Navigating Insurance Participation for Private Practices: Mitigating Risk and Maximizing Reward

PROJECT SUMMARY

A medical practice is a business.  As such, it relies on more income than outgo to be successful as does any company or organization. Medical practices operate very similarly to any other business.  There are income, expenses, budgets, cost of goods sold, capital expenditures, operating plans, strategic plans, marketing plans, as well as many others.  There is one exception that separates the operation of a medical practice from all other businesses:  medical practices are generally not paid the list price for the goods or services they sell.  According to the 2017 MGMA Data Dive Cost and Revenue report, physician-owned practices collect on average about 53.90% cents on the dollar of their Gross Charge. Gross [patient] charges are the full dollar value, at the practice’s established undiscounted rates, of services provided to all patients, before reduction by charitable adjustments, professional courtesy adjustments, contractual adjustments, employee discounts, bad debts, etc. (MGMA). Of course this will vary by practice and by specialty, but can you imagine working hard at your job and then only receiving about half of your paycheck?  No other industry experiences this type of remuneration.  Medical practice owners, like any other business, want to make a profit.  That is why negotiating insurance contracts is critical to achieving the highest amount of contracted rates possible, so that the most revenue can be achieved.  While a practice should be profitable to remain in business, which involves recognition of expenses, this paper will focus on the income revenue side of the Income Statement.  

A key factor for a private practice to be successful is driven by the contracts it negotiates with insurance companies in order to receive that fraction of a payment off of the billed charge.  The level of management expertise will vary greatly from practice to practice and each practice’s governing rules may impose certain restrictions on how the manager or executive treats an insurance contract.  The practice may have a policy to enter or not to enter into any participation agreement with any insurance company or a practice may accept participation with any and all insurance companies. Both of these approaches can negatively affect the income, profitability, and viability of a medical practice. It is surmised the main reasons that a medical practice may choose one of these two avenues is that, quite frankly, the stakeholders just do not understand contracts, the art of negotiating, or how reimbursement is actually calculated – and how those payments determine profitability and compensation.  It is complicated, time consuming, and frustrating to deal with insurance companies and unfortunately some managers avoid negotiating just to avoid the hassle. 

Doctors did not go to school to become business managers. Some physicians do not do very well at managing and operating the business side of their business.  And yet again, that is exactly what a medical practice is – a business. This paper will offer instruction and guidance for those stakeholders:  consciously navigating insurance participation and purposefully negotiating those insurance contracts.

The purpose of this paper is to provide the owners and managers of the medical practice business with solid tools to help them mitigate the risk associated with participating and not participating with managed care contracts, to explain and simplify wading through the terminology and jargon of contract verbiage – leading to the reward of improved data and improved revenue.