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ByNathaniel Arana

Top 5 Way Medical Practices Can Combat Inflation

Inflation is affecting many businesses, but medical practices tend to see the brunt of its effects because of the way payment structures are dictated by insurance payers. Even more worrisome, practices have had to increase wages significantly and the current job market tends to favor employees. In some instances, employees are asking for wages 20-30% higher than previous, and understandably can command these wages as there is fierce competition for skilled employees. While these issues are affecting many businesses, there are things medical practices can do to help ease the squeezing margins.

 Outsource Business Functions

You might have a few administrative staff who have left, or you have positions you are trying to fill. Instead of competing in the fierce job market, you could look at outsourcing some job functions either temporarily or perhaps permanently. Often, you can find vendors that provide administrative services less expensively and provide a return on investment rather than having an equivalent full-time employee provide the service. This includes medical billing, credentialing, prior authorizations, and recruiting.

 Credentialing is a great example as it generally doesn’t take a full-time employee (depending on your practice size) and the needs of this function often increase or decrease depending on the time of year. Also, many reputable credentialing companies can complete credentialing more quickly or may have connections at the health plans if something goes wrong. One word of caution: also vet your vendors and ask them for references from current clients. It’s always a good idea to ensure you are working with a reputable partner.

Review your Payer Mix

Many practices are often unaware of how poorly some insurance payers are paying the practice. Payers have notoriously reduced rates and often without any notice. The payer strategy to combat inflation is to lower rates, often at the expense of physicians in their network.

 The best thing to do is to put together an analysis of all your top payers and add the allowable rates. 

  • Take your allowable rates and multiply by each CPT code. 
  • Take the number of evaluation and management visits and divide the total payer revenue by the number of encounters. This will give you the revenue by patient.
  • Compare this between your different payers. 
  • Compare this figure to your costs.  

You may find that you are accepting payers that don’t cover your costs. It’s time to negotiate those contracts or perhaps even stop accepting that payer altogether. This will improve your margins and profit.

Negotiate your Reimbursement Rates

Negotiating your reimbursement rates is one of the most important and fundamental aspects of running a successful practice. Rates tend to not change, therefore, if you wait three years before negotiating your rates you are losing a significant margin. For example, if inflation is conservatively at 5%, after three years you are making 15% less!

The best scenario is to negotiate your contracts from the onset when you obtain them, and then every year ask for Cost of Living Adjustments (COLA) and account for inflation every year. If you already have contracts in place, it is wise to understand your rates, compare them amongst other payers and negotiate to what you think is a fair market. Thereafter you can ask for COLA adjustments every year. In this situation, you want to ensure that your practice administrator has negotiated rates in the past. We have seen circumstances where payers actually try to lower your rates when you negotiate them thinking that you do not understand the contract offer. You must ensure that you have modeled any contract offer to your current services and understand the financial impact.

Review Accounts Receivables and Collections

Because medical practices can’t simply raise their prices, the alternative is to get better at collecting the money owed to you. Examples include reviewing your accounts receivable and understanding the percentage of money you are collecting. The industry standard is a 96% collection rate. If your collection rate is below that amount, you are likely leaving money on the table. Certainly, payers don’t make medical billing easy, but your medical billers should be focused on understanding why you are collecting anything below 96%. Run reports on denial trends so you can identify if certain operational procedures are affecting your collection rate.

Many practices also leave money on the table by having an inefficient patient collection system. Many patients still maintain the mindset that medical care is free or not paid by them, but in reality, we know most patients have an increased deductible that most don’t meet. Therefore, your front office staff should review patient’s deductibles and require the patient to pay upfront. If you have done a good job benchmarking your allowable rates, you should have no problem coming up with an accurate estimate of services and the cost-share the patient should be paying upfront.

Improve Margins

The above items all improve your margins but cutting costs where necessary is vital to any business. We live in an era where we tend to put everything on autopay and forget to even review what we are being charged for the many services we require as a business. This is where it is key to have financial reports every month that lists all your business services. A monthly financial report will allow you to recognize when a cost or service has gone up and thus you can address that service or perhaps find another service provider. A few examples include your internet service providers, email hosting providers, clinical and administrative supplies providers, et cetera. When inflation is high, this is the fastest way to cut costs.


Running a medical practice is difficult and not just when inflation hits. Payers have made the game very difficult for practices to remain independent. We are seeing a lot of consolidation but, many physicians prefer to remain independent or in smaller groups. The fundamentals of these points can help you avoid consolidation and take your practice to the next level. Understand the nuances of your payments and how your payers are reimbursing you can set the foundation for the rest of your practice and future growth. Ensuring proper collections can help increase revenue. Being intelligent about what processes you can outsource and putting them in the hands of experts can help you focus on patient care.

About the Author

Nathaniel Arana

Nathaniel Arana is nationally recognized healthcare business consultant with experience ranging across many different specialties. He is a physician advocate and has helped practices become more profitable by allowing his clients to focus on patient care.