgets and their forecasts for revenues and cash flows. Hospitals and physicians practices should review their payor mix and ensure any shifts are considered in assessing the collectability of their accounts receivables.

Hospitals and physician practices should also evaluate what can be done to balance their payor mix if their self-pay percentage begins to creep higher. The first step should be to identify what percent of each insurance class comprises their accounts receivable.

Physician practices should take measures to increase the desired payor classes. Practices should update their websites to prominently show the insurances accepted and list the more desirable ones first. They should review the websites of their accepted insurance companies to ensure the practice is listed as “in-network,” and also coordinate with referring physicians to ensure they have a list of insurances the practice accepts. To decrease a particular class, practices may consider not marketing to referring physicians who typically send a less desirable payor class and instead focus on those who refer higher paying patients.  

Hospitals’ ability to control payor mix is more difficult; however, they should market their urgent care partnerships to the public “to push” non-emergency care out of the emergency department, which may reduce self-pay percentages, free up crowded emergency rooms, and aid in overall cost reduction.  Hospitals should also focus on controllable service revenue lines and continue to develop the most profitable revenue service lines.

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