Know How Payer Mix Affects Your Revenue

Read time: 4 minutes

Understanding your payer mix will allow you to account for the range of collection values for every procedure and understand how it affects your revenue.

Payer mix is complicated because it’s not just about securing the most profitable contracts. It’s like a choice between three quarters on the one hand (profitability) and a quarter, four dimes, and two nickels on the other (market share). If you don’t understand your payer mix, you won’t know what percentage of your revenue comes from private insurance, government insurance, and self-payers—and you won’t have the data you need for accurate cash forecasting.

 

So, how can you gain a deeper understanding of your payer mix? Start with dynamic analysis and anomaly detection.

  • Dynamic Analysis: Most practices calculate payer mix once a year when they establish financial reserve models and set budgets. But the industry experiences seasonal shifts in payer mix. With analytics tools that enable you to view your payer mix dynamically, you can gain a quick understanding of the shifting financial seasons, then adjust your monthly cash forecasting accordingly.

 

  • Anomaly Detection: With varying reimbursement rates and tiered adjudication cycle times (e.g., 14 days for CMS and 21–28 days for many commercial payers), your cash modeling can quickly go haywire. Anomaly detection gives you the ability to identify when and where these peaks and troughs are happening.

 

To better understand anomaly detection, consider this real-life example:

 

A typical practice has a payer mix of 35% Medicare and 20% Medicaid. Their average Medicaid net revenue factor is 30%, which they forecast in January for cash projections and contractual reserves. In February, Medicaid jumps from 20% to 27% of revenue and commercial revenue falls accordingly. While the finance department adjusts its reserve model, the business office is delayed in modeling the cash projection and comes in well below the month’s collection target. By March, Medicaid revenue stabilizes and budgets are back on track, but annual cash is now at risk for underperforming.

 

With a system in place for automated anomaly detection, a practice can adjust the necessary targets and proactively understand the cause of these shifts.

 

The first step to getting a better handle on payer mix is to run a monthly report. At minimum, your monthly payer mix report should include date, payer, revenue code, procedure, modifier, units/volume, and fees. More fields can be added based on tracking needs and whether the report is for professional services or a hospital setting. Developing a consistent report delivery system will enable you to account for the range of collection values for every procedure and understand how it affects your revenue.

 

To learn how Rivet can automate your payer mix reports, request a demo today.