Are Your Payers Quietly Changing the Economics of Care?
A medical practice can see more patients, collect more money, and still become less profitable.
One reason is that the economics of reimbursement can change without an obvious reduction in patient volume. Payer mix, reimbursement rates, denials, prior authorization, patient cost sharing, payment timing, and administrative workload can all change the financial value of delivering the same service.
This is becoming increasingly relevant as healthcare costs continue to rise.
The Medical Group Management Association (MGMA) reported in June 2026 that 84% of medical groups had higher year-to-date operating costs than the previous year, with practices reporting an average increase of approximately 11%. Labor, supplies, insurance, rent, and general overhead were among the major contributors.
The question for practice leaders is therefore not simply:
"Which payer pays the most?"
It is:
"Which payer relationships continue to make economic sense after considering the full cost of delivering and collecting payment for care?"
Reimbursement Rates Tell Only Part of the Story
A payer's contracted rate is an important metric, but it does not tell the entire financial story.
Consider two payers:
| Payer A | Payer B |
Average reimbursement | $150 | $165 |
Denial rate | 4% | 11% |
Authorization burden | Low | High |
Average payment time | 18 days | 40 days |
Underpayment issues | Low | Frequent |
Payer B appears more attractive based on reimbursement alone.
But if it requires substantially more authorization work, denial follow-up, appeals, and AR management, the difference in reimbursement may not translate into better economics.
The cost of getting paid matters.
Flat Rates Can Become Effectively Lower Rates
A payer does not necessarily have to reduce its contracted fee to create financial pressure.
If reimbursement remains unchanged while the cost of delivering care increases, the practice's margin on that service declines.
MGMA's 2026 data shows that many medical groups have gone several years without a commercial payer rate increase while simultaneously facing rising operating costs.
This creates a form of silent margin compression.
For example:
Reimbursement: $150
Cost to deliver service in 2025: $120
Contribution: $30
If the cost rises to $135 while reimbursement remains $150:
Contribution: $15
The payer did not reduce the rate.
The economics still changed.
Payer Mix Can Change Revenue Without Changing Volume
A practice may maintain the same number of visits while its financial performance changes because the payer mix changes.
For example, a practice could experience:
Fewer commercial patients
More Medicare patients
More Medicaid patients
More patients with high-deductible plans
The number of encounters remains stable, but the average reimbursement and collection profile may change.
This is why leadership should track:
Patient volume + payer mix + revenue per encounter
rather than patient volume alone.
Patient Cost Sharing Is Part of the Financial Equation
The payer's payment is not necessarily the entire amount the practice expects to collect.
Patients may have:
Deductibles
Copayments
Coinsurance
Out-of-pocket limits
KFF's 2026 Employer Health Benefits Survey found that 88% of covered workers with single coverage were enrolled in plans with a general annual deductible, and the average deductible among those plans was $1,955.
For practices, higher patient responsibility can affect:
Point-of-service collections
Patient AR
Payment plans
Bad debt
Collection costs
A claim can therefore be adjudicated successfully while the practice still faces difficulty collecting the full amount.
Denials Change the Economics of a Payer
A denial is not simply an unpaid claim.
It creates additional work.
Staff may need to:
Review the denial
Identify the cause
Correct the claim
Obtain documentation
Contact the payer
Submit an appeal
Follow up
Post the eventual payment
That work has a cost.
MGMA's 2026 revenue-cycle research identified denials and appeals as a significant source of revenue leakage, alongside front-end problems, billing and collections, coding, and charge posting.
Therefore, practices should evaluate both:
How much does a payer reimburse?
and
How much administrative effort does that reimbursement require?
Prior Authorization Can Reduce the Value of a Service
Prior authorization can affect the economics of care before the claim is ever submitted.
For some services, staff may spend considerable time:
Verifying requirements
Preparing documentation
Submitting requests
Tracking decisions
Monitoring authorized units
Managing additional-information requests
Appealing denials
CMS's prior authorization reforms are moving applicable payers toward more standardized decision processes and electronic prior authorization, but payer-specific requirements remain important.
For practices, the key metric is not simply the authorization approval rate.
It is the total operational cost associated with obtaining authorization and ultimately collecting reimbursement.
Medicare Economics Also Require Close Monitoring
Medicare reimbursement deserves separate analysis because its payment methodology changes through federal rulemaking.
CMS's CY 2027 Medicare Physician Fee Schedule proposed rule includes proposed changes to payment policies, practice-expense methodology, E/M services, remote monitoring, and other areas. CMS also proposed conversion factors of $33.17 for qualifying APM participants and $32.84 for non-qualifying APM participants. These figures are proposed, not final.
Practices should therefore avoid budgeting based solely on current reimbursement assumptions.
Instead, monitor:
Proposed payment changes
Final CMS rules
Service-specific impacts
Payer-specific contracts
Cost changes
A federal payment update does not automatically translate into the same change in a practice's actual reimbursement.
Underpayments Can Hide Behind "Paid" Claims
Denials are visible.
Underpayments can be much harder to detect.
A claim may show as paid while the actual reimbursement differs from what the contract or fee schedule indicates.
Practices should periodically compare:
Expected reimbursement → Actual reimbursement
and investigate recurring differences.
This can uncover:
Incorrect fee schedule application
Contract-loading problems
Modifier issues
Incorrect patient responsibility
Payer processing discrepancies
A low denial rate does not necessarily mean a payer is financially performing well.
Measure Payers at the Service-Line Level
Payer economics can vary significantly by service.
One payer may reimburse office visits well but pay less favorably for procedures.
Another may provide stronger procedure reimbursement but require more authorization.
A useful analysis should therefore compare:
Service
Payer
Volume
Expected reimbursement
Actual reimbursement
Denials
AR
Administrative effort
This is more informative than ranking payers based on total annual collections.
Build a Payer Economics Dashboard
A practical quarterly dashboard could include:
Metric | What It Shows |
Revenue per encounter | Average financial output |
Payer mix | Who is generating practice volume |
Denial rate | Payment friction |
Underpayment variance | Payment accuracy |
Days to payment | Cash-flow speed |
AR aging | Collection risk |
Authorization volume | Administrative burden |
Patient responsibility | Collection exposure |
Appeal recovery | Revenue recovery |
Administrative cost | Cost of obtaining payment |
The objective is not to identify a "best" payer.
It is to understand how each payer affects the financial and operational performance of the practice.
What Practice Leaders Should Ask
At least quarterly, leadership should ask:
Is reimbursement per encounter changing?
Are operating costs increasing faster than reimbursement?
Are certain payers creating disproportionate administrative work?
Are paid claims actually being paid correctly?
Is patient responsibility increasing?
Are individual service lines affected differently?
These questions help identify whether financial changes are being driven by reimbursement, payer mix, operational burden, or collection performance.
The Bigger Picture
The economics of care are determined by more than the amount printed on a payer fee schedule.
A more complete equation is:
Reimbursement − Cost to Deliver Care − Cost to Collect = Economic Contribution
That final component is increasingly important.
If a payer reimburses $175 for a service but requires significantly more staff time, authorization work, appeals, and AR follow-up than another payer paying $160, the $175 rate may not be economically superior.
The actual answer depends on the practice's own data.
Conclusion
Payers do not need to formally reduce reimbursement rates to change the economics of care.
The financial impact can emerge through:
Flat reimbursement while operating costs rise
Changing payer mix
Higher patient responsibility
More authorization requirements
Increasing denials
Underpayments
Slower payment
Greater administrative workload
Recent data shows why practices should pay attention. Medical groups are reporting continued cost increases, while reimbursement does not always move at the same pace.
The solution is not to label one payer as good or bad.
It is to measure the complete economic relationship.
Reimbursement is only the beginning. The real question is what remains after the practice delivers the care and gets paid for it.
Comments