Combating Diminishing Reimbursements in Health Care: Practical Approaches for Contemporary Practices

Healthcare professionals throughout the United States are facing the issue of dwindling reimbursements, a challenge that has lingered for many years and has increased in severity recently. A comprehensive review by the American Medical Association (AMA) indicates that inflation-adjusted Medicare reimbursement rates for doctors fell by an astonishing 22 percent from 2001 to 2021. Simultaneously, in 2021, 17 percent of in-network claims were denied by insurers in the Affordable Care Act (ACA) marketplace. These patterns underscore an escalating financial burden on medical practices, irrespective of their specialty or scale.

As profit margins shrink, numerous practices are lured into increasing their patient volume to offset revenue declines. However, this approach frequently results in higher overhead expenses and may cause operational strains, ultimately undermining profitability. Thankfully, practices do not have to view declining reimbursements as inescapable. By adopting essential operational modifications, physicians can better shield their practices from these economic challenges.

Here are four effective tactics to assist health care providers in tackling this issue:

1. Decrease Overhead via Efficiency Enhancement

Minimizing overhead through enhanced operational efficiency is one of the most significant methods to counter dwindling revenues without exhausting staff or compromising patient care. Industry professionals estimate that many practices carry at least 10 percent in excess overhead, with some reaching up to 40 percent. Addressing inefficiencies, such as redundant administrative processes, obsolete scheduling techniques, or underused staff and space, can unlock immediate financial savings.

For instance, digitizing forms and patient check-ins or investing in integrated electronic medical record (EMR) systems may require an initial investment but can lead to long-term savings through reduced errors and expedited workflows. Instead of always prioritizing growth, which escalates costs, many practices can benefit more by optimizing their existing resources.

2. Enhance Your Collection Ratio

The collection ratio—computed as net collections divided by net billings × 100—is a crucial indicator of practice viability. A target ratio of 95 percent or above is recommended. However, many expanding practices encounter decreases in this vital performance measure. Why is this? An increase in patient numbers often results in more data collection points, raising the probability of errors, omissions, or claim denials.

Instead of hiring additional billing staff to retrieve reimbursements, practices should refine their collection methods. Training staff to accurately gather and input data at the point of care, implementing real-time insurance validation, and utilizing automated billing software can help mitigate denials and carefully track reimbursements. This leads to collecting more revenue on the services already provided—without increasing patient numbers.

3. Enhance Provider and Practice Efficiency

As patient demands grow and reimbursements diminish, maximizing productivity has shifted from being a luxury to becoming essential. This involves more than just seeing a higher number of patients; it’s about achieving more with the same (or fewer) resources. Identifying and eliminating time-wasting procedures, enhancing patient flow, and enabling clinical staff to operate at the top of their licenses can yield considerable improvements.

For example, minor adjustments to layouts—such as moving frequently used equipment or centralizing supplies—can lessen provider interruptions and enhance workflow. Assessing and adjusting staffing ratios or reconfiguring the usage of treatment rooms (e.g., sharing private offices among physicians to free up exam spaces) can lead to measurable increases in throughput and efficiency. The aim is to allow physicians and supporting staff to dedicate more time to patient care and less to logistical hindrances.

4. Explore Merging with a Nearby Practice

Though mergers may appear intimidating, in the current financial landscape, they present one of the few viable options to significantly enhance profitability. A well-organized merger can lower costs through shared resources while boosting negotiating leverage with payers and suppliers. Industry benchmarks suggest that merging two similarly sized practices can elevate the bottom line by 30 percent while cutting overhead (such as staffing and rent) by up to 40 percent.

However, for mergers to be successful, they must be carefully strategized and executed. Practices need to synchronize their long-term objectives, governance structures, EMR systems, and operational workflows. Without thoughtful integration, expected gains may be negated by inefficiencies stemming from misalignment or increased complexity.

Conclusion: Adaptation Is the New Business Paradigm

In a time of decreasing reimbursements and rising costs, health care providers can no longer depend on high patient volumes and favorable payers to sustain profitability. Fortunately, innovative and data-informed operational adjustments—like reducing overhead, enhancing collections, increasing productivity, and considering strategic mergers—can empower practices to regain financial stability.

As Neil Baum, MD, a practicing urologist, wisely noted, “Today’s health care environment offers limited options for changing the reimbursements we receive from payers. However, we can significantly enhance our practices’ efficiency and productivity.”

Even small actions—if approached with a strategic mindset—can yield significant improvements in operational and financial performance. Providers willing to adapt will be best positioned not only to endure but also to flourish in the shifting landscape of contemporary medicine.