Physician Practices Today – Business Realities & Opportunities

Rosemarie Nelson, MS Principal, MGMA Health Care Consulting Group October 2006

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 2

Dynamic relationship

• More revenue Higher operating costs

Productivity

• Operating expense increases Total profit rises

Profit

• How is it managed?

Expenses Revenue

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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 4

Selection criteria by performance area:

Profitability and Cost Management Productivity, Capacity and Staffing (nonsurgical specialties) •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).

•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) Accounts Receivable and Collections •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.

•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 Support staff 65.32% 4.23

71.85% 7.36

79.76% 8.89

85.18% 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 9

Incremental Revenue

Should you accept poor paying contract?

Obvious answer – No!

Practical answer – project the numbers!

Proposed 50% ? Participate, or not?

Health Plan Contracts and % of fee Payor B 70% Payor A 80% Current practice Medicare 58%

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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

Access: (inadequate patient base)  Who controls the appointments?

 Convenience vs. productivity  Convenience for:    Physicians Staff Patients  Hours/days Marketing:  Do you have a hook?

  Cost Patient network 12

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 13

Staffing

Telephones with messaging Appointment scheduling with no registration Appointment scheduling with full registration Pre- or site registration with insurance verification Check-in with registration verification only Site check-in with registration verification and cashiering only Check-out with follow-up scheduling, charge entry and cashiering Check-out with scheduling and charge entry Check-out with scheduling and cashiering Referral specialist (inbound or outbound referrals) 300 – 400 calls/day 75 – 125 calls/day 50 – 75 calls/day 60 – 80 patients/day 100 – 130 patients/day 75 – 100 patients/day 60 – 80 patients/day 70 – 90 patients/day 70 – 90 patients/day 70 – 90 patients/day *Reference: Elizabeth Woodcock 2004 14

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 16

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 19

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 20

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 21

Time/cost spent per FTE physician

Per FTE physician

Support staff time on phone with pharmacies - formulary Support staff time on phone with pharmacies – Rx substitutions (generic) Support staff time on phone with pharmacies – Rx refills Support staff time on phone with pharmacies – other issues Physician time on phone with pharmacies – formulary issues Physician time on phone with pharmacies – Rx substitutions (generic) Physician time on phone with pharmacies – Rx refills Physician time on phone with pharmacies – other Support staff time verifying patient coverage/copayment/deductibles Support staff time resubmitting denied claims

Hours/year

25.8

23.7

133.0

26.9

15.7

14.4

80.8

16.4

267.3

63.8

Cost/FTE

$375 $344 $1,929 $390 $1,570 $1.442

$8,083 $1,636 $3,876 $925

Total cost per year $20,570

2004 MGMA – Analyzing cost of administrative complexity in group practice (www.mgma.com/gprn) 22

Cost management example: Internal collectors effectiveness

Collector Jones $ in Agency $ Collected # of Accounts Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec $590,707.45

$47,072.88

$83,680.98

$95,254.40

$65,019.46

$72,017.49

$73,765.04

$83,459.86

$84,144.32

$108,220.41

$78,737.07

$84,343.22

$2,418.29

$2,836.76

$3,016.62

$3,359.49

$2,236.42

$3,052.95

$3,156.50

$4,488.45

$3,464.24

$2,369.68

$1,952.73

$3,728.64

310 283 352 415 266 238 271 301 365 433 283 310 Total 3827 $1,466,422.58

$36,080.77

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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 24

Reports as management tools

• Monitor – Trends – Duty of curiosity • Decision making • Project impact • Measure and monitor • Decision making 25

Metrics to Manage

Office services

New Patient visits Office consults Est. patient visits Total encounters You name the service Lab procedures Xray studies

Prior Year Totals Prior Year Monthly Avg Sept

372 226 31.0

18.8

36 19

Oct

10982 12296 1235 8241 1120 915.2

1024.7

102.9

686.8

93.3

991 1114 108 692 96 892 1006 92 670 87 27 17

Nov

37 23

Running monthly avg

33.3

19.7

987 1122 111 675 97 956.7

1080.7

103.7

679.0

93.3

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Metrics to Manage

Financial Data

Beginning A/R Gross charges Adjustments Insurance write-offs Adjusted charges Gross collections Receipt adjustments Net collections Ending A/R Change in A/R Net collection ratio

Prior Year Totals

$213,983

Prior Year Monthly Avg

n/a

Sept

$234,026

Oct

$239,154

Nov

$230,985

Running monthly avg

$234,722 $1,542,110 ($32,500) $128,509 ($2,713) $140,260 ($2,960) $131,410 ($3,155) $146,295 ($3,080) $139,322 ($3,065) ($187,344) $1,322,266 $1,324,638 ($15,612) $110,184 $110,386 ($18,420) $118,880 $115,672 ($20,050) $108,205 $118,440 ($20,100) $123,115 $118,406 ($19,523) $116,733 $117,506 ($22,415) $1,302,223 $234,026 $20,043 98.5% ($1,868) $108,518 n/a n/a 98.5% ($1,920) $113,752 $239,154 $5,128 95.7% ($2,066) $116,374 $230,985 ($8,169) 107.5% ($1,744) $116,662 $237,438 $6,453 94.8% ($1,910) $115,596 $235,859 $1,137 99.0% 27

Metrics to Manage

A/R Aging Prior Year Totals Percent of Total Sept

Current 31-60 days $91,036 $52,188 $35,104 38.91% 22.31% 15.00% $96,182

Oct

$93,355

Nov

$98,114 $51,260 $48,365 $54,104 $36,514 $35,598 $35,269 61-90 days 91-120 days >120 days $21,764 $33,864 9.30% 14.47% $15,358 $39,842 $10,596 $39,355 $10,596 $39,355

Running monthly avg Mthly Avg Percent of Total

$95,884 $51,243 $35,794 $12,183 $39,517 40.87% 21.84% 15.26% 5.19% 16.84% Total $233,956 100.00% $239,156 $227,269 $237,438 $234,621 100.00% 28

Performance areas measured Productivity, capacity, and staffing Better Performers Accounts receivable management Better Performers 31.82% Patient satisfaction Better Performers All Better Performers Claim denial rates by payer Claims processed by billing staff Next available appointment time by physician No shows and cancellations Patient visits per physician Reimbursement to contract terms by payer 29.67% 34.07% 37.36% 35.16% 70.33% 51.65% 31.82% 38.64% 47.73% 77.27% 63.64% 41.11% 40.00% 46.67% 52.22% 88.89% 65.56% Performance and Practices of Successful Medical Groups: 2005 Report Based on 2004 Data 32.24% 33.55% 37.50% 39.47% 72.37% 55.26% Others 32.43% 32.43% 28.83% 39.19% 66.67% 47.75% 29

• • •

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 30

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 31

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 32

MGMA Cost Survey Says…

• Physician comp method that rewards staff administrators, staff

productivity

• Good communication among physicians, administrators, • Effective physician-administrator management team • Clearly defined roles and responsibilities for physicians, •

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

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Better Performing Practices:

That which gets measured gets managed.

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 [email protected]

315-391-2695 35