3 Ways To Profit Through Insurance Billing
The Cost of Billing Insurance in Private Practice
The expenses related to insurance and medical billing has reached $282 billion every year according to the Center for American Progress.
Anyone interacting with the U.S. health care system is bound to encounter examples
of unnecessary administrative complexity—from filling out duplicative intake forms
to transferring medical records between providers to sorting out insurance bills. This
administrative complexity, with its associated high costs, is often cited as one reason
the United States spends double the amount per capita on health care compared
with other high-income countries even though utilization rates are similar.
This reality is no different in the world of private practice for mental health providers. In fact, the Practice Solutions team sees this on a daily basis. In one circumstance, a biller working with a group practice in Michigan spent 6 hours on the phone with a large insurance company in Michigan arguing with representatives about the credentialing status of a clinician that had been in-network for 8 months.
The biller was able to get $4,000.00 worth of claims paid.
Imagine though, had the provider spent that time on the phone with the insurance company.
Here is a list of things that the therapist could have done with those 6 hours:
Seen 5 patients
Read a book on their preferred method of therapy to be a better clinician
Engage in self-care
Take a nap
Focus on their family
Spend time focusing on building their practice instead of working in it
Each year, health care payers and providers in the United States spend about $496 billion on billing and insurance-related (BIR) costs, according to Center for American Progress estimates presented in this issue brief. As health care costs continue to rise, a logical starting point for potential savings is addressing waste. A 2010 report by the National Academy of Medicine (NAM) estimated that the United States spends about twice as much as necessary on BIR costs. That administrative excess currently amounts to $248 billion annually, according to CAP’s calculations.
This is an incredible statistic!
Think about this for a moment: According to Business Insider, the life expectancy of Americans has decreased for the third year in a row. What are the top causes of the decrease in life expectancy?
Here are the top reasons why the life expectancy in the United States has decreased for the third year in a row:
This is quite a counterintuitive trend. A first-world country that spends more on privatized healthcare than any other affluent country in the world is dying at higher rates due to mental health-related causes. The need for mental health providers can hardly be overstated, but one of the biggest barriers to solving this problem is maintaining profitability in private practice by taking insurance and billing private and public healthcare.
Imagine if private practices and healthcare organizations operated so efficiently that they were able to take that $500 billion worth of waste and actually impact the overwhelming mental healthcare need in the United States? We believe that by educating around best revenue cycle management practices that we can see a meaningful difference in people’s lives.
Understanding the Biggest Costs of Taking Insurance
The first place to look to understand billing and insurance-related costs is part of the administrative overhead that is insurance premiums and providers’ reimbursements. It includes the overhead costs for the health insurance industry and providers’ costs for claims submission, claims reconciliation, and payment processing. The health care system also requires administration beyond billing and insurance-related activities, including medical record-keeping; business management; initiatives that monitor and improve care quality; and programs to combat fraud and abuse.
To date, few studies have estimated the systemwide cost of healthcare administration extending beyond billing and insurance-related activities. In a 2003 article in The New England Journal of Medicine, researchers Steffie Woolhandler, Terry Campbell, and David Himmelstein concluded that overall administrative costs in 1999 amounted to 31 percent of total health care expenditures or $294 billion—roughly $569 billion today when adjusted for medical care inflation. A more recent paper by Woolhandler and Himmelstein, which looked at 2017 spending levels, placed the total cost of administration at $1.1 trillion.
At this point you might be thinking, “Okay, this is very interesting, but how does this apply to my private practice?” That is a great question. Thanks for asking!
According to the same study, the researchers found that about 50% of your administrative costs will be billing and insurance-related.
In Figure 2, you can see that providers and hospitals have a significant amount of money going to the billing and insurance-related expenses of their business. You might look at that figure and think that this is a huge problem, but really this is a huge opportunity for you to think about how to improve your practice, your people, your processes, and your purpose.
It is likely that you did not become an expert on human behavior and the treatment of mental health disorders for your own edification, but likely to make a big impact in the lives of individuals and families.
This is a huge blessing to our society!
It is important that we think together about the various ways that you can continue to make a profit and help as many people as possible in your private practice. There are really three ways to take insurance and maintain your profitability in the long-run. This blog is not for the private practice owner that is looking to scale as quickly as possible and then sell their private practice. No, this blog is for the private practice owner that lives and breathes helping people and is looking to build a legacy for their community, their staff, and for their family.
Here are the three ways that we have seen private practice owners take insurance and maintain their fiscal health while helping people at scale!
3 Ways to Take Insurance and Be Profitable
Each of these three ways to take insurance and be profitable have a couple of assumptions.
The first assumption is that you are a provider in private practice that is in-network with at least 1 insurance company.
The second assumption that we are making is that you might be feeling like you are treading water or feel as though you are not making as much profit as you ought to be given your busy schedule and the level of clients that you are seeing.
The third assumption that we are making is that you might have a wide range of processes and procedures in place to handle billing and insurance revenue.
With those in mind, let’s begin looking at the three ways that you can take insurance and be profitable in your private practice.
The First Way to Take Insurance and Be Profitable
The first way that you can take insurance and be profitable is to take the smallest amount of in-network payers as possible with the highest level of reimbursement. What does this mean?
This means that you have evaluated the highest paying insurance companies in your area and you are only going to engage with that 1 or 2 insurance companies in your area. This could mean that you are only in-network with one commercial payer and one government payer or just one commercial payer.
What are the benefits to this way to take insurance?
The first benefit is that you are going to automatically exclude a certain number of people that don’t have that insurance. This is a tough truth to grasp, but the benefit is that the time you do spend with insurance-based clients will be of maximum benefit to your business. The contrast is that you have lower paying insurance clients compared to a higher paying insurance client. In terms of time, you make less per hour with some clients than others, but this particular strategy means that you are maximizing your time per patient.
The second benefit of this way to take insurance means that you will have less credentialing hurdles as you scale up. Let’s say you are starting to want to scale in terms of clinical staff. It is much MUCH easier to credential 10 clinicians with 1 insurance than 10 clinicians with 10 insurances. This benefit can be better understood by looking at the math in terms of individual panels that you credential therapists with.
Let’s say you have 1 insurance company that you are in-network with. You have a 1 to 1 ratio in terms of credentialing. If you are in-network with 10 insurance companies, you now have a 10 to 1 ratio, which becomes a multiplication problem. In one circumstance you will engage in credentialing 10 providers 1 time with 1 insurance company. In the other circumstance you will actually be conducting 100 credentialing activities to get 10 clinicians in-network with 10 panels.
Your expenses will obviously increase if you have to engage in 100 credentialing activities versus 10 credentialing activities. If you are a group practice this becomes even more important because the complexity of credentialing and paneling only increases as you grow.
The third benefit of this strategy for taking insurance is that by limiting the number of insurances that you take means that your overall billing processes are leaner and simpler than your counterparts. Remember above that the billing and insurance related costs for a private practice owner revolve around claims submission, claims reconciliation, and payment processing.
By engaging one insurance company on an in-network basis you lean your processes to the simplest common denominator around these three areas. The delays and reduces your administrative burden and allows you to operate as simply as possible.
The downside here is that you limit the number of highly-clinical clients that you take and that can rub against your “why” in getting involved in private practice, which is why there is a second strategy to take insurance and remain profitable.
The Second Way to Take Insurance and Be Profitable
This strategy involves focusing on your profit margin and focusing on particular clinical objectives in your private practice. Let’s say you have a heart of geriatric populations and it is important that you take Medicare in your private practice or perhaps you LOVE working with veterans and active duty military personnel and you absolutely be in-network with Tricare.
This is totally doable and highly encouraged! We love the passion and we love the big “whys” to be involved in the private practice industry.
We want to put forward a strategy that allows you to accomplish those clinical objectives and still work with those patients that fit squarely into your purpose for private practice.
The second strategy to take insurance and be profitable involves tracking the risk around your caseload. In this strategy you need to do some math and manage your caseload so you can maintain your profitability. This depends on your state because reimbursement rates vary across states and payers, but we recommend that you follow this breakdown for your caseload:
40% Commercial Insurance with an average reimbursement between $85.00 and $125.00 per session
10% Private Pay with an average reimbursement between $100.00 and $150.00 per session
50% Government Insurance with an average reimbursement between $55.00 and $85.00 per session.
Let’s break that down in terms of real numbers assuming that an average caseload for a full-time clinician is 25 clients or 5 clients per day.
13 clients per week that net $937.50 (i.e. $75.00 per session)
2 clients per week that net $312.50 (i.e. $125.00 per session)
10 clients per week that net $100.00 (i.e. $100.00 per session)
Using this per week model, your full-time caseload should bring in $9,675.00 per month and still favor those populations that you want to work with clinically. Obviously, you can play with the percentages of this kind of breakdown internally and have fun with the numbers, but it is possible according to the math to spend half of your clinical time focused on those populations that you are passionate about and still maintain healthy profitability.
You will need to spend quality time with the math and you will also have to be disciplined about the patients that you take on, monitor your percentages, and be sure you are actually collecting from your private pay clients and commercial insurance clients. But it is definitely doable.
Could you make more money just with private pay clients? Sure.
Can you help move the needle on the decreasing life expectancy with this model? Absolutely!
One challenge to overcome with this model is that as you scale you would also have to monitor your clinicians to make sure you are balancing their caseloads as well, but that is a different blog topic altogether. If you feel like you need help tracking this information or creating a system around this model, feel free to reach out and we would be happy to consult with you on this specific issue.
The Third Way to Take Insurance and Be Profitable
The last strategy that we would recommend to take insurance and maintain your profitability assumes that you take 1 or 2 insurances that yield the greatest reimbursement like strategy one, but this strategy includes holding multiple out-of-network contracts with a multitude of insurance companies.
Being out-of-network means that you are a qualified and licensed mental health provider, so the insurance companies will issue a reimbursement, but you are not held to their specific contract or contracted insurance rates that you are with your in-network contract.
The main benefit and this is critical, is that you have the opportunity to balance bill the patient to meet your full-rate.
That sounds like Greek, so we will break it down with a fake example.
Let’s say you are in-network with the ACME insurance company. Because you are in-network with ACME you will only get paid a contracted rate. Let’s say you bill 100.00 for an hour session, but ACME says they are only going to pay $87.50 for your hour. You can’t bill the patient for the $12.50 that would make up your full rate. The $12.50 is called a contractual adjustment because your contract dictates that you write-off this amount. Therefore, for each session you bill for clients that have ACME, you will lose $12.50 per session because you are in-network.
Hopefully, you are following!
Let’s say you are out-of-network with the ACME insurance company. Because you are out-of-network with ACME you can now charge the patient for that $12.50 OR you can choose to write-off the difference as an act of kindness toward your client, but you are not required to.
In the first situation, you are required to write-off the $12.50 and you will make a maximum of $87.50 from ACME clients.
In the second scenario, you can choose to charge the patient for the $12.50 to make $100.00 a session no matter what, or you can tell your patient that they only owe $87.50. It is your choice.
What is the impact of a contractual adjustment over a year?
Let’s say you have 25 clients a week for ACME clients and you are in-network so you have to write-off the $12.50 from our example. 25 clients a week multiplied by 48 weeks a year (4 weeks of vacation :)) multiplied by $12.50 means that you will write-off $15,000.00 per year because you have an insurance contract with the insurance company. If you are out-of-network you can choose to make that $15,000 no problem.
If you are using this strategy, there is still an administrative burden to get clinicians listed as out of network but it is far less than the credentialing process for in-network credentialing. Another important concern is that your practice has to be uniquely skilled at collecting from patients at the time of service, each and every session. Again, another topic for another day.
You got into this business to help. You want to help individuals, couples, families, veterans, geriatric people, poor people, rich people, employers, employees, college students, disenfranchised people. All kinds of people.
You also are here because you want to make a living, a good living, doing so. In order to do that we have to be thoughtful about how we engage in the business of private practice. Practice Solutions wants to empower you to focus on patient care by removing the burden of billing and credentialing, and we want to educate you on best revenue cycle management practices.
If we can help you, great!! If we can educate you and show you how thousands of practices across the country are succeeding, great! If you need a trusted voice and advocate to bounce ideas off of, give us a call. We want to see your practice make a significant difference in the lives of people and in your communities. Give us a call, we would love to hear from you and help you succeed.