When it comes to hospital reimbursement, one statistic often dominates the conversation—on average, hospital commercial reimbursement is coming in at approximately two to three times Medicare reimbursement. It’s critical to understand how your organization stacks up against industry benchmarks since this can significantly affect preparations for contract negotiations and your bottom line.
Through analysis, we've found reimbursements to be approximately 200%-215% of Medicare. But here's the big question—how do you use this data strategically to enhance contract negotiations, improve financial planning and analysis (FP&A), and maximize net revenue?
Why Use Medicare as a Benchmark?
Medicare provides a standardized and widely understood baseline for reimbursement rates and a way to compare in your market. While there may be some regional and state variations, the methodology is consistent across the healthcare industry. This makes Medicare a reliable point of comparison when assessing contracts with commercial payors.
Benchmarking against Medicare enables you to:
- Stack Rank Commercial Payor Performance: Line up all your payors and see how they all pay as a percentage of Medicare. If one payor is low relative to their peers, and they aren’t driving the volume but driving denials, you need to consider renegotiating.
- Budget Analysis and Financial Projections: By evaluating how reimbursement aligns with Medicare reimbursement, you can set budgets and identify service lines needing higher contract rates or efficiency improvements.
- Gauge Financial Risk: Using Medicare as a benchmark allows you to measure your risk exposure.
Strategic Applications in Negotiations
1. Go Beyond Surface-Level Comparisons
When entering negotiations, it’s essential to get granular. Use Medicare as a starting point, but dig deeper into your data.
- Analyze Outpatient vs. Inpatient Rates: Different service settings often have varying reimbursement patterns.
- Compare Service Lines: Ensure each service line aligns with Medicare benchmarks. Capitalize on higher volume-forecasted service lines by negotiating a higher reimbursement rate to Medicare.
- Evaluate Payor-Specific Trends: Understand individual payor behaviors. For instance, if Payor A reimburses emergency services at 300% of Medicare but Payor B only offers 250%, the gap becomes a negotiation lever.
2. Incorporate Holistic Data
While Medicare comparisons are invaluable, don’t stop there. Include additional metrics such as denial rates and patient cost-sharing. For example, if you're experiencing a 10% emergency department (ED) downgrade rate, factor this into your negotiation strategy to protect revenue.
3. Factor in Patient Volumes
Volume is as critical as rates. Prioritize forecasted high-volume, revenue-generating areas where improved rates will deliver the greatest impact.
Analyzing inpatient versus outpatient rates, aligning service lines with Medicare benchmarks, and evaluating payor-specific trends allows you to uncover opportunities for leverage. In some cases, this analysis may reveal that exiting a payor market altogether could be the most economical and strategic move.
Final Thoughts
Elevate and Simplify Your Negotiation Strategy
Using Medicare as a benchmark elevates your negotiation strategy by providing a universally recognized standard to evaluate your contracts, assess risk, and uncover opportunities for increased profitability. By analyzing data comprehensively—beyond just overall percentages—you can position your organization for better financial outcomes.
When you Need an Expert
If you’re ready to take the next step, leverage benchmarking to unlock data-driven insights and drive stronger outcomes in your next contract cycle. Refining your negotiation strategy and maximizing reimbursement potential is crucial. If you want to learn more about the impact Medicare can have on your contracts, our team is here to help.
