Can Your Medical Practice Afford To Drop An Insurance Carrier?

I worked with a practice that was in a similar situation. The partners wanted to drop an insurance plan, but they had questions they wanted to answer before pulling the trigger, so to speak.

For example, one of the questions was how many patients would they potentially lose and how significant would be the financial impact if they dropped the insurance plan?

Screen Shot 2016-01-05 at 11.09.13 AMI received a letter from the University of Chicago Medical Center explaining that effective Jan 2016; they will no longer accept BCBS.

The announcement took me by surprise. Not because the hospital was dropping an insurance plan- but because they were dropping a major plan, BCBS.

BCBS has a significant market share in Chicago; which translates to a lot of patients having BCBS as their insurance carrier.

I can only imagine why the hospital decided to drop BCBS, but I think I can say with a fair amount of certainty that the decision must have been difficult for stakeholders of the hospital. Undoubtedly dropping such a large plan would affect a lot of patients, but also, shake up the hospital’s income.


I worked with a practice that was in a similar situation. The partners wanted to drop an insurance plan, but they had questions they wanted to answer before pulling the trigger, so to speak.

For example, one of the questions was how many patients would they potentially lose and how significant would be the financial impact if they dropped the insurance plan?


To help them answer their questions, I worked with the practice manager to create a simple spreadsheet that I call an insurance distribution sheet. Below is a version of the spreadsheet already completed.

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To build the spreadsheet, we needed 3-data sets from the practice’s practice management system. Those three data sets were:

  1. Number of Patient Seen by Insurance Plan
  2. Gross Charges by Insurance Plan
  3. Net Receivables by Insurance Plan

The practice management system we were working with did not provide these data sets in one clean report. We had to run individual reports and enter the values into the spreadsheet.

Once the data was aggregated, we added a simple formula to translate the results into percentages. And the results is what the example above shows.

For those that are unfamiliar with Excel, click HERE to see a brief overview of how to calculate the percent of the total.


The first column is the insurance company patients had at the time of service. Percent of patients represents the ratio between all the patients seen, versus the patients seen with the corresponding insurance company. For example, let’s say the practice saw 1000 patients and of those, 300 had BCBS.

300 / 1000 = .3*

(*) BCBS represented 30% of the patients seen

Like percent of patients, percent of charges is the ratio of the practices gross charges divided by the gross charges corresponding to each insurance company. Example. Let’s say the practice billed $1,000,000. Of that million, BCBS represented $250,000.

250,000 / 1,000,000 = .25*

(*) Percent of charges for BCBS is 25%

The percent of receivables column follows the same math as percent of patient as well as percent of charges. And the cents/$ column calculates how many cents on the dollar the practice is collecting from the payor.


Let’s look at BCBS and read across from left to right.

We see BCBS has 40% in the percent of patient column. Meaning, of all the patients seen, 40% had BCBS as their primary insurance. The next column is percent of charges. We see the BCBS represented 45%. This indicates that 45% of gross charges for the practice was billed to BCBS.

Percent of receivables is the next column over. It indicates that the revenue from BCBS accounted for 50% of the practice’s total income. And the revenue averaged 73 cents on the dollar. Another way to read it is, for every $1 billed to BCBS, the practice received 73 cents.

In contrast, let’s look at UHC. Only 8% of all the patients the practice saw for the period were UHC patients. UHC represented 9% of the practice’s revenue, and they averaged 60 cents on the dollar.


With an analysis like this, the practice can begin to find concrete answers to their pressing questions. For example, if UHC was the plan they were planning to drop, the sheet is able to show them what the impact would be from both a patient standpoint and financial standpoint.

UHC represents 10% of their patient panel. Which would have to leave the practice if they drop the plan, taking with them 9% of the practice’s revenue.

If the plan in question is BCBS, the numbers tell a different story. Fifty percent of the practice’s revenue would walk away with 40% of their patient panel.

Another observation is that Medicaid accounted for 37% of patients seen; but the State’s insurance plan accounted for 24% of the practice’s revenue. Something worth pondering.


For the sake of argument, let’s say UHC is the plan the practice was considering dropping. Doing so they would lose 9% of their revenue. This is not insignificant. If practice revenue is 1-million dollars, 9% represents $90,000. If practice revenue is 5-million, 9% is near $500,000. It’s less money no matter how you look at it.


When the doctors I was working with realized how much they’d lose, they got cold feet.

Here is what I explained to them…. the practice doesn’t have to see the same amount of patients to recuperate the 9% revenue shortfall. In fact, the practice can see fewer patients and still make up the revenue shortfall. How so?

Because of the cents on the dollar.

BCBS pays .73cents for every dollar billed. That’s 13cents more than UHC. By filling the schedule with better paying plans, like BCBS, Aetna or HFN, the practice will recuperate the 9% revenue loss faster because they are making more per patient than they would treating a UHC customer.


Admittedly this graph does not give you a comprehensive picture. There are potentially other variables that a practice may consider. However, in the case of the practice that I worked with, this analysis was all they needed to answer their questions and move forward.

One last thing before you move one… don’t focus on the numbers you see on the graph and use them to compare with your practice numbers. Focus instead on the method, the process and the math with your numbers. Deal?

The practice reached out to the payer to negotiate better rates. Armed with the data, they felt empowered (not at the mercy of the payor) and firmly request payment increases. The payer agreed. And they signed a contract that was competitive.


Want To Be An Awesome Practice Manager? Learn How To Calculate This Key Performance Indicator

Revenue per encounter is an excellent barometer of your practice’s financial health. There are many things that influence the revenue per encounter and consequently allow you to see the impact of things such as:

  • Are your claims being processed timely?
  • Are your claims being paid properly?
  • Are you being paid fairly?
  • Is your payor mix excellent, fair or poor?
  • Are you following proper CPT coding guidelines?

To determine your practice’s revenue per encounter, you’ll need 2 sets of data. The first is the number for patient visits during the previous 12-months. The second set of data you’ll need is the practice’s total revenue over the same time period. With these two data sets, you can calculate how much revenue your practice generates per visit.

The formula is simple:

Revenue / Encounter = Revenue Per Encounter

If you want to get a bit sophisticated, you can break down the revenue and number of encounters by month. I recommend you go the extra mile on this one. You’ll see why in a bit.

What’s Next? Screen Shot 2015-01-09 at 6.50.29 PM

Once you have the two data sets, you want to set up a simple spreadsheet that looks similar to the image on the right.

You will notice that the Excel sheet mock-up shows monthly variation in the revenue per encounter.

There are multiple explanation for the variance, but generally, it can be explained by the ratio difference between the practice’s sick and well visits.

During the winter months, the practice sees more sick visits and less check-ups while the summer months brings well visit encounters with higher per visit revenue due to vaccines and ancillary services.

Flu season influences revenue per encounter as well. A busy or mild flu season will have an obvious impact on patient encounters.

Want to go a step further? Do the same break-down by provider, by month.

With this simple exercise, the practice is able to estimate the number of encounters and revenue on a monthly basis for the coming year. Moreover, the practice is able to predict its revenue stream in an effective manner and plan for cash outlay such as when the vaccine bills are due.


Thanks to the Pediatric Management Institute for providing the majority of the content for this post. 


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What Does Taking Patient Vital Signs Have To Do With A Medial Practice’s Financial Health?

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I don’t know about you, but when I first started managing our practice, it took me a while to understand what part of the business I needed to measure. In other words, what were the best performance indicators I needed to keep tabs on to ensure the practice was doing well. Of course things like cash flow and account receivables were obvious to me due to by background.  But it was apparent that the medical business world is different than, let’s say, a law firm or an accounting firm.

In some respects, there are overlapping metrics, but in the private practice business world, there are other KPIs (that is what the cool kids call it) that are crucial to measure.

If you are in the same boat I was a few years ago, then this post is going to help you out.

But first, in order to get into the right frame of mind, think of KPIs or Key Performance Indicators as patient vitals. Just like recording body temperature, pulse rate (or heart rate), blood pressure and respiratory rate among other things are an important part of what clinical staff do to assess a patient’s well-being, good practice managers also check their practice’s “vitals” in order to determine the practice’s financial wellbeing.

Our friends at Pediatric Management Institute were kind enough to let me re-post an article they published that highlights Four key performance indicators. As if that wasn’t helpful enough, PMI also took the time to write a brief description for each metric as well as illustrate how to calculate the metric.


Accounts Receivable Turnover

ART shows your practice’s collections for a given period compared to your total accounts receivable balance.

Why Is This Important?
This KPI is important because it is a barometer of how well you are bringing in the money owed to you. In the example below, you can see that every 1.52 months, you are essentially collecting or adjusting all the money owed for services rendered. In a perfect world, the A/R will turn rapidly. During times of increasing charges such as flu season, this amount will be much different than during the spring. That is why comparing the month of January to the month of May is very misleading. Practices should compare same months when running this analysis.

Provider or Practice AR / Provider or Practice Average Monthly Collections

Show the Math:
$87,500 / $57,500 = 1.52

Clean Claim Rate

This shows the number of “clean” claims submitted compared to all claims filed with managed care plans.

Why Is This Important?
A “dirty” claim is a claim that will have payment delays. More billing systems attempt to catch claims that may be missing important pieces of information before sending to the managed care company for payment. These “dirty” claims should be routed back to the person responsible for the claim not being clean so that they can learn why their actions could have caused a delay in payment. This feedback is a learning process to ensure that your staff and providers seize the opportunity to avoid similar mistakes going forward.

Clean Claims / Total Claims Submitted

Show the Math:
950 / 1,000 = 95%

Cost per Encounter

CpE shows your practice cost per encounter.

Why Is This Important?
This KPI is important because it helps you ascertain the cost to provide care for each patient you see. This becomes a valuable statistic when you are negotiating with managed care companies so you know what it cost you to provide care to a child- especially in capitated contracts!

Total Operating Expense / Office Encounters

Show the Math:
$450,000 / 5,000 = $90.00

Net Collection Ratio

NCR shows total collections as it relates to expected contracted reimbursement rates from payors.

Why Is This Important?
While a practice may charge $300 for a series of CPT codes, the managed care company may have a contract to pay you $210 when you add up the combined allowables for the billed CPT codes. As such, many practices use the Net Collection Ratio to examine the amount of payments compared to the negotiated rates.

Total Payments / (Total Charges – Contractual Adjustments)

Show the Math:
$800,000 / ($900,000 – $75,000) = 96.97%

Keep in mind that these are not ALL the KPIs a practice should monitor. There are actually quite a few more. Don’t worry. I knew you’d ask yourself, what are the other KPIs Brandon? 

Head on over to the Pediatric Management Institute for 15 Key Performance Indicators.

#8 Key Metrics We Should Use to Gauge the Financial Health of Our Medical Practice, Part II [Practice Management VideoCast]

Chip and I continue our discussion on key reports we ought to be looking at when assessing the financial health of our practices.

In this AwesomeCast, Chip and I talk about E/M distribution, specifically the 9921x and how looking at these CPT codes and comparing with each other can provide a lot of insight into the clinic’s billing practices, among other things.

We also talk about Sick to Wellness ratio. Chip walks us through his process on determining the sick to wellness ratio and what are the sort of things this report tells him about a practice.

As always, we’ve made the AwesomeCast available in various formats. Check out the links below and find the one that best suits you.

1. Google+ Community

2. Pediatric Practice Management Mediacast PodCast

3. iTunes

And of course, YouTube:

Sharing The Practice Management Love Part 3: Reporting

I challenge you to look at data in a different way. You would be amaze of what you’d learn.

If you are following my series of post that discuss things our practice is doing to remain viable, thank you for coming back. If you’ve stumbled on to my blog for the first time, welcome. This post is the third of a series of blog post where I discuss some of the things our private pediatric practice is doing to remain a viable business.  You can check back to read the other two post.

Today, I’d like to talk a little about how our office sometimes uses reporting to understand our business, but also find ways to improve it.

Analyzing Data

I cannot improve what I do not measure. With that in mind, I run reports and dissect our practice’s data. I love to run reports, create charts, and study them. How does this help me? Glad you asked. Reports help me understand, thus manage the business better.

But I’m not just talking about looking at the practice’s gross numbers, net billing numbers, net collection ratios and things like that. We know those are important. I’m talking about measuring, graphing, studying data one normally may not measure.

I was talking to a dentist friend of mine and I asked him how his practice was doing. He told me, “last month was pretty busy, but this month has been real slow.” I asked him if he had compared last year’s patient count with this year’s count to see if a similar dip had occurred. He responded by saying he didn’t keep count.

Patient Counts

I then started to explain the value of looking at monthly patient counts. I’ve done this from day one. Analyzing monthly patient counts enables me to establish seasonal demand and trends. As a result, I know how high my highs can be and high low my lows can be. Moreover, I know when each is more likely to occur, which enables me to prepare for those ups and downs.

reportinggraphHow do I use the data?

Guess when I allow my staff to go on vacation? When patient appointments are expected to drop. Guess which month I’m going to be scheduling the 5-year old school physicals I talked about the other day? During those months our appointments generally tend to be low.

Another practical example of understanding appointment demand can be to hire seasonal help. Retail stores, UPS and the Post Office do this all the time. Hiring seasonal may help with cash flow as well. No need to hire someone full-time if you really only need them for a short period of time.


We also track newborn counts. Tracking newborn counts helps me manage vaccines inventory and utilization. With the count, I’m able to plug these newborn numbers in my vaccine analysis and get a better picture of my vaccine utilization, forecasting or determining potential revenue.

For example, GlaxoSmithKline’s vaccine rebate program is based on tiers. In other words, the price of Pediarix (and others vac’s) depends on how many doses I buy within a certain period. Just like any other sales driven organization, GSK want to sell us more of their products and they often entice us by suggesting to buy more doses in order to qualify for the next tier, which gets me a better price on the vaccines.

But knowing exactly how many newborns we see helps me decide whether or not I ought to buy more of a certain vaccine. I can appreciate the discount, but I surely don’t want to buy 200 extra doses of something and then have the product sit in our refrigerator for several months. Not to mention having thousands of dollars tied up in a refrigerator doesn’t always help with cash flow. Now, if cash flow isn’t a problem and the discount is considerable, then I might go ahead. But I know I’ll have extra inventory for some time.

These are just a few examples, but I am sure you can come up with many more.  The challenge for me is to get myself out of a comfortable zone and find ways to improve the business. Reporting is one of the easiest way I’ve found to accomplish this.

I challenge you to look at data in a different way. You’d be amaze of what you’d learn.