This article is initially available on our podcast. Click here to listen.
I’m in Honduras on vacation. This has some relevance, but what I do on vacation is probably odd relative to most people. I was watching a YouTube video about statistics, precisely the things that I think are fun. This one happened to be about carnival events, meaning if you go to a carnival and do the games there, the ring toss, the basketball shoot, all those kinds of things, what’s your probability of winning?
Looking at it theoretically versus practically, what people realize in terms of if the outcome is relative to what they project, that’s how I get my kicks. Okay, so I’m weird. I found it fascinating.
What’s the point?
Their primary point was, first of all, the probability is horrific for most of these things. For most of them, even the chance ones, your probability is something in the range of 10%. Some of them are 0.1% of winning. It’s terrible odds. So in some ways, you’re better off going to Vegas and just game there because I want to say that payouts in Vegas are probably 35%, 40%, 45%. I don’t know what they are, but something more than 25%, indeed more than 10% or 0.1%. They pay out reasonably well when they’re competitive.
What was interesting was that they took a look not just at the odds of your winning. They focused on the cost of the stuffed animals that you won or the other objects that you got when you won. It was pretty rough. They used specific examples. You had to play four or five times on average to win a particular game where you paid $1.50 each.
And then, your expected cost was $7.50 on average to win something that cost 46 cents to purchase. That’s right! It costs you $7.50 on average to get something that costs less than 50 cents if you bought it yourself directly rather than trying to win it. Again, I understand people do this for their girlfriends or ego or whatever. Who knows what other reasons come up? The point is, the expected outcome was terrible.
Revenue cycle management expected value
The thing that I found interesting and I think is relevant to revenue cycle management is expected value. Your expected value is horrible when you play. If you think about that game where you have to play five times, and you’re only going to win 46 cents, the expected value is somewhere in the range of 9 cents or something like that each time you play. So you’re paying $1.50 to get an expected value of 9 cents. That’s terrible! It’s not just that it’s awful. It’s the fact that people don’t think in those terms. People don’t think about expected value.
We should be doing that when it comes to health care services. Every time a patient walks in the door, whether it’s an emergency or a scheduled visit, you should have some idea. Mainly if you know, some of them are coming in, “Okay, they’ve said over the phone they have these conditions that are presented with this,” you have a pretty good idea on average what those services are going to be.
Consider the case
They’re going to be delivered relative to that incoming diagnosis or presented case. And you should know precisely what the expected income is for each of those CPT codes or procedural codes associated with that. Again, not your fee schedule, not the contracted rate, but the expected value.
For some of those procedures for some payers, it is pretty horrible. But you should know that. We’re going to make 15 bucks off of this patient today. Well, do you want to see that patient, or do you want to change the economics of that somehow? And instead of just saying, “Okay, our expected value is $15,” we’re going to do something different? Maybe we’re going to take a deposit from the patient or something.
The critical thing to think about is getting to the point where you have an expected value for that patient before the patient has any services delivered. That is so important in managing your business, not only in forecasting but adjusting what you do with that patient. It can make all the difference.