understanding physician practice losses - bkd · 2/1/2019 1 understanding physician practice losses...
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2/1/2019
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Understanding Physician Practice LossesFebruary 6, 2019
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2/1/2019
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Presented By
Randy Biernat, CPA, ABV®
Scott Bezjak, CPA, [email protected]
Which HFMA Chapter are you a member of?
1. Western PA
2. Central PA
3. Northeast PA
4. Metro Philadelphia
5. Other
Getting to Know You
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Today’s Topics
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Losses Are Not the Fault of Physicians—Historic Overview of Physician Employment Drivers
Employed Losses Are Often Overstated—Purchased Services Analysis
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3
4 Four Buckets Framework for Evaluating Physician Spend (Including Losses)
Board Expectations for Employed Physicians
Physician Portfolio Strategy5
Overview of Reasonable Board Expectations
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Hospital systems are integrating physicians into
hospital management
Hospital systems are integrating physicians into
hospital management
Hospital systems are integrating physicians into
hospital management
The physician workforce, whether employed or not, is
every hospital’s greatest asset
The physician workforce, whether employed or not, is
every hospital’s greatest asset
The physician workforce, whether employed or not, is
every hospital’s greatest asset
Systems are losing money on
physician employment (average of $176K per physician)
Systems are losing money on
physician employment (average of $176K per physician)
Systems are losing money on
physician employment (average of $176K per physician)
Physician Losses
The Main Topics &Focus of
Governance
Board Expectations: Physician Employment
Strategic relative to service plan
Appropriate to community needs
Compensation is commensurate with work effort
Appropriate at health system service line level
Budgeted, managed & accountable
Market-based cost levels, including physician pay
Financially sustainable
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Level of Responsibility Expectations Re: Physician Employment
Board Strategic, Sustainable, Supportable
Senior System Management Sound Business Case, Meets Current & Future Community Needs
Compliance Function Fair Market Value, Accuracy in Work Effort
Medical Group Management Performance Is Budgeted, Approved, Monitored & Managed to Reasonable Market Standards
Physicians Fair Pay for Work Performed, Clinical Autonomy, Access to Appropriate Staff, Equipment, Space
Patients Access to Care, Quality Care, Affordable
Outside Stakeholders Done If Necessary, “Equitable,” Compliant
Stakeholder Views
“Thi
s an
d”
Physician Losses Are Not the Fault
of PhysiciansHistoric Overview of Physician
Employment Trends
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Physicians Don’t Want Employment
Control over practice operations
Pride of ownership
Efficiency in operations/less training
Tax benefits
Flat Reimbursement for 20 Years
$36.69 $35.99
3.52%
$1000.00 $1,930.60
MPFS Conversion
Factor in 1999
MPFS Conversation Factor in 2018
Market basket of medical
care in 1999
Equivalent market basket
in 2018 –93% increase!
Medical inflation growth in same period (general
inflation at 2.17%)
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How Practices Have Coped
Seeking Compensation
for Nonclinical
Work
Seeking Compensation
for Nonclinical
Work
Expanding Ancillary Services (Where
Permitted)
Expanding Ancillary Services (Where
Permitted)
Scaling Up
Joint Ventures
Joint Ventures
Selling Out!
Compensation for Nonclinical Work
Clinical Productivity – Traditional
Nontraditional• E.R. Call Pay
• Medical Direction Services
• Profit on Mid-Level Providers/ Supervision
• Teaching/Research
• Co-Management Services
• ACO/Bundled Payments
Seeking Compensation for Nonclinical
Work
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Compensation for Nonclinical WorkIndependent Groups• Revenue - Expense = Compensation• Hospitals: How big of check can we get
them to writeReimbursement• Medicare Physician Fee Schedule
(MPFS)-drivenMedicare Road Map • For “sustainable” expense levels
across functional areas, including labor-all CPT-based
Medicare Cost Profile • Can be extended to an actual payor
mix providing indication on what is “affordable”
Scaling Up
Compensation for Nonclinical WorkSignificant Incentives for Health System Physician Acquisition• On-call coverage• Outreach/collaboration with smaller
health systems• Control over referral network/patient
spendEmployment Compensation Levels• Take into account all expected work
effortPrivate Equity Groups/Other Groups• Aggressively pursuing roll up strategies
as well
Selling Out!
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Employed Losses Are Often
OverstatedPurchased Services Analysis
Health systems often fail to account for physician services provided to the hospital corporation
• Physician call or coverage
• Subsidies (payor mix or low volumes)
• Management services/administrative services
Most systems are not utilizing transfer pricing to assign physician cost proportionally to services provided
Financial Reporting Practices
Presented as a separate physician
corporation in a consolidated
entity
Key Impacts
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Employed physicians are routinely asked to contribute via
• Clinical productivity (assign cost to clinic)
• Call compensation (assign cost to hospital)
• APP supervision (assign cost to clinic)
• Medical direction (assign cost to hospital)
• Clinical quality efforts (assign to ACO/CIN)
• Other time-based services, such as teaching, research, administrative tasks, etc. (assign to “consumer” of time)
Cost Allocations of Physician Work Internal
Pricing ModelRegardless of what the contract calls for in terms of payment mechanisms, an internal pricing model can be used to assign a physician’s cost into appropriate buckets
Accomplish by establishing &
adopting a standard pricing model
RealValue Pricing Model – Inputs
Demographics
Employer Name Health System
Compensation Paid $342,000 ESTIMATED INDIVIDUAL LOSS = $159,500
Specialty Area Gastroenterology
Clinical Inputs Nonclinical Work Effort
WRVUs 5,850 MLP Supervision Hours per Year 100
Clinic Days per Week 3 Administrative Time 100
Weeks Worked per Year 46 Paid Time Off 208
Annual Clinic Days 184 Annual Nonclinical Work Effort Hours 408
Clinic Hours per Day 9
Annual Clinic Hours 1,656
Total Active Work Effort Hours
Call Coverage Inputs Clinical 1,656
Primary call rotation (# of docs) 3 Nonclinical 408
Total On-Call Hours (Primary) 2,920 Active Hours Total 2,064
Activations per Year 100
Clinical Time Once Called In (Hrs) 75 Effective Hourly Rate (without benefits) ~ $170
Example of Physician Services “Pricing” Model
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Paid Compensation & Benefits 392,000$ $342K Comp, $50K Benefits
RealValue Pricing Analysis Notes:Clinical Services 273,839$ 5,850 WRVUs at 130% of MedicareOn-Call Coverage Services 71,635 1,713 discrete hours at $24.80MLP Supervision Services 23,808 192 hours at $124Other Time-Based Services 29,680 424 hours of PTO at $70
Indicated Value of Services 398,962$ 86,635
Variance 2% 21.7%Compliance Risk Scoring Conclusion AcceptableCompensation per WRVU (all in) 58.46$ ~45th P of traditional surveys
Purchased Services/RealValue Pricing Model Conclusion
Purchased Services/RealValue Pricing Model Conclusion
Call coverage has value of 19.4% of the indicated value of services
This equates to $76,207 of cost that is a hospital “use” of physician group resources. There is no reimbursement associated with this cost (per model)
This charge-back would could change the “loss” profile significantly (allocated loss was $159,500)
If the service was acquired from an independent group, it would not be “costed” back to the physician group
Takeaways
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Understanding Practice Losses –
Four Buckets Framework
Or They Can Be Analyzed & Reconciled Financially
Common Ways to View Losses
Cost of doing business
Cheaper than locum tenens
Defensive strategy
Support of community needs
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BKD Four Buckets Framework
PHYSICIAN COMP
Market costs
Per unit costs
Marginal analysis
Contract structure
Attribution
Compliance
PRACTICE EXPENSEDirect expense
Indirect expense
Operating leverage
Market costs
Reimbursed costs
VOLUMEStart-up
Rural
Programmatic
Coverage
Work effort
REIMBURSEMENTPayor mix
Revenue cycle
Charge capture
Chargemaster
Billing & coding
Collections
Denial mgmt.
Key Concept: Insufficient volume will drive practice losses
• Start-up/transitional volume
• Commitment to rural health care
• Programmatic commitment
• Call coverage
• Lack of work effort
Bucket 1 – Volume
= acceptable | = problematic
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Key Concept: Physician clinical services are “cost-reimbursed”…
• Medicare classifications: Direct expense & indirect expense
• Structural market v. reimbursement profile
• Operating leverage – fixed v. variable cost mix
Bucket 2 – Practice Expense
= acceptable | = problematic
Medical Assistant• Actual cost: $15/hr + 35% benefits = $20.25
• Medicare reimbursed cost: 27¢/min or $16.20
• Utilization – 90% (36 hrs clinical, 4 hrs other)
• Hourly gap = $4.05, annual gap $11,800
• Loss attribution
› $4,200 – Unreimbursed time (nonclinical)
› $7,600 – Structural reimbursement gap ($4.05 x 1,872)
Bucket 2 – Illustrative Expense Gap
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• Specialty physician practice expense reconciliation –positive!
• Medicare practice expense level – $324,300
• Actual reimbursed – $317,800 (98% of MC)
• Practice expense per financials – $219,100
• Difference – $98,700 (reimbursement > cost)
• Physician loss reconciliation – $22,200
Bucket 2 – Example Calculation
Key Concept: Inadequate reimbursement for services drives losses
• Payor mix
• Revenue cycle › Appropriate charge capture
› Chargemaster: completeness & accuracy of services & related price setting
› Billing & coding: appropriate billing for work performed
› Collections: point of service efficiency
› Denial management: pre-certifications, approvals, secondary insurance, timely follow up, etc.
Bucket 3 – Reimbursement
= acceptable | = problematic
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• Actual collections as a % of Medicare – 97.7%
• Typical percentage – 111.5%
• Impact to specialist physician practice
› Actual collection – $849,510 (or $35.17/TRVU)
› Collections at 25th P MGMA – 969,694 (or $40.14/TRVU)
› Dollar difference for clinic – $120,000
› Physician loss reconciliation value – $27,200
Bucket 3 – Example Calculation
Key Concept: Physician employment cost has exceeded related reimbursement levels
› Non-Part B services are unreimbursed by insurers at the medical group level
› Contract structure is “marginally” important
› Payment structures should match work effort & cost allocations should follow
Bucket 4 – Physician Compensation
= acceptable | = problematic
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• Provider expense – $1,058,200
• Medicare reimbursement – $513,400
• Actual reimbursement – $531,700
• Actual expense $555,100 or 210% greater
• Physician loss reconciliation – $236,800
Bucket 4 – Example Calculation
Category Amount Notes
Purchased Services ($76,200) Decrease Loss
Bucket 1 – Volume No Impact No Impact
Bucket 2 – Practice Expense ($22,200) Decrease Loss
Bucket 3 – Reimbursement $27,200 Increase Loss
Bucket 4 – Physician Expense $236,800 Increase Loss
Assigned Loss Subtotal $165,600
Summary Loss Reconciliation
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Financial decision-making answer
• Is the arrangement likely to be accretive to the system on a risk-adjusted, net basis?
• That is, is the sustainable clinic-level loss outweighed by the facility-level referral relationship, after risk is considered?
Strategic decision-making answer
• Is the net system level loss on a risk adjusted basis critical to the success of the organization’s mission or key business initiatives?
• If so, how should the loss be accounted for?
› How are we calculating & attributing the loss?
› How are we monitoring & managing?
Conclusion: Employed Physician Losses
How much should we be “losing” on employed physicians?
Strategic Losses: Risks & Physician Portfolio Analysis
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Practical Explanation of Physician Losses ($10 Million)
Strategic Losses: Physician Portfolio Analysis & Risk
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› Increased Insurance Coverage
• Medicaid Expansion & Employer-Based or ACA
› Aging of Physicians
› Community Demographics (Baby Boomers)
› Lifestyle Preferences
› Health Insurance Plan Changes
Environmental Items That Affect Physician Need & Access
› Retirement doctors that support large volumes at the hospital corporation
› Retirement doctors that fill a physician need that aligns with mission
› Scarcity of population health specialties• Psychiatry, OB/GYN, Cardiology, Pulmonology, Gastroenterology, Hospitalists,
Neurology
› Geography concentrations for certain specialties
› Primary care physicians that refer to system specialty physicians
Risks in Your Physician Portfolio
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› FTE vs. headcount› Medicare/Medicaid acceptance rate› Age of physician & estimated retirement age› HCC score & MIPS score› Volumes (practice/hospital/referrals)› Research or teaching physician› Compensation & incentives› Call coverage requirements› Management or administrative duties› Diversity
Better Inventory of Your Employed Physicians Requires More Information
› FTE
› Volumes (practice/hospital/referrals)
› Compensation & Incentives
› Call coverage requirements
Physician Portfolio Scorecard AnalysisA Combination of Profitability & Quality Factors
Profitability Factors Quality Factors› Medicare/Medicaid acceptance rate
› Age of physician & estimated retirement age
› HCC score & MIPS score
› Research or teaching physician
› Management or administrative duties
› Diversity
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Physician Portfolio Scorecard Matrix High Quality
High Profitability
Low Quality
Low Profitability
“Training Doc”High Quality Low Profitability
“Superstar Doc”High Quality High Profitability
“Killer Doc”Low Quality Low Profitability
“Cash Cow Doc”Low Quality High Profitability
Physician Portfolio Scorecard Matrix High Quality
High Profitability
Low Quality
Low Profitability
“Training Doc”• Potential for Superstar status• Quality component increases
future value• Easier to change profitability
than quality
“Superstar Doc”• The “Best” docs• Other hospitals want them• High compensation demands• Maintain “Superstar” status
“Killer Doc”• The worst of all worlds• Physicians need to move
quickly to improve status• Drastic reductions in
compensation or unemployment
“Cash Cow Doc”• Historically valuable to system • Potential retirements• Possible decrease in
compensation• Opportunity to understand quality
measurements & improve status
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Physician Portfolio Scorecard Matrix High Quality
High Profitability
Low Quality
Low Profitability
“Training Doc”High Quality Low Profitability
“Superstar Doc”High Quality High Profitability
“Killer Doc”Low Quality Low Profitability
“Cash Cow Doc”Low Quality High Profitability
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The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
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The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.