Analyze outpatient costs, case mix, and payers

Act now to survive cuts in reimbursement

To succeed in the future, outpatient providers must know the cost of treatment, how many patients they treat for each diagnosis group, and how they are reimbursed for each patient.

By analyzing this data, providers will be able to determine how they will come out when reimbursement changes, and what steps they need to take to stay in the black.

"Some analysis of the cost of treatment per patient has to be done to make sure there is not excessive utilization that won’t be reimbursed," says Malcolm Morrison, PhD, president of Morrison Informatics, a health care information management consulting firm in Mechanicsburg, PA. Review your outpatient caseload and the costs, he suggests. If you can’t collect your costs, use your charges and compare them with your cost-to-charge ratio, he adds. Often the data exist, but you have to obtain them from your hospital’s accounting department or gather them manually from copies of claims forms.

If the Medicare fee cap is too low to cover your costs, or if you negotiate a managed care contract that doesn’t adequately reimburse you for treating patients, there will be dramatic consequences for your bottom line, Morrison warns.

To determine what it costs to treat your patients, do the following:

• Make a financial analysis of every patient you treated and every cost you incurred this year.

• Determine your percentage of Medicare, Medicaid, workers’ compensation, and private-pay insurance reimbursement.

• If you think your client mix will remain essentially the same next year, analyze what your return will be with the new reimbursement. For example, see how many of your Medicare patients would exceed the $1,500 therapy cap.

You may expect that some of your workers’ compensation patients will be covered under a managed care arrangement next year and that at least some of your managed care contractors will negotiate a lower reimbursement rate.

Here are some of the items you need to analyze for each diagnosis group:

• average number of visits per diagnosis;

• modalities used for each diagnosis;

• cost of the modalities;

• cost of other products, such as splints, that may be used;

• cost of the therapists’ time.

"Providers should remember that every time someone does something to a patient, somebody is going to have to pay for it," he says. "If you’re not reimbursed for it, your facility will have to bear the costs."