Physician-practice managers who know where their practices stand in the marketplace in terms of what's known as the payer mix will be able to redirect resources, correct problems, and capitalize on opportunities more effectively. In this article, we discuss a report that managers can generate to help them better understand and manage their payer mix. We'll also provide advice on staying on top of demographic changes in your area.

Begin With an Overall Assessment
A practice's payer mix is a breakdown of where a practice's various charges come from, such as 25 percent from Medicare patients, 15 percent from HMO patients, etc. You can also determine a payer mix for each physician in a practice, as well, to compare them to each other and the practice as a whole. Before you can look specifically at the payer mix, however, it's helpful to conduct an overall assessment of the practice. The payer mix is part of this evaluation.

George V. Marino codifies a useful method for practice assessment in a 1996 article in The CPA Journal, "Medical Group Practice: En-hancing the Basis for Managed Care Planning." To collect information that can help you create a plan for the practice's future, he recommends: 1) evaluating practice fees by analyzing them against typical benchmarks such as CPT coding and the explanation of medical benefits (EOMB), 2) scrutinizing billings and collections, 3) reviewing a sample of returned claims, and 4) reviewing payer mix collection ratios.

These reports will help you notice trends in:
• your production vs. budget;
• new patients per month;
• follow-up patients per month;
• new surgeries per month;
• total procedures per month;
• charges per month;
• collections per month and collection rate;
• accounts receivable days;
• aged accounts receivable and accounts' lag time; and
• payer mix.

Using these reports, you can compare actual payment and utilization trends to budgets and can monitor billing and collection procedures from the initial patient visit to the final settlement with payers. Returned claims may indicate clerical errors. We believe it's very important to know your current payer mix to maximize both collections and your marketing efforts.

Pull Out the Payer Mix
By generating a payer mix report, you will know your current and previous 12-month practice payer mix, as well as that of each provider and business unit in the practice. Here's how to do it.

The basic payer mix: Practice, providers and business units. The current physician-practice billing system will provide the data required for a simple and accurate monthly report of the payer mix. First, divide the practice and each individual physician and business unit monthly charges into six major sources of payers:
• commercial charges;
• managed care-contracted charges;
• medicaid charges;
• medicare charges;
• self-pay charges;
• other charges.

Calculate the percentage of the total charges for each of the above categories for each provider and each business unit. It's best to limit the analysis to charges since they directly reflect the type of business units coming into the practice. Do the same analysis for the last 12 months of the business cycle.

The payer mix of the current "captured area." Using the above categories, request the percentage payer mix from each of the health-care entities where physicians practice in the current captured area, e.g., hospitals, nursing homes, ambulatory surgical centers, home health agencies. Obtain the payer mix of the total entity and of the patients admitted by each of your practicing physicians.

The payer mix of the entire region. Local health agencies or health services organizations can provide the payer mix for local, regional and statewide areas. In Florida, the Florida Hospital Association tracks the percentage payer mix for local markets and the state itself. The Center for the Study of Health Systems Change studies the local South Florida health-care marketplace as well as 14 other markets across the country.

The payer mix report allows you to know the status of your capacity, production, costs, net balance, and those figures for the community around you.

The payer mix report should enable you to understand your current mix and assist you in your marketing ef-forts by detailing the demographics in your area. To do so you should calculate the percentage of the total charges for each of the "source of payers" categories for each provider and for each business unit in the practice. Again, limit analysis to charges and do it for the last 12 months. In addition, the report will help you learn about potential changes in the payer mix at the local, regional and state level.

Analyzing Your Mix
Develop a spreadsheet to document the payer mix for the practice similar to Table 1.

Table 1: Payer Mix for Overall Practice, Each Physician and Business Unit
Commercial 7 10 5 2 8 15 5
Medicaid 1 2 2 0 2 2 2
Medicare 15 20 30 0 23 15 30
Self Pay 36 5 5 98 5 5 5
Managed Care 37 55 50 0 55 55 50
Other 5 8 8 0 8 8 8
Total 100 100 100 100 100 100 100

The first thing that you might notice as you look over Table 1 is that the practice payer mix might be skewed because Unit C appears to be a business unit based on self-paying payers. Consequently, it would be better to take out that unit and summarize the practice setting using Physicians A and B. Also, it's important to consider other factors in contrasting physicians A and B, such as the type and maturity of their practices. Physician B might treat cancer-related diseases; therefore, he expects a higher Medicare percent payer mix. On the other hand, physician B could use more commercial payer patients. One would need to dig in a bit more deeply to learn how more commercial patients are getting to Physician A than to B.

Develop a second spreadsheet (See Table 2) adding the payer mix for the local, regional, and state communities. Since Florida is so large, the state has many different marketplaces; however, insurance companies might target the entire state.

Table 2: Payer Mix Regional Comparison
Commercial 8 15 5 13 12 16
Medicaid 2 2 2 2 6 4
Medicare 23 15 30 17 35 35
Self Pay 5 5 5 5 5 2
Managed Care 55 55 50 57 40 40
Other 8 8 8 6 2 2
Total 100 100 100 100 100 100

If Table 2 were your practice, you could study the practice's payer mix versus other communities to try to understand the differences. Such differences might point to problems or opportunities that might be exploited using marketing positioning strategies. For instance, Physician A closely resembles the local community, while Physician B differs from it in several categories.

This type of report will allow a practice manager to quickly, easily and constantly monitor the payer-mix environment. It's important that a practice becomes aware of the current marketplace payer mix situation and potential changes in it.

Supporting Information
Going hand-in-hand with a knowledge of where your charges come from is knowing who your patients are and where they come from, too.

The top-10 employers. Besides knowing the current payer mix, it is important to learn the major employment sources of your patient base. Know the 10 top employers in your area, both private and public. Major corporations begin selecting their health plans at the beginning of each calendar year, reaching a decision in early fall. If feasible, contact the director of benefits of the corporations and inquire about any possible changes in health-care insurance companies. As an example, if one of the major local employers is contemplating a switch to another health-insurance provider, you may not have a contract with this health insurance company.

The top-10 third-party insurance providers. Learn the major health insurance providers in your area and stay abreast of their financial performance, including federal programs such as Medicare and Medicaid. Statewide hospital associations stay abreast of these companies and their offerings. For example, in Florida, the Florida Hospital Association reports quarterly on the financial performance of HMOs and related health-care entities.

Patient demographics. Thanks to a variety of proposed strategies for cost savings and quality improvement in health care, there's increasing pressure for practitioners to have meaningful information readily available about their market. Effective management requires physicians to be proactive in monitoring demographic changes.

A quick review of several sources will provide you with a good picture of the general demographics of your current marketplace. You can get data down to the ZIP-code level. A quick visit to the Census Bureau Web page will allow you to access the socioeconomic makeup of your market, which is usually how your local newspapers find out about changes in the area when they're writing articles on the topic. You can also get demographic information about your market from the Web page of any major real estate broker in the area.

Medical practitioners are required to put together a large quantity of
information to support every decision they make, from replacing old equipment to analyzing payment trends. One of the most powerful tools they have, the payer-mix report, can help them make many of their most important choices.

Additional Readings
The authors recommend: IMPAC Practice Management. METRIX: Statistical Query & Report Generator. IMPAC Medical Systems, Inc. 2003, found at
Quintana O., Ortiz C. "Buckling Down to Business." MGMA Connexion. October 2001.

Olga Quintana, DBA, is an associate professor of accounting at the University of Miami School of Business Administration in Coral Gables, Fla. Contact her at (305) 284-4613, or e-mail: Cesar Ortiz is Director of Administrative & Financial Affairs at the University of Miami School of Medicine, Departments of Otolaryngology & Urology in Miami. Contact him at (305) 585-5224, or via e-mail: