Diversifying Your Company’s Payer Portfolio

Now that the Medicare Modernization Act (MMA) is the law and you are apprehensively awaiting next year’s cuts, you should be planning your company’s next move.

For many home medical equipment providers, that means honing in on operational inefficiencies, such as refining the office flow. Others are speaking to their congressmen and providing data to AAHomecare in hopes that CMS will repeal the planned cuts. Still another group of providers is busily diversifying their market segment.

The businesses in this group are undoubtedly considering many questions: Should they expand geographically, keeping the same payer and product mix? Should they enlarge the product mix while maintaining their core referral base and payer mix?

It is natural to think about shifting away from Medicare in favor of other payer sources, but be aware that doing so does not always spell enhanced profitability — or fewer hassles. You could be trading one challenge for another. While exploring your options is worth the effort, do your homework thoroughly to determine whether diversification into any new market segment would prove profitable for your organization.

The first step is to examine the various payer choices you have. Some of the payer types HME providers often encounter include Medicaid, private insurance, managed care, commercial and private-pay customers.

Medicaid

A move to increase Medicaid business may require you to accept less money and rely upon Medicaid’s prior/reauthorizations (not always electronic) before claims can be filed. Depending upon your state, Medicaid has had more difficulty lately with timely payments and balanced budgets than Medicare and other payer sources.

Further, Medicaid seems fickle in its approach to managed care, routinely switching contractors. Some states are still trying to launch competitive bid initiatives. But providers that work readily with Medicaid know it can be a great payer source if its billing idiosyncrasies are understood. And surprisingly, for select items in some states, Medicaid even pays more than Medicare.

Obviously, the amount of Medicaid business you receive correlates directly with the socio-economics of your environs. If you are considering taking more of this business, visit your state’s Medicaid Web site to see what it takes to get paid. Seek assistance from your state HME associations. Carefully scrutinize the rules and requirements, and examine the allowables before engaging in this business.

Private Insurance

Although there is less private indemnity insurance business than ever, where it does exist, it often pays more than other sources. In the current climate, however, many private plans mimic managed care payment qualifications, making them look more like an HMO (health maintenance organization) than private insurance. This means that many of these plans require prior and reauthorizations and limit the number of total rental payments. Additionally, once an item is rented for a certain number of months, insurance will stop paying because it has reached its “cap,” or the purchase price.

Despite the attempt to act more like managed care in its requirements, private insurance typically pays more quickly than managed care. If you decide that this is the type of business you are looking for, seek out local employers who might be self-funded. The best way to do this is to contact their human resource departments.

Some companies actually handle their own claims processing while others outsource the function. In either case, if the employer is local, this also provides you an opportunity to conduct in-services for the employees and to meet regularly and keep up communication with company management.

Managed Care

In contrast with the old private insurance business, managed care business can be a maze that is cumbersome to deal with and slow to pay. It is layers deep, and each contract typically involves a wide variety of contract arrangements and plans.

Some patients may be part of a plan that shares risk between the provider and the plan. Others may pay based only upon the discounted rate. Some plans require a preauthorization by the primary care physician, while others want the authorization to come directly from the case manager in the utilization review department.

Further, recognizing that there are commercial plans within each contract that vary by employer, HME billers may need training sessions to learn each plan’s nuances. In fact, one employee may have a choice of three or four different plans for one HMO.

The greatest dilemma is marrying the authorization with the payment, because the former is received by the IPA (the plan’s administrative arm) and the latter is rendered by the HMO. Communication is the obvious key in these matters, but needless to say, getting paid when the HMO can’t locate the authorization is problematic.

Beyond all this, the most difficult consideration when entering into a contract with an managed care organization (MCO) is that payments are heavily discounted, sometimes by as much as 40 to 60 percent off of the Medicare allowable. For this type of discount, you would expect to receive your money in a timely manner with little effort required to bill, but this is not normally the case.

So, when you consider adding managed care to your payer mix, you will need to examine the amount you would gain versus the price you will pay to increase your business. If you decide to become a managed care provider, you will always have to stay on top of accounts receivable. By turning your back for even one month, you may encounter collection issues.

Commercial Business

Another payer source found less often in the typical HME company is the commercial payer. This is a business for which you provide equipment and/or services and get paid directly. Commercial accounts include nursing homes, hospice and home health agencies and, if managed tightly, can be an excellent source of revenue.

However, even if the terms are net 30 days, the sources can take longer to pay. Most HME companies that focus on commercial business employ accounts receivable staff to work with specific accounts. The best part is that they don’t need the documentation that third-party insurers require.

Private Pay

The payer that most often comes to mind when looking to steer away from Medicare is the private pay customer. This business exists for the customer/patient who does not have, or does not want to use, insurance, or one who needs a noncovered item. You will likely find more of this business in a retail HME setting, which lends itself to cash-paying customers. If you stock non-covered items, for instance, you will naturally generate more cash customers.

The best way to succeed in this market is to collect your money up front. If you don’t collect at the time you dispense the product and time lapses before you attempt to collect, the chances of receiving payment diminishes rapidly. Once the patient misses a few payments, it is much more difficult for them to catch up.

For rental patients or recurring sale patients, you should not let more than 30 days lapse before making aggressive attempts to collect your money. You may want to begin even sooner.

On expensive cash sale items, take all — or at least most — of your money up front. Credit cards are an excellent way to accept payment when there is credit available, and when you do not have to pay an astronomical fee to use the credit card service. Some banks will work with you on financing expensive items, like scooters and power wheelchairs, to the customer. As long as the lending institution owns the receivable, this can be a great arrangement.

Regardless, at some point you could find yourself in a private-pay collection mess. You will likely wind up creating collection plans that allow incremental monthly payments until customers finish paying off your bill. This could take years for some. In this situation, always send these customers a “promise-to-pay” letter or contract, and let them know that if they renege, you will ask them to pay the amount in full.

Similar to commercial payers, the private-pay customer can prove lucrative. And, these sales are easy to manage because there are no medical necessity requirements as with third-party payers. However, if the customer fails to pay after 30 or 60 days, this type of account can become the hardest receivable to collect. It is also a tenuous collection effort because of the patient-referral relationship.

As with everything, there are pluses and minuses to these payer choices. Inevitably, changing your payer mix will require compromise. One thing is certain: It is prudent that you create a diversified portfolio of payers. You should recognize that you may need to make up a healthy revenue percentage caused by Medicare cuts. It is definitely within your control to minimize future exposure by refocusing your company’s payer mix now.

Miriam Lieber is president of Lieber Consulting, Sherman Oaks, Calif., specializing in operations management and reimbursement for the HME industry. She can be reached by e-mail at [email protected] or at 818/789-0670.