How to Assess Cost of Service Next to Cost of Staff

Running a mental and behavioral health practice requires striking a balance between providing quality care and ensuring financial sustainability. As practices grow, it’s crucial to evaluate the cost of offering specific clinical services in relation to staff expenses and the potential revenue generated through reimbursements from insurance and Medicaid. Below is a practical framework for assessing these factors and making informed decisions about which services to offer.

Identifying the Cost of Service

The cost of delivering a clinical service has several layers. Let’s break them down:

Credentialing Costs

Credentialing is a critical process for billing insurance and Medicaid, but it can be time-intensive and expensive. Practices must consider:

1. Direct Costs: Fees paid to credentialing agencies or consultants.
2. Indirect Costs: Staff time spent on paperwork, follow-ups, and audits.
3. Renewal Costs: Many credentials require annual or periodic renewal, adding recurring expenses.

Staff Rates

Staff salaries and wages are often the largest expense for a practice. To assess staff costs for different services, consider:

1. Hourly or Salary Rates: Include not just wages but also taxes and benefits (e.g., health insurance, retirement plans).
2. Specialized Skills: Higher staff rates often apply for clinicians with advanced degrees or specialized training (e.g., trauma-informed care, EMDR, DBT).
3. Service Time: Calculate the time staff spend per session, including prep and documentation time.

Tools and Resources

The tools and resources required to provide certain services can significantly impact costs. Consider:

1. Therapy Tools: Materials required for specialized interventions.
2. Technology: Additional software, documentation, or EHR add-ons for specific clinical modalities.
3. Overhead: Office space, utility, and supply variability depending on need for a given service.
4. Training and Certifications: Continuing education or certifications required for staff to offer specific treatments.

Understanding Revenue Potential

To evaluate potential revenue, start by researching reimbursement rates for the services you plan to offer. These rates can vary depending on:

1. Service Type: Individual therapy, group therapy, assessments, or intensive outpatient programs (IOPs).
2. Payor: Insurance companies and Medicaid often have different reimbursement structures. Medicaid, for instance, may reimburse less but could provide a steady client base.
3. Modifiers: Special billing codes or modifiers for telehealth or services provided by certain credentialed staff may impact reimbursement.

Calculate Revenue Per Service

To understand profitability, compare the costs of offering a service to the revenue it generates. For example:

• If an insurance company reimburses $100 for a 50-minute therapy session and the clinician’s total hourly cost (salary, benefits, and overhead) is $75, the profit margin is $25 per session.
• For more complex services requiring higher-cost tools or longer session durations, the margin may narrow or require higher reimbursement rates to be profitable.

Weighing Costs Against Revenue

When weighing the costs of service against potential revenue, consider these steps:

1. Break Even Analysis: Determine how many sessions or services need to be provided monthly to cover costs.
2. Capacity Planning: Assess whether staff have the availability to provide additional services without overextension.
3. Market Demand: Evaluate whether there is sufficient client demand for specific services in your community or target market.

Deciding What Services to Offer

When determining which services to add to your practice, keep these key factors in mind:

Profitability vs. Mission Alignment

While profitability is essential, offering services that align with your practice’s mission and values may justify lower margins for some offerings.

Scalability

Some services, such as group therapy, may allow you to serve more clients simultaneously, improving cost efficiency.

Compliance

Ensure you’re compliant with state regulations and insurance requirements for credentialing, service delivery, and billing.

Growth Potential

Consider services that align with growing trends in mental health care, such as telehealth, which often has lower overhead and high client demand.

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To effectively grow your mental and behavioral health practice, carefully evaluate the cost of offering new services in relation to staff expenses and potential reimbursement revenue. Focus on understanding credentialing costs, staff rates, and resource needs for each service. Compare these to the revenue you can realistically expect, factoring in market demand and scalability.

By strategically assessing these elements, you can confidently decide which services to add to your practice, balancing financial sustainability with your commitment to providing exceptional care.