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Hospitals work to fine-tune payer mixes, but finding savings is no easy task

For systems with more traditional payer mix scenarios, increasing the share of commercial business can be a boon.

Jeff Lagasse, Associate Editor

Temple University Hospital (handout photo)Temple University Hospital (handout photo)

Healthcare pros say there are three main factors affecting a hospital or health system's payer mix: location, location and location. Unfortunately, that means it can be very hard to control.

"There's a limited ability to decide who walks into the facility on a given day," said David Dyke, vice president of product management and business development at RelayHealth Financial.

But just because it's hard to achieve a payer mix that better supports a health system's bottom line, it's not impossible.

[Also: Payer mix among major challenges for Massachusetts community hospitals, study finds]

Demographics of a given population play a large role in determining the percentage a system is reimbursed through a government agency, like Medicare or Medicaid, or through private insurance or out-of-pocket payments.

"If they really wanted to target their Medicare population and they want to drive more awareness of that, this is where the financial realities become marketing priorities. Where do I invest my capital? Do I need to build a new building? Do I need to move into the suburbs, or acquire my neighbor? There's a mix of long- and short-term solutions to achieving the right payer mix," he said.

One short-term solution, he said, is making sure things are ship-shape on the process side of payment collections: Figuring out who's able to pay and then starting the collection process as soon as possible.

"That's critically important money to collect," said Dyke. "A dollar you make today is a lot more valuable than one you have to chase down a year and a half from now."

Third-party tools that help with reimbursement analysis can turn that short-term strategy into a longer-term investment. A lot of organizations, said Dyke, have moved from a denial management type of model -- where they examine the reasons they didn't get paid -- to more of a prevention model. Systems are moving the rules for billing up to where care is being delivered, with the idea being that it's easier for someone to pull the cord when they see a problem.

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"There really is a supply chain model to that which has shifted from more back-end heavy to more (about) quality and patient access, where most of these things have traditionally come from," said Dyke.

Still, where a system is located, and who it serves, can place limitations on the measures that can be taken.

"A north Dallas hospital probably wouldn't care about Medicaid," said Dyke. "(But) a facility that's 80 percent Medicaid by volume is living and dying by those reimbursement levels. It's a reality of something you have to deal with, but I can look at those strategies and make sure I'm very efficient. It may be very difficult to get the patients who have higher yield, but I've got to figure out how to get them to come to me, or go to them."

A facility that operates at huge Medicaid volumes should be investing in their tools and in their people, he said.

The Temple University Health System in Pennsylvania serves an area of the state in which 30 percent of the population lives below the federal poverty level -- what the government refers to as "deep poverty." Sixty-four percent of those in Temple's coverage area have a high school education or less. Chief Financial Officer Box Lux called the emergency room "violent," with the highest rate of meaning gunshot and stabbing victims seeking treatment in the state.

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And about 46 percent of Temple's patients are covered by medical assistance programs, compared to a statewide average of about 15 percent. That makes the payer mix picture a challenging one.

"You get paid a lot less to take care of people who are insured under the medical assistance program," said Lux. "Doctors, as an example, get paid here when they're caring for medical assistance patients at about 60 to 65 percent of what Medicare would pay them for a similar service. The rate of pay for the hospital is better than for the doctors, but it's still a bit of a challenge."

Adding to that challenge is the fact that many of Temple's patients have high rates of chronic disease, which Lux said tends to be poorly managed, whether it's due to lack of resources, lack of education, lack of family support, or all of the above. Forty-one percent of Medicaid and medical assistance patients at the health system have documented secondary diagnoses of substance abuse or behavioral health issues, so whatever illness for which they're admitted is far more costly to treat. Not surprisingly, that leads to poorer outcomes.

"You get paid less, and it costs more because you're dealing with these other issues," said Lux.

That put pressure on the institution -- not just to make it run, but to pay its doctors. Lux said that most doctors employed through Temple's school of medicine receive some level of support from the hospital.

So how do you make the most of that challenging payer mix landscape?

"As an academic center, you have to take a few programs and deepen them clinically," said Lux. "And you have to create somewhat of a destination point for people so you can attract them from a much broader geography."

Temple has focused on cardiac, pulmonary and transplant services. As a result of investments in those programs, the acuity level of Temple University Hospital has gone from about 1.5 total acuity, babies included, to about 1.9. Market share has climbed from 4.9 percent to about 6 percent.

"It doesn't sound like a lot, but it brings a lot of money to help support the mission," said Lux. "What can you do to make the 46 percent of medical assistance patients 20 percent? Probably nothing. But you can rebalance it down the edges to create additional revenue streams, particularly in the transplant world."

Transplants, he said, are a natural progression when it comes to building clinical depth; everyone's got cancer centers, but not everyone does bone marrow transplants. Everybody's got pulmonary programs, but not everyone is doing lung transplants. Building those programs, he said, builds a brand and an image, and making Temple a destination for people seeking those services can maximize the system's payer mix potential.

For systems with more traditional payer mix scenarios, increasing the share of commercial business can be a boon.

Howard Gold, executive vice president and chief managed care and business development officer at New York-based Northwell Health, said negotiating favorable contracts can help.

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"What we try to do is contract for volume and price and utilization, and terms of payment get embedded on contracts," said Gold. "There's always a trade-off in terms of price, use and volume; some plans are more adaptable and some plans move business away from us. It has to do with price, geography or the structure of the plan itself. We're always negotiating to try to get good contracts and have people use our hospitals and physicians."

In the future, he said, there will be a bigger shift toward population health and value-based contracts, in a pivot away from fee-for-service -- a shift which is already taking place.

"We're going to move toward narrower networks, where they direct patients not to just anyone, but to places that can prove they're performing better," said Gold. "We see that as really unfolding. We're getting ready to do some experiments. Every one of the contracts now has an element of value-based reimbursement in it, and some percentage of every contract is not just straight fee-for-service. We earn money by performance."

Twitter: @JELagasse