SAN FRANCISCO – With a little number crunching and strategizing, pediatric practices can provide immunizations to their patients without getting financially soaked, according to Chip Hart, a pediatric practice management consultant.
He discussed various pitfalls and challenges when it comes to the business aspects of providing immunizations, and offered some solutions at the annual meeting of the American Academy of Pediatrics.
Chip Hart
His company has collected data suggesting that as of 2015, revenue from vaccine products made up fully 21% of all revenue in private pediatric practices, a near doubling from the value in 2003. As a consultant today, “I try to find out how practices manage the vaccines because, after staff, it’s your biggest expense,” he noted.
Spotting hidden costs
In its business case, the AAP determined that direct and indirect expenses for vaccine product total to 17% to 28% of the cost. In other words, “if you buy a vaccine for $100, you need to collect somewhere between $117 and $128, on average, just to break even,” Mr. Hart explained.
What accounts for that extra expense? Carrying costs that are commonly overlooked, namely, those myriad costs of providing immunizations that accrue before a child is given any vaccine and that can add up quickly.
They include the costs of the refrigerator and examination table; the sharps and waste management; insurance to cover vaccine loss; vaccine wastage and denials; and opportunity cost, that is, the cost of not being able to invest the funds tied up in vaccine sitting in the fridge – some $75,000 to $100,000 for the average practice – elsewhere.
Add to those personnel costs; costs related to activities such as ordering, inventory and storage management, registry input, and temperature monitoring; and malpractice coverage. And not to be forgotten is the inability to collect payment for some vaccines.
“You’re not paid for carrying costs. Unfortunately, society or the American health care system has given pediatricians this burden,” Mr. Hart commented.
Doing the math
Pediatricians can get a handle on the true costs to their practice of providing immunizations by spending just an hour or two crunching some key numbers, according to Mr. Hart.
They should start by ascertaining those carrying costs. For example, assuming hazardous waste costs run $3,500 per year, vaccines account for 50% of the waste, and the practice gives 13,000 vaccines annually, it averages out to $0.13 per vaccine.
Similar calculations are done to determine the costs of administering the shot (preparing, administering, counseling, billing, recording, putting it in the registry, and so on), arriving at about $12 per vaccine. The largest share here comes from clinicians, so calculations focus on their hourly wages and the percent of their time spent on vaccines.
Next is a calculation of the cost of the vaccine product. This calculation starts with the hypothetical invoiced amount of $100, factors in units that are wasted or go unpaid (at least 5%, according to AAP data), and tacks on the distributed carrying costs, arriving finally at an actual cost to the practice of about $120.
Last, all of these data are loaded into a payer-specific spreadsheet. Commonly, payers go by Red Book values and will therefore cover, for example, only $98 of that $100 invoice cost of the vaccine. But they will pay roughly $27 for its administration.
Taken together, the math suggests the practice bears a total cost of $132 for this vaccine ($120 for the product and $12 for its administration) but will collect only $125 from this payer ($98 for the product and $27 for its administration).
“You see over and over again that the payers underpay for the vaccines and pay you well for the administration, and it very often makes up the difference,” Mr. Hart noted. “But even with that boost on the admin side, this practice is losing money on this vaccine – they get $125 for something that costs them $132.”
Practices strapped for time can use some estimates in their spreadsheets instead, he said. “If you use an assumption of 25% over your invoice” – roughly the midpoint between the AAP’s 17% and 28% – “and $12 to $15 on your administration” – based on the value found in a study using time-motion analysis (Pediatrics. 2009 Dec;124 Suppl 5:S492-8) – “for your costs, all you need is your fee schedule, and you can make a spreadsheet to find out whether it makes sense to continue giving immunizations to this payer’s kids.”