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Why a 99% Collection Rate is More Important to Independent Physician Practices compared to Hospital-Owned Medical Practices

Why a 99% Collection Rate is More Important to Independent Physician Practices compared to Hospital-Owned Medical Practices

The revenue cycle (more commonly known as medical billing) is a complicated and important aspect of any Medical practice.   Patients rely on Health Insurance to pay for some of the cost of Health care.   Although most patients have health insurance few understand the details of their policy.   Health insurance plans have a range of coverages and types of plans ranging from a High Deductible plan where the patient is responsible for payment of services to a certain amount (e.g. $5,000) prior to the insurance paying to a managed Medicaid plan where very little is paid by the patient.   Some insurance plans cover all well visits or physicals but the sick visits are paid by the patient until the deductible is met.   Payment to a medical practice is from three components:  the patient co-pay (should be paid at time of Service), the amount paid by the insurance company (need to file an insurance claim) and the patient responsibility amount (usually not known until the insurance claim is filed).  With the increases in deductibles over the last few years, there is increase burden on the Medical Billing staff to have a solid and consistent process for following up with Patients.

Hospital Owned Physician Practices leverage the collective power of the hospital network size to receive higher reimbursements per claim.  Here is what is happening across the country over the last 7 years, a large Hospital buys an independent practice and integrates the practice into their network.   Because the Hospital System has a higher contract rate with insurance companies, the cost for visits to the doctor increased from when the practice was an independent practice.   Let’s look at an example, if an independent Medical Practice brings in $1M per year and then is sold to a Hospital System that receives 20% more on the payments for services, the Hospital receives $1.2M per year from this practice (or about $200k per year for the same patient visits).   If the Hospital Medical billing operations only collect at 95% of the contract amount, the Hospital still makes more than the previous practices and receives about $150K more in Revenue than the previous Independent Medical Practice.

Independent Medical Practices focus on treating patients as individuals versus practicing “Protocol- Based” Medicine

Many independent Medical practices align around a model of treating to the national standards but not going so far as to use ‘protocol medicine’ in 100% of the patients.  These practices invest extra time with their patients to understand what aspects of ‘protocol’ medicine apply and make appropriate adjustments.  Many Hospital owned practices have strong management  controls to move all providers to a strong ‘protocol medicine’ approach.  While practicing protocol medicine on every patients is good for meeting data goals related to metrics, protocol medicine might not be the best approach for many patient visits depending on the mix of patients and their conditions.

The Hospital System might be operate one or some of their practices at a loss so the practices can ‘feed’ other areas of the Health system that operate at a profit.   The COO of a large Integrated Delivery Network takes a strategic look of profitability across the entire Hospital System Network versus one aspect.  If the practices are not profitable but the overall system is profitable, the COO has the ability to manage the loss throughout the network.  Independent practices need to stay profitable to provide salaries to staff and providers as well as stay in business for the long-term.

In summary, optimize the collection rate to the contract amount is more important today to independent medical practices than 7 years ago.   There are many revenue cycle management companies that can provide a “Medical Billing Service” but only a few that consistently achieve a 99% collection rate to the contract amount.