You negotiate reimbursement without knowing what the procedure costs.
Payer mix is the most volatile lever on a hospital's margin, and the one most providers manage blind. When you cannot state the real cost of a procedure, every reimbursement negotiation is a guess. When you can, the conversation changes, and so does the rate.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
Payer mix is a hospital's most volatile margin driver: a small shift moves margins by several points, and deliberate mix optimisation can lift them further. The lever that makes this manageable is procedure-level cost. Providers that bring a defensible cost per procedure to negotiations secure high single to low double-digit better reimbursement. Without TDABC, the cost number does not exist, and the negotiation is a guess.
Profitable under one contract, a loss under another.
A procedure does not have one margin; it has one per payer. The same operation can clear a healthy surplus under a private contract and run below cost under a public tariff, and without cost per pathway the mix decision is made on revenue alone, chasing volume that does not pay. Few providers model this, because they have the revenue side of the equation and not the cost side.
MARGIN BY PAYER AND PROCEDURE
Illustrative. The same procedure sits in different margin bands across payers. The grid drives two decisions: which contracts to renegotiate first, and which mix shifts genuinely improve margin.
Cost per pathway times reimbursement per payer.
Combine the TDABC cost per procedure with the reimbursement each payer pays for it, and you get a margin-per-payer-per-procedure grid. That grid drives two moves: renegotiate the contracts with the largest gap between cost and reimbursement first, and pursue only the mix shifts that improve margin rather than just volume. It is the same discipline as pricing on real cost in any sector, applied to a regulated, contract-bound buyer, and it stays inside the line the pillar draws: cost informs the negotiation, it does not decide who gets care.
Cost each procedure
A defensible TDABC cost per pathway, the number you can put on the table.
Map margin by payer
Cost against each payer's reimbursement for that procedure, cell by cell.
Rank the gaps
Renegotiate first where cost and reimbursement are furthest apart, with evidence, not assertion.
Shift the mix that pays
Pursue the mix changes that genuinely lift margin, and decline the ones that only add volume.
Frequently asked questions
- How does payer mix affect hospital profitability?
- Payer mix is a hospital's most volatile margin driver: a small shift in payer mix moves margins by several points, and deliberate mix optimisation can add several more. The same procedure can be profitable under one payer and loss-making under another, so without a cost per pathway the mix decision is made on revenue alone.
- Does knowing cost per procedure help reimbursement negotiations?
- Yes. Providers that bring a defensible cost per procedure to negotiations secure high single to low double-digit better reimbursement. Without TDABC the cost number does not exist, and the negotiation is a guess.
- How do you decide which contracts to renegotiate?
- Combine the TDABC cost per procedure with each payer's reimbursement to build a margin-per-payer-per-procedure grid. Renegotiate first where the gap between cost and reimbursement is largest, and pursue only the mix shifts that genuinely improve margin rather than just volume.
Walk into the negotiation with the number.
The Profit Check takes five minutes and no data upload. It points to where your payer contracts are most likely out of line with cost, and what closing the gap is worth.