Tuesday, July 20, 2010

Ten Practices for Increasing Hospital Profitability: Tip #10

Today we finish commentary on the list of profitability practices put together by Becker's Hospital Review. As stated in the previous posts, the list focuses heavily on physician involvement to improve your bottom line and grow business. Today's tip deals with the managed care side of the business.

Tip #10: Renegotiate managed care contracts

For many hospitals managed care patients represent a significant portion of their business or at least a significant portion of their bottom line. Even though managed care companies have become far more resistant to subsidizing the losses hospitals endure from Medicare and Medicaid, it is essential that hospitals maximize this portion of their reimbursement. Clearly there is no opportunity for improved reimbursement from Medicare and even if Medicaid improves substantially it will just decrease the loss.

As has been previously stated, hospitals must focus heavily on cost reduction. But this alone will not get you where you need to be. You also need to maximize reimbursement. According to Nate Kaufman a well recognized national speaker on this subject, hospitals should be getting 130-140% of costs from their managed care providers. If your hospital is not large enough or strong enough in the market to get these kinds of rates, then you should look at merging with a larger facility or system to improve your negotiating clout.

Managed care contracts should be looked at on a regular basis even if they are not due to expire. A profitability analysis should be conducted by payor and by procedure to find the real winners and losers from a financial perspective. Then focus on renegotiating the losers and get carve outs where needed to things such as orthopedic implants.

When you face managed care providers to improve reimbursement in certain areas do not expect a receptive audience. Despite the significant profits many of these insurers are making compared to hospitals, they will not make concessions willingly. You must know your market clout and be prepared to walk away from the table without an agreement as long as you are in a position where they need it more than you do. They will eventually return to work out a deal.

In closing this series of posts on profitability, there are many worthwhile practices on the list. In today's market it is essential that a hospital explore all possibilities. We are now longer in the era of profitability that some of us remember where sloppy practices could be tolerated and still give you a solid bottom line. Today it is clearly survival of the fittest.

More on this later.

Mark Brodeur

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