Physician Practices Today – Business Realities &

OpportunitiesRosemarie Nelson, MS

Principal, MGMA Health Care Consulting Group

October 2006

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Best Business Practices

• Definition: a proven service, function, or process that has been shown to produce superior outcomes or results in benchmarks that meet or set a new standard.– Best: optimal for organization given its

patients, mission, community, culture and external environment

– Trends

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Dynamic relationship• More revenue

Higher operating costs

• Operating expense increases

Total profit rises

• How is it managed?

Productivity

Expenses Revenue

Profit

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Better Performer Findings:

• Overall effectiveness of physician/administrative team critical

• Commonality of expectations between physicians

• Motivation of physicians thru productivity based compensation

• BP administrators on incentive based compensation

• Regular physician/staff training to ensure coding compliance

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Selection criteria by performance area:

Profitability and Cost Management

•Greater than median for total medical revenue after operating cost per FTE physician; and•Less than median for operating cost (not including NPP costs) per medical procedure (inside the practice).

Productivity, Capacity and Staffing (nonsurgical specialties)

•Greater than median for in-house professional procedures per sq.ft; and•Greater than median for total gross charges per FTE physician.

Productivity, Capacity and Staffing (surgical specialty aggregate)

•Greater than median for total procedures per FTE physician; and•Greater than median for total gross charges per FTE physician.•Anesthesia practices, greater than median for ASA units per FTE physician.

Accounts Receivable and Collections

•Less than median for percent of total A/R over 120 days; and•Greater than median for adjusted fee-for-service collection percentage; and•Less than median for months gross fee-for-service charges in A/R.

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Opportunity

Thesis – “There are no perfect solutions” “Nothing achieves 100%” “Many small changes add up” If others can improve, why not your

practice?

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Benchmarking- MGMA Hematology/Oncology

(where you stand vs. the rest of the world)

Per FTE physician (2005 Cost Survey Based on 2004 Data)

  25th %tile Median 75th %tile 90th %tile

Gross charges $4,031,922 $4,995,615 $7,736,067 $10,182,290

Medical revenue $2,162,498 $3,288,839 $3,910,725 $4,926,461

Operating cost as % of medical revenue 65.32% 71.85% 79.76% 85.18%

Support staff 4.23 7.36 8.89 13.35

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Advantages of Benchmarking

Where is the opportunity? How much? Starting point for change?

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Profit Improvement Objectives (Are you voluntarily limiting profitability by not

optimizing return on overhead?)

Improve revenue Reduce, or realistically control cost Simple concepts, but we forget No single action, but combination of –

multiple actions

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Incremental Revenue Should you accept poor paying contract?

Obvious answer – No!Practical answer – project the numbers!

? Participate, or not?

Current practice

Proposed 50%

Payor B 70%

Payor A 80%

Medicare 58%

Health Plan Contracts

and % of fee

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Practice A – Full practice (limited access)

Answer – no

Practice B – needs patients, but cost would increase

Answer – maybe

Practice C – needs patients, minimal increased cost, physician willing to increase volume

Answer – YES!

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Volume Problems (inadequate patient base)

Access: Who controls the appointments? Convenience vs. productivity Convenience for:

Physicians Staff Patients

Hours/days

Marketing: Do you have a hook? Cost Patient network

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Staff Cost

Major cost (10% - 30% of revenue) Set the hours – avoid overtime Part-time/full-time Out source (billing service, MSO,

transcription) Midlevel – cost reality

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StaffingTelephones with messaging 300 – 400 calls/day

Appointment scheduling with no registration 75 – 125 calls/day

Appointment scheduling with full registration 50 – 75 calls/day

Pre- or site registration with insurance verification 60 – 80 patients/day

Check-in with registration verification only 100 – 130 patients/day

Site check-in with registration verification and cashiering only

75 – 100 patients/day

Check-out with follow-up scheduling, charge entry and cashiering

60 – 80 patients/day

Check-out with scheduling and charge entry 70 – 90 patients/day

Check-out with scheduling and cashiering 70 – 90 patients/day

Referral specialist (inbound or outbound referrals) 70 – 90 patients/day

*Reference: Elizabeth Woodcock 2004

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Billing performance benchmarks

• Billing FTE/provider • Cost of billing (% of net revenue)• Annual claims/FTE• Accounts worked/day• Encounters worked/day• Payments posted/day

.75 FTE

7-9%

6,700

60-70

130-140

500

Source: Collation of MGMA, Physicians Practice, Camden.Note: Billing includes charge entry.

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Communications: Your Patients Are Online

• 7.2 million consumers visited physician web sites over 3 months in 2002

• Compares to 2.5 million over same period for 2001

• Want more than “electronic business cards” on physician sites– Clinical info

– Automated appointments

– Electronic prescription refills

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www.patienteducationcenter.org

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Web service providers

• www.max.md

• www.medfusion.net

• www.nexsched.com

• www.practisinc.com

• www.relayhealth.com

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Billing structures

• Centralized– Encounter slips route to billing office for charge

posting and time of service payment posting– Follow up by billing office

• Decentralized– Charges posted at check out– Follow up scattered among departments

• Hybrid– Charges posted at check out– Payments and follow up centralized

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Details of success

• Collect co-pays in advance of service• Professional coders• Denial analysis• Longevity = experience• Combination of point of service and batch

method of data entry• Electronic submission and remittance• Monitor and communicate

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Cost management

• Costs identified – service lines• Reduce manual efforts and use

reporting tools – add-ons to practice management system

• ROI on collections calls to patients• Gap-itis costs – automate appointment

reminder calls and cancellation lists• Nursing time and paperwork

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Time/cost spent per FTE physician

Per FTE physician Hours/year Cost/FTE

Support staff time on phone with pharmacies - formulary 25.8 $375

Support staff time on phone with pharmacies – Rx substitutions (generic) 23.7 $344

Support staff time on phone with pharmacies – Rx refills 133.0 $1,929

Support staff time on phone with pharmacies – other issues 26.9 $390

Physician time on phone with pharmacies – formulary issues 15.7 $1,570

Physician time on phone with pharmacies – Rx substitutions (generic) 14.4 $1.442

Physician time on phone with pharmacies – Rx refills 80.8 $8,083

Physician time on phone with pharmacies – other 16.4 $1,636

Support staff time verifying patient coverage/copayment/deductibles 267.3 $3,876

Support staff time resubmitting denied claims 63.8 $925

Total cost per year $20,570

2004 MGMA – Analyzing cost of administrative complexity in group practice (www.mgma.com/gprn)

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Cost management example: Internal collectors effectiveness

Collector Jones$ in Agency $ Collected # of Accounts

Jan $590,707.45 $2,418.29 310Feb $47,072.88 $2,836.76 283Mar $83,680.98 $3,016.62 352Apr $95,254.40 $3,359.49 415May $65,019.46 $2,236.42 266Jun $72,017.49 $3,052.95 238Jul $73,765.04 $3,156.50 271Aug $83,459.86 $4,488.45 301Sept $84,144.32 $3,464.24 365Oct $108,220.41 $2,369.68 433Nov $78,737.07 $1,952.73 283Dec $84,343.22 $3,728.64 310

Total $1,466,422.58 $36,080.77 3827

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Internal controls

• Budget variance reporting

• Post-investment audit

• Bulletin board indicators

• Per cent of patient pre-registrations and verifications

• Per cent of copays collected at time of service

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Reports as management tools

• Monitor– Trends– Duty of curiosity

• Decision making

• Project impact

• Measure and monitor

• Decision making

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Metrics to Manage

Office servicesPrior Year

Totals

Prior Year Monthly Avg Sept Oct Nov

Running monthly avg

New Patient visits 372 31.0 36 27 37 33.3

Office consults 226 18.8 19 17 23 19.7

Est. patient visits 10982 915.2 991 892 987 956.7

Total encounters 12296 1024.7 1114 1006 1122 1080.7

You name the service 1235 102.9 108 92 111 103.7

Lab procedures 8241 686.8 692 670 675 679.0

Xray studies 1120 93.3 96 87 97 93.3

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Metrics to Manage

Financial DataPrior Year

Totals

Prior Year Monthly Avg Sept Oct Nov

Running monthly avg

Beginning A/R $213,983 n/a $234,026 $239,154 $230,985 $234,722

Gross charges $1,542,110 $128,509 $140,260 $131,410 $146,295 $139,322

Adjustments ($32,500) ($2,713) ($2,960) ($3,155) ($3,080) ($3,065)

Insurance write-offs ($187,344) ($15,612) ($18,420) ($20,050) ($20,100) ($19,523)

Adjusted charges $1,322,266 $110,184 $118,880 $108,205 $123,115 $116,733

Gross collections $1,324,638 $110,386 $115,672 $118,440 $118,406 $117,506

Receipt adjustments ($22,415) ($1,868) ($1,920) ($2,066) ($1,744) ($1,910)

Net collections $1,302,223 $108,518 $113,752 $116,374 $116,662 $115,596

Ending A/R $234,026 n/a $239,154 $230,985 $237,438 $235,859

Change in A/R $20,043 n/a $5,128 ($8,169) $6,453 $1,137

Net collection ratio 98.5% 98.5% 95.7% 107.5% 94.8% 99.0%

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Metrics to Manage

A/R AgingPrior Year

Totals

Percent of Total Sept Oct Nov

Running monthly avg

Mthly Avg Percent of Total

Current $91,036 38.91% $96,182 $93,355 $98,114 $95,884 40.87%

31-60 days $52,188 22.31% $51,260 $48,365 $54,104 $51,243 21.84%

61-90 days $35,104 15.00% $36,514 $35,598 $35,269 $35,794 15.26%

91-120 days $21,764 9.30% $15,358 $10,596 $10,596 $12,183 5.19%

>120 days $33,864 14.47% $39,842 $39,355 $39,355 $39,517 16.84%

Total $233,956 100.00% $239,156 $227,269 $237,438 $234,621 100.00%

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Performance areas measured

Productivity, capacity, and staffing Better Performers

Accounts receivable management Better Performers

Patient satisfaction Better Performers

All Better Performers

Others

Claim denial rates by payer

29.67% 31.82% 41.11% 32.24% 32.43%

Claims processed by billing staff

34.07% 31.82% 40.00% 33.55% 32.43%

Next available appointment time by physician

37.36% 38.64% 46.67% 37.50% 28.83%

No shows and cancellations

35.16% 47.73% 52.22% 39.47% 39.19%

Patient visits per physician

70.33% 77.27% 88.89% 72.37% 66.67%

Reimbursement to contract terms by payer

51.65% 63.64% 65.56% 55.26% 47.75%

Performance and Practices of Successful Medical Groups: 2005 Report Based on 2004 Data

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Operational and business discipline

• Critical concepts– Sound financial management to ensure profitability– Perfect operational methods

• Sample behaviors– Annual budget and business planning– Incorporate financial goals into strategic plan– Monitor against budget

• Essential metrics– Revenue/collections– Total operating expense and as percent of revenue– Staff per FTE physician– Accounts receivable aging– Denial rates– Payer mix– Revenue and expense per RVU

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Incremental change

• How do you become a better performing practice?– Where would you start?

• Focus, focus, focus– No more than 3 objectives

• Write goal and action steps– List areas for focus– Prioritize and develop rationale

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Successful groups assess strategy and evaluate implementation

• Identify specific goals and objectives– Identify methods to overcome anticipated barriers

• Identify concrete tactics and actions to achieve goals

• Commit to the physical and human resources needed to support the tactics

• Establish objective measurement criteria to monitor progress

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MGMA Cost Survey Says…• Physician comp method that rewards productivity• Good communication among physicians, administrators,

staff• Effective physician-administrator management team• Clearly defined roles and responsibilities for physicians,

administrators, staff• Budgeting and control systems to monitor performance

(group knows cost of doing business)• Decision-making delegated to executive committee, even

in smallest practices• Clinical staff, business office and physicians that focus on

customer service• Physicians and staff who place significant emphasis on

quality of care, reputation and patient satisfaction• Supervisors who are empowered to be decision-makers,

held accountable for productivity and cost-efficiency

Better Performing Practices:

That which gets measured gets managed.

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Thank You

We appreciate the opportunity of speaking with you today. If we can be of assistance to you in the future, please do not hesitate to contact the MGMA Health Care Consulting Group www.mgma.com.

Rosemarie Nelson, MS

Principal, MGMA Health Care Consulting Group

RosemarieNelson@alum.syracuse.edu

315-391-2695