Reimbursements for anesthesia services from insurance companies, Medicare, and private sources are on the decline. This means anesthesiologists across the country have to work smarter to ensure their receivables will cover the costs needed to keep their practices running. Knowing how payor mix works and how it contributes to positive cash flow within your practice will help you negotiate favorable contracts with your payors and facilities to maximize revenue.

Understanding Payor Mix

Payor Mix and Cash Flow in a Nutshell

In terms of cash flow, a payor mix serves two purposes:

1. It helps you estimate how much revenue your practice can expect from private insurance companies versus government programs versus self-paying patients.
2. It allows you to estimate when you will receive payment.

Practices need this information to predict cash flow. They need to be ready to offset the reduced payments coming from government programs like Medicare and Medi-Cal with the revenue coming in from higher-paying private insurance providers. Ultimately, understanding your payor mix breakdown provides you with the information you need for negotiating favorable hospital contracts.

When the payor mix is skewed in one direction or shifts suddenly, anesthesiologists often see a decrease in revenue. This can cause a strain on practice operations as government reimbursements seldom cover the actual cost of patient treatment but following insurance trends can help anesthesiologists predict when payor mix might shift. With these insights, anesthesiologists can combat lower reimbursements with updated hospital contracts.

With an understanding of public vs private payor mix, you can negotiate rates that are favorable for your practice.

Public and Private Sector Trends

According to the United States Census, over 91% of Americans had health insurance in 2016. Within that insured group, 67.5% of Americans were covered by private health insurance policies and 37.3% received their coverage from government sources.

Given these numbers, it appears that there is more competition to earn revenue from higher-paying private insurance companies instead of government reimbursements. However, new financial reports have revealed that this trend may reverse. As coverage in the public sector explodes over the next decade, more hospitals will be competing for public contracts instead of private – which will impact the reimbursement rates for anesthesia practices.

Even with this shift, anesthesiologists, shouldn’t completely disregard commercial market trends, as unforeseen changes in the private sector can also affect revenue.

For example, the failed Anthem and Cigna and Aetna and Humana mergers from 2015 and 2017 had the potential to significantly change the private payor landscape. If these healthcare companies had merged, millions of private insurance policies would have seeped into the hands of two commercial providers instead of four. While public contracts are typically non-negotiable, every anesthesiologist negotiates with private payors separately. This consolidation would have significantly reduced payor competition, leaving anesthesiologists with less leverage to negotiate prices for their practices.

Anesthesiologists should pay attention to health insurance trends to anticipate payment changes and to negotiate better rates for their practices.

How to Improve Your Payor Mix to Maximize Reimbursements

As mentioned earlier, public and private insurers make payments at different rates and speed. Generally, payor mixes with higher private sector percentages will bring in more money faster than payor mixes that favor government reimbursements.

Anesthesiologists should make sure they understand their payor mix and how it impacts their bottom line. We recommend looking into the following:

1. Insurance contracts: Anesthesiologists should begin by reviewing their contracted rates with specific insurance payors. Create a list of commercial payors from largest to smallest and make sure your contracts are at least matching with current market rates. If they don’t, that could be the first thing impacting your bottom line.
2. Facility contracts: Once you have an understanding of your current payor mix look into your current contracts with facilities. Make sure your schedules are optimized for handling cases. Establish a good relationship with your facility so they can inform you if they are looking to modify their payor mix. Since you can’t specifically choose patients, it’s important that you know what is coming from the facility can be prepared to negotiate a new contract if necessary.
3. Improve collection activities: Make sure your billing company is taking the time to collect complete payments. Many anesthesia billers collect the easy payments and move onto the next claim – leaving your earned revenue on the table. Your billing company should compare every line item on every claim. When payments don’t match contracted amounts, paperwork should be resubmitted, again and again, until the claim is paid in full. This can sometimes slow down the reimbursement process but will ultimately increase practice revenue.

Maximize Reimbursement Payments with Fusion Anesthesia

Not all billing companies take the time and energy required to collect complete payments. In addition to optimizing payor mix, you should take a look at your billing company’s activities. If they aren’t kicking back a large portion of claims, then they likely aren’t collecting maximum revenue for your practice. If you want to know whether your billing company is collecting all your hard-earned revenue sign up for an analysis of your last six months of billing.