Payer Strategy: How Provider Groups Can Optimize the Payer Mix

Payers' and providers' relationships have been acrimonious, but the two entities need each other to navigate the new era of transformed healthcare financing and delivery.

After the pandemic, both sides sought to optimize their contracts to drive their own revenue growth and return to profitability. While most payers quickly became profitable again, providers are still struggling. This Becker’s Hospital CFO Report article compares profits and losses between large health systems like Kaiser Permanente and payers. It shows large providers losing hundreds of millions while payers rake in profits by the billions. 

Don’t let payers bully their way through your partnership with them. With a documented payer strategy, you can stand up for your revenues, your staff, and your patients. Your practice or group will cheer your boundaries and dedication to quality care and a positive work environment. 

What is a payer strategy? 

A payer strategy is a comprehensive plan designed to optimize the payer mix as well as the approach to each payer. Providers need the right payers to best match their services and serve the community needs. A documented payer strategy sets the tone and standards for how providers should manage relationships and interactions with payers. Most providers use a mix of insurance companies, self-pay, government programs (Medicare, Medicaid), and other entities that finance healthcare services. The goal of a payer strategy is to optimize revenue, ensure timely and accurate payment for services rendered, and enhance overall financial performance while maintaining compliance with regulatory requirements.

By focusing on the following key components, healthcare providers can map out a payer strategy that enhances financial stability and high-quality care. 

Healthcare payer strategy job #1: the payer mix

Payer mix depends on the medical needs of your population. You want payers that have demonstrated dedication to thorough and timely treatments for the most prevalent health challenges your patients face. Insights into population health are crucial. 

Population health, as defined by David Kindig, MD, and Greg Stoddart, PhD, refers to "the health outcomes of a group of individuals, including the distribution of those outcomes within the group." This approach seeks to enhance the health of an entire patient population overall, while also addressing individual health issues through one-on-one interactions. 

Providers can now gauge population health via the data provided by patients. While an EMR excels at analyzing single patient data, a population health tool aggregates data, allowing providers to view and manage the practice as a whole. Without a software tool, revenue cycle staff must determine their most prevalent treatments and challenges manually. When accurately determined, population health is a win-win for the practice, payers, and patients. You can read reviews of population health software solutions on KLAS.

Payer mix examples

For instance, a multi-location provider group in a middle class or higher neighborhood may have patients using payers at these rates:

• Medicare: 30 percent 
• Medicaid: 20 percent
• Commercial Insurance: 40 percent 
• Self-Pay/Other: 10 percent

Critical for practice and provider groups with large senior populations, Medicare offers stable revenue and reimbursement rates. One-third of physicians refuse to accept Medicaid because of its low reimbursement rates. While Medicaid offers lower reimbursements, providers in low-income areas will accept a limited number of these patients. Of course, commercial insurance reimburses often at twice the rate of Medicare, but it involves fluctuating prices and rigid restrictions. Finally, self-pay patients take care of all their medical financial responsibilities, but, unfortunately, many providers find these bills often end up as bad debt write-offs. 

On the other hand, some providers serve a high self-pay population. Orthopedics, plastic surgery, and concierge medicine provide services not covered by insurance. In these cases, your payer mix could be:

• Self-pay - 60 percent
• Commercial insurance - 30 percent
• Medicare & Medicaid - <10 percent

Determining the ideal payer mix involves a thorough analysis of current payer data, financial performance, patient demographics, and market trends. Continuously monitor payer performance to optimize revenue, enhance operational efficiency, and align with strategic goals.  These steps ensure you make the right payer selections.

1. Analyze current payer mix

•  Review the current distribution of payers — Medicare, Medicaid, commercial insurance, self-pay).
• Calculate the revenue contribution from each payer type.
• Identify the percentage of patients covered by each payer.
• Compare these figures to gauge whether you may need more of one type of payer.

2. Evaluate reimbursement rates and terms

•  Assess the reimbursement rates and terms offered by each payer.
•  Consider factors such as payment timelines, denial rates, and administrative burden.

3. Assess patient demographics and market trends

•  Analyze patient demographics to understand the community’s medical needs and the types of insurance they are most likely to use. 
•  Stay informed about market trends, such as changes in employer-sponsored, increased deductibles, and insurance or Medicaid expansion. Preparation for these shifts beats having to catch up. 

4. Conduct a financial analysis

•  Determine the profitability of each payer type.
•  Consider direct costs (e.g., treatment costs) and indirect costs (e.g., administrative overhead) associated with each payer.

5. Evaluate risk factors of dealing with each payer

•   Consider the risks associated with different payer types, such as payment delays, high denial rates, or changes in reimbursement policies.
•   Evaluate the stability and reliability of each payer.

6. Set strategic goals and share with payers

•   Define strategic goals, such as increasing revenue, reducing bad debt, or enhancing patient access to care.
•  Align the payer mix strategy with these goals.

7. Benchmark against industry standards

• Compare your payer mix with industry benchmarks and similar healthcare providers.
• Use data from organizations like HFMA, MGMA, or Rev Cycle Intelligence to understand best practices and trends.

8. Implement data analytics tools

•  Utilize data analytics tools to continuously monitor and analyze payer performance.
• Track key performance indicators (KPIs) such as average reimbursement rate, claim denial rate, and days in accounts receivable.

Risks that impact payer strategy

Providers need to be vigilant about various factors that can increase risk of lost revenue when dealing with payers. Payers expose you to more risk when they have:

1. Capitation models: Capitation is a payment model where healthcare providers or organizations receive a fixed amount per patient for a specified period, usually monthly. This payment is made regardless of the actual services provided or the number of patient visits. While capitation can offer stable and predictable revenue streams, it also transfers significant risk to providers. Under a capitation model, providers receive a fixed amount per patient regardless of the services provided. If patient care costs exceed the capitation payment, the provider bears the financial burden. This risk is exacerbated if the patient population has higher-than-expected healthcare needs.

2. High denial rates: Payers with high denial rates can significantly disrupt cash flow. Frequent claim denials burden your staff with resubmission and appeals tasks, increasing operational costs and delaying revenue collection.
3. Slow reimbursement processes: Payers that have lengthy reimbursement processes can create cash flow issues for providers. Delays in payment can strain the provider’s ability to cover operational expenses and invest in necessary resources.
4. Complex billing requirements: Payers with intricate and specific billing requirements can increase the administrative burden on providers. Navigating these complexities often requires additional staff training and can lead to higher rates of claim rejections if not managed properly.
5. Patient population risk: The health and demographics of the patient population covered by a payer can also influence risk. Payers covering high-risk populations, such as those with chronic conditions or socio-economic challenges, may lead to higher care costs inadequately covered by reimbursements.

By understanding the risks associated with different payers and implementing effective strategies, provider groups can optimize their payer strategy, ensuring financial stability and improved revenue cycle performance.

Payer strategy and selection based on contract performance

Ultimately, you want to prioritize the contracts delivering the maximum revenue. Conduct robust contract performance analysis either manually via your spreadsheets and revenue cycle staff or automatically via contract management software. 

When you know which of your contracts:

• bring in the most revenue
• have the highest underpayments and denials
• have the lowest underpayments and denials
• keep most closely to the payment timelines agreed upon

…you get clarity on which payers abide by their contracts and honor your partnership the most. This data also fuels your contract negotiations. 

Take a quick, self-guided tour through a powerful contract management and underpayments recovery tool:

Focus on the payers that your analysis indicates offer not only the highest reimbursement rates but also the most favorable terms. Payers are notorious for slipping in contract terms that benefit them. Our article on payer contract negotiation lists all the tricky terms payers use to keep more of your revenue. List out these terms and then review your payers’ contracts to see the extent to which they abuse their providers. 

One term that troubles revenue cycle managers is the ability of payers to modify contracts without provider approval. Payers often give providers only a short 30-day window to object to amendments, but many providers cannot complete the necessary tasks on that timeline. Payers may include provisions in the contract stating that if providers miss this deadline, the amendments will be implemented automatically.

Be on the lookout for payers that add stipulations like these that remove the need for provider approval altogether. Understanding these stipulations is challenging for staff and revenue cycle managers, especially during staffing shortages. When amendments are received, many provider groups simply accept them without negotiating, believing their resistance to be futile.

Payer strategy and selection based on payer attributes

Just as you wouldn’t go into a business partnership with someone who has a poor reputation or scattered operations, you want to evaluate payers based on their history in the healthcare industry. Build out your payer strategy when you document the standards you expect your payers to achieve. 

First, with revenue cycle staff notoriously overburdened, selecting payers with fewer prior authorization demands and more flexible medical necessity terms will get more of your patients seen faster. Patients will be happier and your patient throughput will improve. Best of all, with less of a prior authorization and documentation burden, you’ll reduce operational costs. 

Using payers that have a stellar reputation for complying with regulatory requirements also alleviates hassle and staff burden on your end. Ask the payer if they’ve had any compliance breaches in the past three years. 

Compliance issues are not the only hassles a payer can present. Payers that don’t answer the phone, keep staff on hold for 30 minutes or more, take forever to return emails, and have poor attitudes exhaust your revenue cycle staff. Ask your staff which payers are the most difficult to interact with. While payer relationships may not be a priority, they can figure into staff satisfaction and loyalty, something every provider needs right now. 

By integrating these aspects and insights, healthcare providers can develop a comprehensive payer strategy that optimizes revenue, enhances patient care, and ensures compliance with regulatory requirements.

Providers are finally getting some traction

For too long, payers have had more power in their partnerships with providers. Recently, however, pressure from provider groups like the AMA, the AHA, and even legislators have shifted that balance a bit. 

First, payers have started to cut prior authorization requirements, a move the AMA has spent years advocating for. Then, both payers and providers are shifting to value-based rather than fee-for-service care. Having this common goal promises to reduce the animosity between the two parties.

 Finally, technological advancements have accelerated and streamlined revenue cycle tasks, reducing the frustration and stonewalling on both sides. For example, the Midwest’s  Health Care Service Corporation started using augmented intelligence to speed prior authorization approvals by 1,400 times. Its tool streamlines the submission process and provides auto-approvals for simple cases. With more patients getting seen faster, providers can sweep in more revenue and provide the quick care patients need.

A proactive payer strategy takes reliable data and insights

As you aim to establish a payer strategy for your practice or physician group, you’ll need the data to guide your decisions. Knowing just which of your payer contracts perform the best gives you the firepower to insist on fair revenue and terms. 

 MD Clarity specializes in underpayment recovery and patient payment estimates and eligibility. Our contract management and underpayments tool, RevFind, processes, digitizes, and analyzes payer contracts, comparing each payment to the terms of the contract and notifying staff of any discrepancies. It identifies underpayments by practice, location, and facility so that provider groups can compare payer reimbursements. This intelligence helps them negotiate for underpayment recovery and even better contract terms. Actively addressing underpayments can lead to significant cash recovery and better profit margins.

Schedule a demo to see how our RevFind can put your practice back in control of your contracts and the payer relationship. 

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