By: Mark Mandell, DC, MBA
Joining an insurance network as a preferred provider is a growing interest among Chiropractors. But is this decision worth the lower reimbursement? Will the additional new patients outweigh the lower fees? Nearly every doctor has to make this choice in practice. Important practice decisions like this should be made using business principles. By asking the right questions and making a few simple calculations, you can decide if becoming a network provider is the right choice.
What to Consider
The premise behind joining a network is that you are willing to accept a reduced fee in exchange for the potential of more patients. Practically speaking, the number of new patients should outweigh the reduced fee from your current patients. For example, if the network’s fee schedule represents a 20% reduction in your fees, then you would need at least a 20% increase in patients with that particular network to balance out the decision.
Your risk in signing the network contract lies with guessing if you can actually achieve that 20% increase in business. Guess wrong, and all you have achieved by joining the network was a reduction in your fees. Guess right, and you can open the door to plenty of new business.
What to Ask the Network
Let’s say for example that a fictional company, ARM Insurance Company, asks you to join their panel. One of the first questions you should ask is how many covered lives are in your geographic area. “Covered lives” refers to the number of people who are covered by the insurance or network. Often, the best number of people you can get is for your county. If they only offer numbers for your state, speak with the provider service representative to get an estimate of how many people are covered in your area. Most Chiropractic patients live within 5–8 miles of their Chiropractor, so the better you can focus the geographic coverage, the more accurate your calculations. For purpose of our example, let’s say ARM Insurance Company has 10,000 covered lives in your county.
The second question to ask is what the utilization rate of Chiropractic within the insurance company is. Historically, about 10% of the general population will see a Chiropractor each year. Under managed care plans, that percentage can drop to as low as 1% under a strict gatekeeper system. The more restrictive the access, such as HMOs, the lower the utilization rate. Plans with direct and unrestricted access to Chiropractors will be close to the 10% rate.
If the company does not reveal their utilization rate, then you can estimate it based on the restrictions, ranging from 1–10%. Continuing with our example of ARM Insurance, let’s assume a utilization rate of 7%. Multiplying the utilization rate by the number of covered lives will give you an approximate number of Chiropractic patients in your area who are within the network. That means that ARM Insurance has 700 Chiropractic patients (10,000 x 7%) available in your area.
The next question to ask is how many other Chiropractors are currently credentialed or will be credentialed in your area. These Chiropractors will all be sharing access to those potential Chiropractic patients. ARM Insurance has 24 other credentialed Chiropractors in addition to you in the same area, so of those 700 potential patients, only 28 (700/25) are expected to be yours.
The expected number of patients has to be adjusted based on the number of patients you already have who are using that insurance company. If you already have 30 patients with ARM Insurance, then it may not be likely that you will garner anymore. However, if you only have 20 current patients who have ARM Insurance, then you can be expected to gain a statistical average of eight more.
Is it worth it to join ARM? The eight patients represent a 40% increase over your current 20 patients at a 20% cost to your fees. Though this may look appealing, remember that we are dealing with averages. Specifically, though you are guaranteeing the 20% reduction in your fee, the insurance company is not guaranteeing the 40% increase in your patient base.
Determining a Patient’s Average Value
A better way to look at this is in terms of dollars and cents. To really decide about an insurance network, you will need to find out the average value of each patient. You should ask the insurance company about their fees and covered services. Review a copy of the fee schedule and compare it with your own office’s fee schedule to determine the discount.
It is most useful to calculate the discount based on your average office visit of adjustments and adjunctive therapies. The average collected fee is only what you actually collect, not what you bill, so be sure not to confuse the numbers. Nationally, the average collected Chiropractic fee is approximately $50. Let’s assume that ARM Insurance’s fees represent a 20% reduction, so that you will be collecting $40 on a typical office visit.
You will also need to ask the insurance about the number of Chiropractic visits allowed by the insurance plan. As long as your office’s patient visit average (PVA) is within the insurance parameters, then use it. If your PVA is higher than the insurance company’s allowed visits, then use the maximum allowed visits for calculations. For example, if ARM Insurance allows up to 20 visits/year and your PVA is 12, then let’s use 12.
Multiplying the office visit fee of $40 by the PVA of 12 gives us a base value for the patient of $480. Now you will need to adjust that base by adding the other services you perform in the office, such as the initial exam and X-rays. ARM Insurance allows your regular fee of $120 for these services, so add the difference of $80 ($120 initial fee minus $40 regular office visit) to the base value of $480 to get $560 as the average patient value for Chiropractic services.
Since signing the contract with ARM will cost you $120 for each existing patient (12 visits x the $10 fee reduction), your total cost to join ARM is $2400 ($120 reduction x 20 existing patients). Those expected eight new patients should be worth a lot more than the $2400 it will cost you in order to entice you to join the network.
Valuing Ancillary Products and Services
Many Chiropractors incorporate ancillary products and services into their practice that should get incorporated into the patient’s value. Each product or service should be added in as a percentage of its use in the practice. For example, if 10% of your patients buy a mattress from you and the profits from the product, related services and practice growth is $1200, then the weighted average value of mattresses for each patient is $120 ($1200 x 10%).
Continuing with our example, let’s assume that in our office, we offer mattresses ($1200 profit at 10% rate), orthotics ($350 profit at 30% rate), pillows ($15 profit at 50% rate), vitamins ($5 profit at 75% rate), and sports gel ($5 profit at 75% rate). Therefore we will need to add the following weighted averages to our average patient value: $120 for mattresses, $105 for orthotics, $7.50 for pillows, $3.75 for vitamins and $3.75 for sports gel, for a total of $240.
Adding the value of ancillary products and services to our example of an average patient yields $800 ($560 + $240). That means that each new patient referred by the ARM Insurance Company is worth an average of $800 to your office. At an average value of $800, it will take three new patients to break even, and we can expect five more for additional profits of $4000.
Is It Worth It?
By our calculations, we are giving up a known $2400 in patient fees by discontinuing our current services to earn $6400 more. That is a 166% expected return on our investment. Try to get that kind of return in the stock market these days. If these were the only variables, then the decision makes obvious business sense.
However, in the practice of Chiropractic, there are other less tangible variables to consider. Does the insurance plan restrict the way you practice by limiting in the number of visits? Does the insurance plan limit the scope of your services? Will you be attracting your desired clientele? Is the paperwork reasonable or burdensome? Does the company have a history of abusive practices towards Chiropractors? These issues of principles have to be valued against the financial costs and benefits.
Practicing as a Chiropractor requires that you run a business as well. Deciding to work as a network provider is a business decision as much as it is a philosophical choice. Use this system to help you make the decision that is right for you. You can be sure that insurance companies and managed care networks are running their own numbers to achieve profitability. Armed with information, you can level the playing field and make smart practice decisions to achieve profitability as well.