Paper instructions:

The Medical Center Director has asked you to create a business memorandum. Comment on these issues and come up with some possible solutions to find the most optimal payer mix.

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The Impact to the Organizations of the Decreased Reimbursement from the Government Programs
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Use the case study below:
You are the Business Office Manager of Community Memorial Hospital. It is a mid-sized facility located in the mid-west (approximately 650,000 residents). The hospital employs 350 physicians and 1,700 other staff. The current payer mix is Medicare 40%; private insurance 30%; Medicaid 15%; and the last 15% is through a combination of managed care, self-pay, and the medically indigent. Medicare and Medicaid has reduced its reimbursement over the last few years as a result of regulatory reforms. The number of private insurance clients (these pay more than our costs) has declined. We have also seen an increase in our expenditures (medical and office supplies, pharmaceuticals, and over-time). As a result of these factors, it is understandable that the hospital’s leadership team is a little concerned about the financial liquidity of the organization.


As you prepare your business memorandum, consider the following:
What is the impact to the organization of the decreased reimbursement from the government programs?
What factors could be responsible for the decrease in private insurance patients?
How do we attract more private insurance clients?
How do we increase the revenue from self-pay clients?
Do we cut the amount of patients in government programs in an effort to cut costs since the reimbursement is already shrinking?


When organizations (for-profit and nonprofit) are looking at the sources of their patient service revenue and the proportion of revenues coming from each source, they commonly refer to this as the “payer mix”. Common sources of patient service revenue come from the government (tax payers) in the form of Medicare, Medicaid (to include CHIPS), and to a lesser extent Tricare (for military and dependents); private coverage through traditional fee-for-service plans and managed care; and, of course, cash payers and those that are medically indigent.

There is only so much time in the day, so if they are having to see a large volume of Medicaid clients to generate a profit, then they will have less time to assess and treat clients will other forms of reimbursement that pay better. As a health services manager, we need to keep an eye on the organization’s payer mix and other sources of revenue, while concurrently improving process efficiencies resulting in lower operating costs and stronger profit margins.
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