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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


For example:

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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