How to Survive Falling off the Fiscal Cliff as a Medical Group

December 28, 2012

Medical practices are going to have to change their business strategies if the current Sustainable Growth Rate formula is left unchanged.  This means everyone who gets paid from Medicare will have to accept a 27% pay cut on their Medicare patients.

The facts:  Very few practices can survive a 27% pay cut from Medicare, even fewer can survive a 27% pay cut across the board.  In fact very few businesses can actually survive a 27% decrease in their revenue stream.

The Past:  In the past Congress has passed simple one year patches to fix this problem. This means in general Medicare has cut their rates to providers 2%-4% every year just to try to remain budget neutral.   Many practices have felt these cuts over the years and they are dying a death of 1000 cuts.

The Future:  There is a high likelihood that this may be the year that the Congress decides to make a stand.  This could be the hill we all die on…My best guess is that there is a 25% chance that the SRG cuts will not be repealed and as of January 1st 2013 your claims will be paid at a lower rate. I would also estimate that there is a 50% chance that this will be fixed in January 2013 after both parties have done some posturing and pinched the providers a bit.  (Good luck appealing all this lost revenue next spring, remember what happened with the 5010 switch, FYI Medicare did this last year too.)  There is a 25% chance that they decide to change the whole SGR system and implement this 27% pay cut over a three year period.

The Game Plan:  The key to survival will be in the managed care area.  You cannot fight government but you can fight insurance plans.  You will have to understand intimately how these contracts pay you, their termination rates and what leverage you have to negotiate.  This means you building a matrix of all your plans and systematically working through renegotiation of all these plans. This means have a working document that has all the plans and pertinent information along with having relationships with the Provider Representatives at these companies.  Remember all negotiation depends on leverage.

The Choice: You have several options here; first you can do nothing and wait to see how this plays out. Many practices take this approach; they are proactive and wait to see how the game comes to them, often these groups are the first to leave the arena as their margins are small and they cannot survive change.   The second option is to get aggressive and build the data points needed now to be ready for this change.  Being aggressive may help some practices stay viable.  (If you think that you are owned by a medical group or health system that this is somehow not your issue, think again.  They may be slower to react and this will affect your bottom line.)

It’s your choice to move forward or wait, either way things will change.  Remember the practice of medicine is not a static process and the payment processes are more than convoluted.  Either way your revenue is going to be affected. Why not be proactive and attack the issue instead of waiting for the changes?

Mick Raich is a medical practice financial consultant specializing in revenue enhancement, billing auditing, managed care contracting and practice negotiating.  He can be contacted at 866-407-0763.

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