Issue 5 - April 2004

Is an insurance network right for you?
Use this formula to find out!
By Mark Mandell, DC, MBA

To join or not to join — that is the question. Like it or not, most patients rely on their insurance coverage to pay for chiropractic care, so deciding to become a preferred provider is an important decision. Preferred-provider status means you may have access to a greater number of patients. The tradeoff, though, may be lower reimbursements for procedures.

Making the decision to join a provider shouldn’t be an emotional one. Rather, it should be a business decision based on asking the right questions, making a few simple calculations and then evaluating all information information.

What to ask
Let’s assume that ARM Insurance Co. has asked you to join its panel. Here are the questions to ask and the process to analyze the answers you get:

• ‘What is your fee schedule?’
Compare the company’s fee schedule to your own office’s collected fees to determine the discount.

• ‘How many chiropractic visits does your plan allow?’

Compare the number of permitted visits to your patient visit average.

• ‘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 insurance company will only provide you with the number in your county. If it only offers numbers for your state, speak with the provider service representative to get an estimate of how many people are covered in your area.

Keep in mind that most patients go to a chiropractor within five to eight miles of their home, so the better you can focus the geographic coverage, the more accurate your calculations.

• ‘What is the utilization rate for chiropractic?’

Historically, about 10 percent of the general population sees a chiropractor each year. Under managed care plans that percentage may drop to as low as 1 percent under a strict gatekeeper system.

The more restrictive the access —such as through HMOs — the lower the utilization rate. Plans with direct and unrestricted access to chiropractors will have a utilization rate closer to 10 percent.

If the company does not reveal its utilization rate, estimate it based on the restrictions, ranging from 1 to 10 percent.

• ‘How many other area chiropractors are credentialed?’

You need to know your competition — currently as well as in the future for your area. These chiropractors will all be sharing access to those potential chiropractic patients.

How to use the answers
Asking the right questions is the first crucial step in deciding if you should join an insurance network. The second is analyzing the answers you get. Here is a suggested way to do that, using the example of ARM Insurance Co.

1. Compute the availability of patients.

Multiply the number of covered lives in your area by the company’s utilization rate.

For example: ARM has 10,000 covered lives in your geographic area and you find out its utilization rate is 7 percent. The number of available patients in its network (those who use chiropractic) is 10,000 x 7 percent = 700.

2. Calculate the number of available patients per chiropractor.

Divide the number of available chiropractic patients by the number of credentialed chiropractors. This is the number of patients you can expect to get from the insurance company.

For example: ARM Insurance has 24 other credentialed chiropractors in addition to you in the same area. Of those 700 statistically available patients, only 28 (700 divided by 25) are expected to be yours.

3. Consider your current patients.

The expected number of patients has to be compared to the number of patients you already have who are using that insurance company.

For example: If you already have 30 patients with ARM and the mathematical availability of patients is 28, you have already exceeded the number you can expect from that company and you will probably not get any more. If, on the other hand, you only have 20 patients covered by ARM currently, you can expect to gain another eight.

4. Calculate your current average patient value.

The number of potential patients is one important calculation. But you should also look at the impact of joining the network on your revenues.

To calculate this number, multiply your average collected office visit fee by your patient visit average (PVA).

For example: If your average collected office fee is $50 and your PVA is 12, your current base patient value is $600. Add in the value of other services, such as x-rays, to get a total current average patient value: $600 + $80 = $680.

Finally, multiply the current average patient value by the number of patients you currently have (in this example, 20) with the insurance company to see their total value: $680 x 20 = $13,600.

5. Compute the average reimbursed patient value.

Determine the average office reimbursement per patient and multiply that by your PVA. (As long as your office’s 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: Let’s assume that ARM’s reimbursement is 80 percent ($40) of your average collected office visit of $50.

Although ARM Insurance allows up to 20 visits per year, your PVA is 12.The calculated base average reimbursed value of the patient is $40 x 12 = $480.

Then, add in the value of other reimbursed services, such as x-rays ($80). Your total current average patient reimbursed value comes for $480 + $80 = $560.

If you were in ARM’s network, the 20 ARM patients you currently have would provide you with $11,200 in income.

6. Determine the cost of belonging to the network.

Subtract the reimbursed value of your 20 patients from their current value to calculate the cost of belonging to the network.

For example: $13,600 – $11,200 = $2,400 cost to belong to ARM network. This is a cost because it is lost revenue to you.

7. Evaluate and decide.

Calculate the anticipated reimbursed value of new patients. If the anticipated revenues significantly exceed the cost of belonging to the network, a decision to join may be warranted.

For example: If you join ARM Insurance, you would anticipate getting eight new patients. Additional revenue to your practice from these patients would be $560 x 8 = $4,480. Thus, by joining the network you would potentially increase your revenues by $2,080 ($4,480 – $2,400 cost to belong = $2,080).

Practicing as a chiropractor requires running a business. 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.

Dr. Mark Mandell is the director of marketing for ChiroMatic Mattresses, a supplier of mattresses to chiropractors and their patients. He is also a healthcare industry consultant and a third-generation chiropractor, who combines his chiropractic and business degrees to develop strategies for healthcare companies to build stronger customer relationships. He can be reached via email at mmandelldc3@comcast.net.