When it comes to hospital reimbursement, one statistic often dominates the conversation—on average, hospital commercial reimbursement is coming in at approximately two to three times Medicare reimbursement. Understanding how your organization stacks up against these industry benchmarks is essential, especially when supported by revenue cycle analytics with a modern healthcare analytics software.
Through analysis, we’ve found reimbursements to be approximately 200%-215% of Medicare. But here’s the big question—how do you use this data strategically to enhance contract negotiations, improve financial planning and analysis (FP&A), and maximize net revenue?
Why Use Medicare as a Benchmark?
Medicare provides a standardized and widely understood baseline for reimbursement rates and a way to compare in your market. While there may be some regional and state variations, the methodology is consistent across the healthcare industry. This makes Medicare a reliable point of comparison when assessing contracts with commercial payers.
Benchmarking against Medicare enables you to:
- Stack Rank Commercial Payor Performance: Use RCM analytics to line up all your payers and see how they all pay as a percentage of Medicare. If one payor is low relative to their peers, and they aren’t driving the volume but driving denials, you need to consider renegotiating.
- Budget Analysis and Financial Projections: By evaluating how reimbursement aligns with Medicare reimbursement, you can set budgets and identify service lines needing higher contract rates or efficiency improvements —an effort made far easier with advanced healthcare analytics.
- Gauge Financial Risk: Using Medicare as a benchmark allows you to measure your risk exposure.
Strategic Applications in Negotiations
1. Go Beyond Surface-Level Comparisons
When entering negotiations, it’s essential to get granular. Use Medicare as a starting point, but dig deeper into your data.
- Analyze Outpatient vs. Inpatient Rates: Different service settings often have varying reimbursement patterns.
- Compare Service Lines: Ensure each service line aligns with Medicare benchmarks. Capitalize on higher volume-forecasted service lines by negotiating a higher reimbursement rate to Medicare.
- Evaluate Payor-Specific Trends: Understand individual payor behaviors. For instance, if Payor A reimburses emergency services at 300% of Medicare but Payor B only offers 250%, the gap becomes a negotiation lever.
2. Incorporate Holistic Data
While Medicare comparisons are invaluable, don’t stop there. Include additional metrics such as denial rates and patient cost-sharing. For example, if you’re experiencing a 10% emergency department (ED) downgrade rate, healthcare revenue recovery insights help quantify the financial impact and strengthen your negotiating stance.
3. Factor in Patient Volumes
Volume is as critical as rates. Prioritize forecasted high-volume, revenue-generating areas where improved rates will deliver the greatest impact.
Analyzing inpatient versus outpatient rates, aligning service lines with Medicare benchmarks, and evaluating payor-specific trends allows you to uncover opportunities for leverage. In some cases, this analysis may reveal that exiting a payor market altogether could be the most economical and strategic move.
Final Thoughts
Elevate and Simplify Your Negotiation Strategy
Benchmarking commercial contracts against Medicare—supported by Business Intelligence, Analytics, and AI—provides clarity, structure, and leverage. By analyzing data comprehensively—beyond just overall percentages—you can position your organization for better financial outcomes.
