The Economics of Healthcare
Insurance reduces payouts by applying lower reimbursement rates to targeted procedures based on the number of contracted providers in the area and the services they provide.
-15K
Monthly losses on hygiene and diagnostic procedures
-210K
Annual losses due to chairtime used on bottom 10 plans
-32K
Annual loss on posterior class II composites
-4K
Monthly loss per provider for a specific dental payor
-6K
Profit lost by underbilling appropriate codes
Controlling Your Profitablity
First, understand how your revenue is created.
Patient Treatment
Revenue in a practice is created through three primary sources:
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Procedures: Providing care has costs for the provider
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Payors: Individuals or insurance companies that pay for a service or a procedure
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Providers: Clinicians who both diagnose and provide needed procedures
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Revenue peaks when these three sources are in balance.
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Next, learn how your revenue turns to profit.
Revenue Conversion
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Services and products generate gross production.
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Gross production is adjusted for insurance wite offs.
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The result is net production.
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Direct service costs, including provider pay, are deducted.
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The result is gross contribution profit.
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Operational and overhead costs are applied.
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The result is implied net profit.
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Revenue leakage (discounts, write-offs, uncollected amounts) reduces results.
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The final outcome is actual net profit.
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Revenue conversion is more than just understanding provider pay.
Finally, implement calculated incremental changes.
Margin Optimization
Specific changes will improve four key indicators:
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Net Production: Changes to payor mix and reimbursement rates.
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Gross Contribution Profit: Changes to procedure level expenses such as lab, provider pay and dental supplies.
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Implied Net Profit: Changes to operational and business costs such as admin costs, staff and marketing.
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Adjusted Net Profit: Changes to collections rate, embezzelment ,discounts and personal business expenses.
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