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After the Match

Why You Should Care about Payer Mix

Cook, Thomas, MD

doi: 10.1097/01.EEM.0000547201.31891.29
After the Match

Dr. Cookis the program director of the emergency medicine residency at Palmetto Health Richland in Columbia, SC. He is also the founder of 3rd Rock Ultrasound (http://emergencyultrasound.com). Friend him atwww.facebook.com/3rdRockUltrasound, follow him on Twitter @3rdRockUS, and read his past columns athttp://bit.ly/EMN-Match.

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Imagine you're at McDonald's. You are third in line to order when the manager comes out to speak to everyone. “We have a new policy: Only every third customer has to pay for his food. The two in front of him get to eat for free.” Then the manager looks at you. “You have to pay for yourself and for the two people in front of you. And you get served last because they are much hungrier than you are.”

What company could survive with this business model? The short answer is none. Unless the third person in line is always very nice and wealthy, it goes without saying that this McDonald's will not be in business much longer. What does this have to do with your career in emergency medicine? This is the business model you may be working under for many years to come.

At some point in residency or soon after you graduate, you will hear someone mention the payer mix of your ED. A certain percentage of ED patients will be self-pay or insured by Medicare, Medicaid, or private insurance. This combination of health insurance providers opens a window into that ED's potential income, the amount of money actually collected as a percentage of the amount billed for the services provided.

If the average ED patient is billed $100 and the average amount collected from each patient is $80, the payer mix is 80 percent. This metric allows the comparison of the financial performance of one ED to another and of the ED to other hospital services. It is an integral component of whether an ED is viewed by hospital administration as a burdensome, “revenue-negative” service line.

It is much more complicated than that, of course; even EDs that can appear to be losing money can actually be providing huge financial benefits, such as the entry point for most admissions and a source of radiology and lab studies. You must understand this concept of payer mix at least on a basic level if you are going into this career.

The payer mix can be low for large, tertiary care centers and especially county hospitals that disproportionately care for the poor. It is preposterous that any other business could endure under this payer mix, and it forces hospitals to find other sources of revenue to keep those laggards in the ED from bankrupting the institution.

This is why administrators eagerly promote highly reimbursable services such as cardiology, radiology, outpatient surgery, and obstetrics. Ever notice the slick ads on your local news about the new joint replacement program at your hospital? It's full of slim, fit, and otherwise healthy-looking people with big smiles (and insurance cards in their wallets). Needless to say, they do not look like most ED patients, many of whom do not have a way to pay for their care.

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‘Fix the ED’

This is also why many hospitals avoid providing services for pediatrics and acute psychiatric care. Kids and psychotic homeless people do not have good insurance, and rarely need expensive procedures. The most notable service hospitals avoid is probably major trauma because its patient population is often inadequately insured. One of the largest hospitals in my hometown did not even have a trauma designation for many years.

Losing money is the bane of every administrator's existence, and they usually begin to think that the ED always loses money, which leads to this thought: We better straighten them out. I don't blame them one bit. It is a huge component of their job and how they are judged by their superiors. It can lead to a cascade of interventions to make the ED more efficient. I have experienced and heard about a lot of these initiatives over the past 20 years.

Consultant groups have come through our ED with ideas on how to “fix our problem.” The last one did not even have a physician working with them. They were “process managers,” and after doing a “systems analysis” on our patient throughput, they proceeded to coach us on how we could move our patients through the ED more quickly. It actually seemed logical until it was applied to patients with very low social infrastructure. The consultants expected patients to act logically, but this is hard for them to do when they have so few resources.

After all these years, we have achieved one victory, however: More administrators now understand that the ED is not the problem. This ultra-dedicated group of men and women who often get run over by hordes of angry, frustrated patients are noble people who complain a lot but generally hold it together under some really tough circumstances. This allows the hospital to provide reimbursable services that butter the financial bread of everyone on campus and keep the doors open.

It may not be possible for the ED ever to make money commensurate with the service it provides in many situations. But maybe hospital leaders now understand that it is a necessary financial hardship that cannot be replaced.

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