Grow what's good
Reading Time - 3 min
Why you should spend 3 minutes reading this:
Focusing on your best insurances can help increase your bottom line by +5-10%
Not all insurances are created equal.
You will have:
1. Winners / Losers
2. In the Short-term / Long-term
The primary driver of where an insurance lands on this matrix is your variable/fixed cost structure against the payor's revenue by encounter.
The focus of this article is:
1. How to identify your long-term winners
2. How you could approach expanding those partnerships
“Long-term winners” meet the following criteria. These payor's expected reimbursement rate will exceed:
Your variable cost structure + Allocation of fixed costs = Total Cost
By an amount enough to hit or exceed your Net Income Targets
Payor's reimbursement rate:
Payor contract rate = 95% of Medicare allowable
Medicare allowable by ecounter = $90
Reimbursement / encounter = .95*$90 = $85.5 / encounter
Variable cost structure per encounter = $50
Allocation of fixed cost per encounter = $30
Total Cost = $80
Income per encounter = $85.5 - $80 = $5.5 per encounter
If Net Income Target is 5% = ($50+$30)*5% = $4 per encounter would be your Net Income Target.
Thus the contract generating $5.5 Net Income per encounter is a "Long-term Winner", because that is more than my Net Income Target.
Prioritization of contracts is important.
A great definition of strategy is, deciding what not to do. A strategic practice must decide what contracts not to focus on. More on prioritization can be found in the impact/lift matrix.
The general rule of thumb here is to protect your bottom line via those who contribute the most to it. In order to test this, ask the question: what happens to my bottom line if I lose this insurance. If you haven’t, you can read The Cost of Loss to learn more on this.
Once you have a strategic ranking of your contracts, you want to:
1. Expand your current contract via servicing more patients or expanding your current services you can offer them.
2. Keep them happy via: I’m So Good, You Need Me
The best way to naturally expand your long-term winners is to include the expansion topic as part of your annual contract management process.
High-level actions you can take based on this article:
1. Understand which of your contracts are most valuable
2. Ensure those contracts are prioritized in your contract management processes
3. Expand your best contracts
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