Case Study

Using a Black Box Analysis to Evaluate Financial Implications of Clinical Alignment Strategies

SUMMARY/OVERVIEW

How BDO Helped a Major Health System Identify a Potential 10% Reimbursement Enhancement

Making informed decisions about health insurance reimbursements is essential for healthcare providers. However, analyzing rates and reimbursements between insurance plans can be challenging, in part because sharing proprietary rate information can violate antitrust laws. A thorough black box analysis — where a system’s inputs and outputs are examined without reviewing internal workings that could reveal confidential rate data — can support data-driven decisions that open potential revenue opportunities.

One major health system found itself in such a position while considering service realignment and shifting hospital-employed physicians into alternative work structures. Questions arose about how varying insurance rates might affect productivity and services. Our team proved instrumental in helping the organization evaluate the financial implications of realigning medical group models based on insurance rates and compensation.

Key Takeaways

Rates

Potential 10% rate enhancement opportunity identified for health system.

Final Report

Information enabled the health system’s informed decision making.

Documentation

Complete and concise documentation facilitated the health system’s validation of the analysis. 

Employee pointing at statistics on a screen
The Challenge

Evaluating the Revenue and Cost Implications of Alternative Clinical Alignment Strategies

The client — a multicounty Northeastern health system that partners with various medical schools and faculty plan groups — frequently leased physicians from one of its partner organizations. Those physician services were then billed under the health system, which proved to be expensive. The health system wanted to explore more financially advantageous arrangements, such as moving physician employment and billing to one of its partner organizations. 

The health system reached out to BDO based on previous work that had demonstrated a strong understanding of how medical groups function financially and operationally, knowledge that is crucial for conducting an accurate black box analysis. For this project, we were engaged to analyze the insurance differentials between two organizations — the health system and its academic plan partner — without sharing the actual proprietary payer rates. 

Healthcare employee looking at their computer
The Approach

A Black Box Analysis Protects Proprietary Data and Reduces Antitrust Risk  

Our team completed its black box analysis in four steps:

  1. Data Request

    We defined the claim data to be collected and, within that data set, the inclusion and exclusion criteria for the analysis. After data collection, our team standardized the necessary rate data from both the health system and partner organization. We also identified the special considerations that could affect the analysis, such as how reimbursement rates are adjusted when multiple procedures are performed during the same encounter.

  2. Data Validation

    It was important to validate the collected claims data with the health system to confirm that it was aligned with the system’s actual performance. In addition, our team had both the client and its partner organization agree on the alignment of the insurance plans in the claim data with their respective insurance contractual rates as provided. 

  3. Data Analysis

    We leveraged our proprietary advanced automation formula — including both a rate analysis and a volume/payer mix analysis — to streamline the data analysis, integrate various data sources efficiently, and reduce the potential for human error. Our team’s automation of this process allowed for an effective, efficient, and cost-effective process for both BDO and the health system.

  4. Final Report

    Once the black box analysis was complete, our team provided a final report in an accessible PowerPoint format with detailed but protected appendices that provided detail without disclosing proprietary payer rates. 

A pen being used on a mobile device
The Results

Final Analysis Provides Clarity

We delivered a final report that protected payer rate information for each organization while illustrating the financial impacts of billing under the partner organization. This allowed the health system to make an informed decision about whether to move forward with shifting to a new medical group model. It’s important to note that the new opportunities our team uncovered were based on the rates provided by each organization; actual results may vary based on changing contracts, payer mix, and revenue cycle performance. 

Overall, the analysis results represented a potential 10% rate enhancement for the payers and services that we evaluated. Some key findings applied to specific service areas within the health system:

  • Surgical Services represented the greatest rate enhancement opportunity as the partner organization had several favorable contracts for complex surgeries.
  • Commercial Insurance contracts also offered significant opportunities for the health system.
  • Government contracts for Medicare Advantage and Medicaid Managed Care offered marginal variance in results.

Our team also provided crucial assistance to the client in the following ways:

  1. Helping align insurance contracts against insurance payers and plans used in the health system electronic medical record and practice management system, which was critical to the accuracy of the analysis.

  2. Providing complete and concise documentation of assumptions for excluded services and payers, facilitated the client’s validation of the analysis.

Throughout the engagement, we focused on conducting a rigorous black box analysis that evaluated reimbursement scenarios while protecting confidential rate information.

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