I get asked all the time: “What is the main reason facilities in the addiction treatment space go out of business?” The answer may surprise some, but the reason is due to “poor census quality.”
People often don’t understand this term, so I explain. By poor census quality, I don’t mean that patients themselves are of poor quality, but rather that their health insurance policies don’t adequately reimburse facilities for the services they provide. This is especially important to the addiction treatment industry because of couple of unique characteristics.
Poor Census Quality
First, the unique patient population, who although may be insured, often lack the means to pay their entire patient portion — especially if that portion is very high. Not only do addiction treatment centers have a unique patient population, but these facilities are also unique compared to the rest of the healthcare space. Many treatment centers operate out-of-network with a significant portion of insurance payers. As a result, treatment facilities often don’t know how much they’ll be paid by the insurance companies for their services. Add that to the fact that the patient population often times can’t pay their entire patient potion and you can see how it’s a recipe for disaster.
For example, an addiction treatment center may invest a lot of time and care treating a patient for months. After a patient’s stay, the center may bill insurance for $100,000. As an out of network facility it’s highly unlikely insurers will pay the full amount. Instead, they might pay a small portion like 10 percent ($10,000) of the bill. Facilities will try to recover the cost from patients, but they can’t often afford the bill. This leaves facilities in a risky situation — especially if they continue to admit patients with bad insurance policies.
Between poor insurance policies and patient population without the financial ability to make up the difference between what was billed and what was paid, it leaves the treatment center with no option but to take the loss. Their inability to predict reimbursement rates is why so many fail. In essence, addiction treatment centers are flying blind, but now Zealie’s toolshelps them see clearly.
By aggregating and analyzing the data from all of Zealie’s users, Zealie allows facilities to project revenue for their services before admitting the client.
In addition Zealie’s tools like Zealie dashboard, for example, allow users to view real-time KPIs like aging metrics, census mix analysis and payer reimbursement rate analysis so they can make more educated business decisions.
Using these tools ensures you don’t encounter poor census quality which is the number one cause as to why these facilities go out of business.
Old Vs. New Models
Understanding the importance of poor census quality requires a new way of thinking. In the past, the “heads in beds” business model, which meant get as many as patients as possible into your center, prevailed and worked. Years ago, when health insurance companies didn’t know how to calculate reimbursement rates for addiction treatment services, facilities didn’t have to pay attention to each patient’s individual policy. In today’s world, facilities have to pay attention to policies they take to understand how much they’ll be paid and allow patients to know how much they owe beforehand.
The old “heads in beds” theory should be replaced with the theory of the “right heads in the right beds.” The policies and the providers need to match up so that facilities are adequately reimbursed. One of Zealie’s many tools, Alpha Tracker, for instance, which aggregates real-time data can help fit the patient with the right facility. With this “right heads in the right beds” strategy, sometimes an insurance policy will adequately reimburse an out-of-network provider. Other times, insurance will pay in-network providers better than out-of-network ones. If a treatment center knows this information before admitting a patient, they can tell the patient that their policy won’t adequality cover the facility for their services so the patient’s portion will be very high and that there may be cheaper alternatives for the patient.
This is good for both the patient and facility because the patient can seek an alternative treatment facility where their portion won’t be so high and the facility won’t end up treating a patient that they will take a financial loss on.
Operating as Larger Clinics: Bigger Isn’t Always Better
Once facilities realize that the old ways of thinking are no longer feasible in today’s marketplace, they often also realize that expanding isn’t always better. When you inform patients that there may be cheaper alternatives for them, the size of your census — the number of clients you treat — can get reduced. My clients become fearful that they won’t be able to fill a 50-bed facility.
That’s not always a bad thing. Sometimes it makes more sense financially to operate a smaller facility than a larger one.
A 50-bed treatment facility, for example, could operate by filling all 50 beds at an average reimbursement rate of $300/day per client from health insurance. As a company, they would make $15,000/day. However, the overhead to treat all those people could be $20,000/day. From the outside, the large facility may look successful, but in reality the business loses $5,000 daily.
Meanwhile, a much smaller, 10-bed facility averaging $1,500/day per client in reimbursement can make the same $15,000/day in gross revenue but because the 10-bed facility is only spending about $5,000/day to treat its’ clients, it nets $15,000/day.
As you can see, when it comes to the bottom line, bigger isn’t always better. It’s with tools like Zealie’s interactive heat map that aggregates historical data to inform facilities which policies reimburse them properly for their services that treatment centers can use to make informed business decisions from marketing to admissions.
Using Zealie’s tools, smaller facilities can use their business model to grow into a more sustainable, larger operation. Take Blockbuster vs. Netflix for example. Blockbuster, although a large company, failed to digitize its business with new innovations and ultimately failed because they weren’t offering anything new to their customers. At the same time, they lost money even though they were a wide-ranging business. The same can be said for addiction treatment facilities. Overall, the more facilities use data to become utilize more sophisticated strategies, the more sustainable they can become.
Zealie Paves the Way for the Future
In summary, the biggest mistake addiction treatment facilities make is that they take patients whose policies don’t adequately reimburse them for their services while patients can’t make pay their portion. They’re left only with the payment from the insurance company which could be insignificant. As a result, many treatment facilities grow too big, too fast and face destruction.
Zealie’s offerings are designed to let you know that before you admit a client what you should expect in reimbursement rates so you can inform clients as well. Make smarter decisions based on data, not anecdotal evidence. When you use large aggregated data sets, you align yourself with success. You can be a 10-bed facility and eventually grow into a 50-bed facility with the same business model you used as a smaller facility. However, it’s important to grow using sustainable business models with the data to help you operate.
There are two paths for facilities to take in the new marketplace. You can either go extinct like Blockbuster or become a Netflix with the help of Zealie. Our tools allow addiction treatment facilities to survive and thrive. In this new and exciting era, don’t get left behind.