Health System Operating Margins: Calculating a Higher Return
With the obligation of medical expenses increasingly shifting to consumers, health systems must adapt. Rather than accepting patient write-offs as lost revenue, health systems should use this growing obligation as an opportunity to better understand patients and how to improve their financial experience.
After all, patients deserve a financial experience that is as good as, or even better than, the clinical one.
VisitPay is now offering a valuable tool to calculate the expected return on a personalized approach to payment. Engaging patients more meaningfully has a direct impact on your bottom line. And in patient satisfaction.
Calculating Your ROI
Let’s walk through an example so you can see how a personalized payment approach could yield dividends for your health system.
Step 1: Net Patient Revenue. What is the net patient revenue your organization expects to receive this year? In other words, what are the expected collections from patient care activity?
As an example, let’s use $3.1 billion as a starting point.
Step 2: Patient Obligation. What percentage of that net patient revenue will be the patients’ responsibility to pay out of pocket? Though VisitPay typically sees a patient obligation comprising 20% of overall Net Patient Revenue, every situation is unique.
A patient obligation of 20% would yield $620 million in self-pay revenue.
Step 3: Current Collection Rate. Using bill-centric and EHR solutions, health systems only collect a limited amount of this self-pay revenue. As a result, an even larger portion is written off. What is your average current collection rate on this self-pay revenue?
At a rate of 35%, for example, you would capture $217 million of this self-pay revenue, with $403 million written off.
Step 4: Patient Composition. Patients range in age, income, gender, marital status and other important demographic factors. These same people have different attitudes about healthcare, too. Understanding the make-up of your patient base will yield a more precise measure of anticipated collectibles.
VisitPay has created four patient groups, or segments, based on proprietary research. You can then easily estimate what your population looks like.
Let’s say your patient base breaks out as follows: Single & Straddled (24%), Occupied Professionals (28%), Health & Oblivious (17%) and Established Sages (31%).
Step 5: Increased Yield. By understanding your patient composition and tailoring your engagement approach based on their preferences, you can boost payment rates significantly. Specifically, using VisitPay’s approach, health systems have increased payment rates by 30%.
With a 30% yield increase, your health system will add an incremental $41 million to its bottom line.
A Bottomline Impact on Your Operations
VisitPay’s yield calculator provides an accurate estimate of patient receivables you could expect to gain with a robust and personalized approach to patient payment. These are real dollars that impact your operating margin – available to upgrade clinical systems, increase clinician salaries and make capital improvements!
With $3.1 billion in NPR and a 3% operation margin, your profit margin equates to $93 million annually, or $31 million per point. With a 30% boost to your self-pay collection rates, you could capture more than one percentage point of incremental revenues.
The Return on a Best-in-Class Patient Payment Approach
Many health systems offer payment solutions that are “good enough,” with an online payment option to meet a patient’s need for convenience. However, in an increasingly connected world in which patients are accustomed to an Amazon-like experience, paying online is merely one facet in delighting patients.
Better understanding and engaging your patients is foundational to drive better outcomes, while “good enough” leaves uncollected dollars on the table.
VisitPay is your guide to a great patient financial experience. Are you ready to enjoy the dividends of a personalized payment approach?
Where's your operating margin hiding?
Find out not only how big your opportunity is, but how you can take advantage of it with our Yield Calculator.