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A Quick Way to Determine Medicare Fee Reduction’s Impact

It’s that time of year again. Medicare fees are in danger of being slashed for 2012 and your revenue will be impacted. Bah humbug! Since Medicare is a huge payer, almost every medical organization across the country will feel the impact of any cuts that are made. So, it is important to know how to quickly calculate the potential impact on your overall electronic payment revenue.

For this blog, I am going to use the following formula to determine the percentage impact to overall monthly electronic payment revenue:

The total of Medicare reductions is calculated as follows:

Don’t worry….these formulas are easier than they look! As an example, let’s assume you have $200,000 in monthly electronic payments revenue. Let’s say that $150,000 (or 75%) of that revenue is from Medicare. $50,000 of that revenue is from your other electronic payers. We find out that Medicare will be reducing fees by 15% in 2012. Using the formula for Total Medicare reductions, we have:

This evaluates to $177,500. Plugging this value into the first formula above, we have:

This will equate to: $22,500/$200,000 which equals 11.25%. Thus, in our example, a 15% reduction in monthly Medicare will result in a 11.25% reduction in overall monthly electronic payments.

Ready to try this for your practice? The following Excel sheet is an example report I pulled from a clearinghouse application. As you can see, this report details the total amount of all electronic claims broken down by payer (Hopefully your clearinghouse can provide the same information easily for you, if not request that they provide this information to you on a regular basis) I have highlighted the Total of All Electronic Payments in red:

You can also use this report to get the Total Medicare Electronic Payments. Look for the Medicare payer name and the corresponding Paid Amount. I have highlighted it in green above.

To find the Total of All Non-Medicare Electronic Payments, you can subtract the Medicare from the Total. Using this demo data, that would be: $117,743 – $63,126 = $54,617.

What percentage will you use for the Medicare reductions in 2012? Well, the CMS Final Rule puts cuts at about 27%. However, our experience over the past decade or so tells us that it’s unlikely this cut will take effect. More likely, Congress will intervene to create a more modest change. For 2010, the Medicare conversion factor dropped by nearly 8%, so perhaps you might want to see what will happen to your electronic payment revenue if an 8% or 10% reduction were to occur.

Once you have all of these values, you can calculate the formula manually. Or, if you would like to try different scenarios and also save the formula for the future, you can enter it into Excel. Here is a simple spreadsheet that you can copy and use for yourself. This will make it easy to change the Percentage of Medicare reductions value in cell B1 so you can see what the impact will be. I will use the numbers from the demo data above.

As you say goodbye to 2011 and set your sights on 2012, make a resolution to watch over your revenue with more diligence than ever before!