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A commentary on the CMS SGR cuts.

CMS SGR cuts, don’t be fooled.
Know your profit margin.

Without congress's last minute intervention the 2013 Medicare fee schedule would have been reduced by 30%. The general public and even others think that such a cut would have simply reduced their doctor’s income by 30%. How untrue!

Examples:

Physicians: Dr. Smith runs a practice and collects $500,000 per year. After he pays $400,000 operating expenses for his staff, rent, utilities, supplies, and malpractice, he has a profit or salary of $100,000 for living expenses and retirement. (20% profit margin)

With a 30% cut to his reimbursements, he will take in only $350,000 this next year. With $400,000 going to pay his bills, he worked all year and will have a negative salary or owe $50,000 !

Consider that most commercial insurances have their fee schedule expressed as a percentage of Medicare (BCBS being 120% of Medicare allowable). Therefore, Medicare cuts immediately affect essentially all other payors simultaneously and to the exact same degree.

Imaging centers: If your profit margin or year end profit expressed as a percentage of your collections is less than any actual Medicare cuts, you may expect to be like Dr. Smith.

Billing companies: If you are doing the billing for Dr. Smith, your client’s reimbursements are cut 30% and so will your collections and the resulting payments for your services. (gross income goes down 30%) Your overhead costs for mailing statements and filing the same number of claims will not have changed at all. Just like the imaging center, if your profit margin was not at least 30%, expect to be very busy, yet go mysteriously bankrupt rather quickly. Simply expanding by getting more clients like Dr. Smith will only make matters worse. You must be able to lower your costs.

The take away point: If your present profit margin is less than Medicare’s actual cut, take some form of immediate action to prevent from losing any financial reserves you may have.

For every dollar brought in, Dr. Smith initially kept 20% or a profit margin of 20%. An imaging center or billing company may have a single digit profit margin. If so, even a slight reduction in CMS reimbursements may have catastrophic financial implications.

We have ways to help offset some of these anticipated cutbacks. We are also watching congress's actions which are expected to have an 800 billion dollar impact on healthcare cuts. We are positioning our services to accommodate these anticipated changes.

Tom Henslee

RadPayor
Computer Assisted Coding

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