Just a 2 or 3 years ago, it really did seem like money grew on trees, or, more accurately, from the bank accounts of insurance providers. You could bill out at $700 or $1,500 a day and you might even get paid for all of it. That was amazing considering your operational costs weren’t even half that.
This gluttony of easy money on the backs of insurance carriers harmed our field in a number of ways:
- It attracted shady operators looking to make a quick buck, well… a quick million bucks. Some of these even came from inside the field, individuals that had been sober less than a year started opening up their own centers. They may have been sober, but they were far from recovered. That addicted mentality of only looking out for number 1 and not caring about the rules or who got hurt still prevailed.
- Investment bankers who were focused only on returns, not quality clinical programs, started buying up programs (not all investment bankers are bad. Some get into it for the right reasons, but the purely financial plays have often been a problem).
- Insurance companies developed a deep distrust of the field, going out of their way to restrict and deny coverage after excessive abuses.
- The shady operators attracted tons of bad publicity.
- Poor business models and bloated operations abound. While their heart’s in the right place, many smaller centers were bleeding money and only survived because reimbursements were so high. Now that they’ve fallen to rates normalized to the rest of healthcare, they can’t stay open.
- Worst of all, because of all the above, patients suffered.
Pivot, Sell, or Close, the Choice Is Yours
I’m sure you don’t want to close and selling now would probably not be a good idea either with the poor valuations many centers would get due to low census and high overhead.
So the remaining answer is to pivot. But where? There are really four key adjustments needed.
1) Moving in-network
Many centers have already figured this out. While margins are much lower, you can still make 10-20% on most in-network policies. The more policies you are in-network with, the better.
And this isn’t just better for the center, it’s better for patients as well. In-network almost always means lower costs for the patient and who wouldn’t want that?
2) Lean operations
If you move to an in-network model and still aren’t making 10-20% margins, then that’s a clear signal your operating costs are too high.
- Do you have too many full-time staff? Have you looked at contracting out some roles or moving them to part-time?
- Do you have too many staff in your call center or is your marketing (that you’re paying for) driving too many unqualified inquiries? If you take 100 calls and only 1 of those becomes an admission, that means you still had to pay staff to take the other 99 on top of your marketing expenses to get the calls. Not smart.
- Are you getting full reimbursement from insurance providers? Many billing companies only do the bare minimum. Are they just getting you the low hanging fruit or are they helping you get reimbursed for everything you should be? Do you have good utilization review in place?
- Are you paying for high-end amenities like spas, organic chefs, and private rooms? While these things are surely nice to have, they’re not affordable at lower reimbursement rates. May be time to cut them out. Invest the money where it counts – good staff and good programming.
3) Low margin, high volume
Rather than focusing on residential, which probably will stop being reimbursed well eventually by most insurance providers anyway, can you bring in IOP or OP models that are cost-effective even for Medicaid?
This might mean paying a therapist plus operational costs of $40 an hour and only getting reimbursed $60. Well, if they see the therapist three times a week, that’s $60. If you have that therapist see 10 patients a week, that’s $600 a week or $2,4000 a month.
Grow to ten therapists all doing that and that’s still a $72,000 a month with $24,000 of that as profit. That might not seem like much compared to what centers were making before, but it’s still a very healthy business.
4) Make Friends with Insurance Providers
They are not your enemy. They only want to help patients. If providers believe you’re a good program, they will pay better rates.
Do you know how much it costs for a patient to go to the emergency room these days? The last time my wife went, our insurance got a bill for $20,000 (and the result was they couldn’t find anything wrong). And those struggling with addiction visit the emergency room a lot more. Most “super users” of emergency rooms, those visiting up to 10 times a year, are usually struggling with addiction. So, as an insurance provider, would I rather pay $20,000 one time for treatment, or $20,000 ten times every year? It’s a no-brainer.
However, I do not want to pay $20,000 for treatment and then still pay $20,000 ten more times for emergency room visits plus a twelfth $20,000 for their relapse. If your program works, providers will gladly pay you the money. If not, they’re going to do everything in their power to not pay you.
There are treatment centers out there that have excellent relationships with insurance providers. These are the ones that have focused on clinical excellence, focused on building strong relationships with insurance providers, and deliver results.
Aetna actually just released a pilot program for 13 centers across the country. This program has no billing codes and has NO LIMITS on levels of care. They said, “You are the experts in addiction treatment. You know what’s best for the patient. Do what is necessary and bill us what’s appropriate.”
I bet you’re shocked, but this is the way insurance companies will work with you when they trust you. When you submit for a reimbursement that reflects care given, not just billing for an outrageous maximum hoping you’ll get it.
The Future Is Now
Making these kinds of changes isn’t easy and won’t happen overnight. That’s why you need to start now, while you still have cash reserves and higher cash flow. If you wait until the money dries up, you won’t have the reserves to fund all the changes needed.
Too many centers look to marketing to save them. But, as we can tell you from tons of experience, no amount of marketing will save a center with a bad reputation, that is bleeding money through high overhead, or that is clinging to a past of high reimbursement and PPO only business model. It’s why, here at Circle Social, we combine marketing with strategic operations consulting.
Most centers we start working with have so many things broken that it takes a lot of work from multiple angles to get back on track (or just even build a track in the first place!). Just hiring a new agency or firing your marketing director and getting a new one will do nothing for you. Center turn-arounds require a team effort, people who know the space inside and out and will partner closely with your executive team to get things done. If you’re ready to move into the future of addiction treatment, get in touch using the form below.