The hospital payor mix tells you a lot about who comes to the hospital in general, but it doesn’t tell you anything about specific service the hospital performs. In addition to the hospital payor mix, each service has its own payor mix called an estimated payor mix.

Here’s an example. Suppose 50% of all McDonald’s customers are male and 50% are female. Just because 50% of the customers are male doesn’t mean that 50% of the people who eat chicken sandwiches are male, too. Maybe the breakdown of those who eat chicken sandwiches is 70% male and 30% female (because the men who live near that McDonald’s happen to like chicken more than the women do).

Differences in the Hospital Payor Mix and the Estimated Payor Mixes for Procedures

There are several reasons why the estimated payor mix for a service would be different from the general hospital payor mix. For example:

• Not all the patients who come to a hospital use every service. The payor mix for a physical therapy unit, for example, probably wouldn’t include patients who come to the hospital for heart problems.


• Not all payors cover every service. Insurers, including Medicaid and Medicare, often exclude procedures, meaning that even if a patient has that procedure, the insurance won’t cover it. In that case, either the patient isn’t going to get the procedure at all (which means they completely disappear from the payor mix), or maybe the patient finds a different way to pay for the procedure (which means they shift from one kind of payor to another kind of payor).


• Self-pay patients cannot afford the service. In many estimated payor mixes, the percentage of self-pay patients is reduced. Many times, because they are paying out of their own pockets, self-pay patients cannot afford expensive procedures, so even though there might be a lot of self-pay patients in a hospital’s general payor mix, their numbers aren’t as high in estimated payor mixes for expensive services.

Let’s look at an example of an Estimated Payor Mix. Suppose this is the Estimated Payor Mix for X-rays at a hospital. Compare the General Payor Mix and Estimated Payor Mix. What do you notice?

Here are some of the differences:

• Medicaid dropped from 10% in the hospital to 0% for the X-ray. This probably means that Medicaid doesn’t cover the service.


• Commercial increased from 2% in the hospital to 5% for the X-ray. Patients with commercial insurance only represent 2% of the total hospital population, but they represent 5% of the people who have X-rays.


• Self-payors dropped from 5% in the hospital to 2% for the X-rays. It is common to see this in an estimated payor mix, as many self-pay patients cannot afford expensive services.


• The total payor mix dropped from 100% for the hospital to 85% for the X-rays. That doesn’t make sense. How can the total not be 100%? It turns out that this is correct…but a little complicated. Let’s clarify that confusion next.

Why is the total estimated payor mix less than 100%?
Let’s look at the estimated payor mix in the example above. Something odd happened: the total isn’t 100% anymore! If we’re talking about a total, shouldn’t the total be 100%? 100% means “all of them,” but we need to remember who “them” refers to. Is it 100% of all of the people who come to the hospital? 100% of the people from your family who had breakfast this morning? “100%” can mean a lot of different things, and what has happened here is that we forgot to keep track of what we meant when we said “100%”. Let’s straighten that out.

When we started talking about payor mix, we were talking about all of the payors at the hospital. Those add up to 100%. So, “100%” meant “all of the payors at the hospital.” Now, in thinking about who gets X-rays and how they pay, we want to talk about a different “100%”— 100% all of the X-ray payors.

Several of the percentages from the general payor mix changed. Medicaid, for example, isn’t a factor in the payor mix anymore, so its percentage of the payor mix went from 10%...wait. 10% of what? That’s still 10% of all of the payors at the hospital, right? So let’s be careful here. The hospital’s payor mix had 10% Medicaid, but that 10% goes away when it comes to the X-rays. With the other changes in the payor mix, we are left with 85%...of what? Well, we started with “all of the payors at the hospital,” and we didn’t switch that definition anywhere, so now we have “85% of all of the payors at the hospital.” 15% don’t pay for X-rays, and 85% do.

So that’s why we don’t have 100% anymore: 15% of the payor mix for the whole hospital doesn’t apply to the X-rays, so the payor mix for the X-rays is really 85% of what we started with.

So, we now are talking about 85% of the hospital’s original payor mix. Is that ok? Can we do that? Technically, yes, we can, but it’s a lot easier to think about the X-rays if we think about “all of the X-ray patients” being 100%, rather than 85%.

If we want the estimated payor mix to total 100%, how do we fix it?
We need to change our perspective a bit. Instead of thinking about 100% as “100% of the hospital payors,” we want a new 100%. We want 100% to mean “100% of the X-ray payors.” How do we make that switch? That’s what normalization is. Before, everything was relative to the hospital’s payors, and now, we want to translate everything to a new scale, where everything is relative to the X-ray payors.