Gibbons Family Medicine

January 1, 2006

A rocky start, a promising future. Practice needs to balance low-key, family approach with tighter financial control.


Despite a rocky start, this practice has potential to take off - once it gains a tighter handle on operating costs and a clear vision for its future

Five years ago, Elizabeth Gibbons took the kind of professional and financial hit that may have left other new physicians wondering if they had the stomach to stick with this business called medicine. After med school, she started in private practice under the capricious eye of MedPartners, one of many so-called physician practice management (PPM) companies that bought up practices and promised to handle all of the administrative and financial considerations, including providing needed leverage with HMOs.

Sounded like a great deal, but in the late 1990s, MedPartners announced it was getting out of the PPM business to focus on the more profitable pharmaceutical sector.

"It was kind of like the Enron of medicine," says Greg Gibbons, Elizabeth's husband and current practice partner. "Basically, they sucked up all the money and bolted. After five years of working with them, she was told she had about $100,000 in stock that went to zero. She went several months without getting paid. At the end of that she left, and I was just finishing residency. We thought, 'We need to try to avoid this kind of thing.' So, we decided to open our own practice.

"It was very scary, but with [my wife's] five years in private practice she had a pretty good idea of what was required to run the medical part. We hired a consulting firm to help us jump through all of the legal hoops, get us set up with supplies, [and do] all the paperwork to open the business," says Gibbons.

Today, Gibbons Family Medicine is five years old, has more than 6,000 patients and a staff of 12. Greg Gibbons sees patients four days a week; his wife, two days a week; and their two nurse practitioners more or less mirror those hours. The recent shuttering of a handful of practices in the surrounding Raleigh-Durham, N.C., area means a likely increase in the practice's usual 100 new patients per month.

Luckily, the practice doesn't appear to be mired in sticky personnel problems like so many others who've asked Physicians Practice for a makeover.

"[The physicians] are just wonderful and we have great employees," says practice manager Cindy Howard, who's been with the practice from day one.

Greg Gibbons agrees, but despite collecting more than $800,000 a year, says it sometimes feels like he and his wife are "barely scraping by on a month-to-month basis. We have a wonderful practice with excellent staff and very high patient satisfaction. My wife and I love what we do, but it's clear we need to do something to ease the money crunch."

According to the Medical Group Management Association (MGMA) Cost Survey: 2004 Report Based on 2003 Data, the median total medical revenue per physician for family practices is $369,313 - so Gibbons and his wife are ahead, at least on paper, assuming they are measuring the same way as MGMA.

Still, Gibbons says he's feeling the pinch, and specifically asks for help in:

  • Negotiating with payers

  • Getting a handle on coding

  • Developing a consistent budget

  • Evaluating overhead

'Payers don't care'

The Gibbonses and Howard - like thousands of you in their shoes - find dealing with commercial payers an exercise in exasperation. It got bad enough with one, United Healthcare, that the practice decided to stop accepting new patients in its network. Among other things, the payer dropped its rates for a physical exam to well below Medicare, according to Gibbons.

The fact that a few practices in the region had closed convinced Gibbons that he could afford to cut ties with United.

"We're fairly busy already so we didn't think losing United was going to hurt our patient volume. We're getting 100 new patients a month. When we looked at the contract they were offering, it was just really awful. With all these other practices closing we were going to get this big influx of people with United, and it would hurt us."

That's one way to look at it, but it's possible a few of those folks with United coverage will be hard-pressed to find a family physician they like unless it's Gibbons Family Medicine. That puts the practice in a better position to negotiate. Unfortunately, Gibbons doesn't feel that the practice has a lot to bring to the table.


"Most of the time [payers] just say, 'Hey, too bad, take it or leave it.' They don't care. It's not like we're going to hurt them with our 6,000 patients. We don't really have a whole lot of leverage other than patient satisfaction," says Gibbons.

Actually, there are a few additional approaches to consider to get the most out of payers:

Regularly update your fee schedule - It's easy to feel resigned to the idea that payers will just pay what they will. What's the use in revisiting your fee schedule? Well, for one thing, if you don't raise your fees, the payers will keep paying you at that rate, even if it becomes lower than their allowable. An orthopedic surgeon we know was routinely charging $31 less than the allowable on a certain service, adding up to a loss of more than $5,000 a year.

Gibbons has been fairly good at doing this: Howard reports they've just raised their fees for the third time - amounting to a 17 percent increase - over five years. It's just enough to keep a hair's breadth ahead of the cost of living, which, according to the Bureau of Labor Statistics, increased 13 percent from 1998 to 2003. The practice should make a point to reexamine its fees annually.

Know your allowables - This goes hand in hand with having an up-to-date fee schedule, and it's the best way to know if you're being paid correctly. Know the exact dollar amounts payers will pay, and don't just rely on the payment formula (say, fees based on X-percent of RBRVS) that's in your contract. Put together a listing of the 20 to 25 codes that make up the bulk of your revenue, and ask the payer to fill in its most current allowable for each. When you have a good picture of who's paying what, that will help you determine whether your payer mix is well balanced, and whether cutting back with a particular payer - as Gibbons did with United - will have an adverse or positive effect. For instance, if you know that Blue Cross pays, on average, $75 per encounter (based on the services that you provide) and Cigna pays $95 per encounter, shifting 5 percent of your payer mix from Blue Cross to Cigna will mean an increase in revenue of about 25 percent. Consider the hassle factor, too. If a payer brings 10 percent of your revenue, but takes up one-third of your biller's time, reconsider.

Clinical outcomes count - If you can prove to payers that you're doing a bang-up job following clinical guidelines, go for it. One cardiovascular practice we know was able to prove to a payer that it was compliant with beta-blocker and ACE inhibitor prescribing guidelines in 94 percent of cases and with 3,000 patients - not the 74 percent the payer surmised from diagnosis and CPT codes on a tiny fraction of the practice's patients. Of course, gathering this quality of data is much easier with an EMR, which Gibbons does not yet use. Still, it's possible to track outcomes on a given set of patients - say, colorectal or breast cancer screenings on patients over 50 - and show your track record to payers. It'll force you to be more vigilant about doing those screenings, too.

Service like no other - Gibbons says he wouldn't mind adding a service or two, but worries it would be a money pit rather than a cash cow. "A culture counter so I can do CBCs in the office would be a fantastic thing for us and the patients, but we never know if the insurance company's going to pay for it. If they don't, we could lose $20, $30, $40 every time we do it. And the machine costs $25,000. So things like that are very tricky," he says.

But unique or additional services are just the thing payers will look for to assess a practice's value to its covered patients.

Before adding any ancillary, it's imperative to have a written plan and analysis that includes cost, expected use, and anticipated return. Look at the community's needs: How many potential customers do you have, and what's the competition for the service you're considering? How will you get paid? For instance, if Gibbons is considering an in-house lab, it's important to consider that some payers bundle basic in-office lab work into the E&M or preventive visit. Will the new service make money? A detailed financial analysis is in order, including costs for training, equipment maintenance, or additional personnel costs, if necessary. Think outside the box. Family practices are doing DEXA scans, adding in-house pharmacies for generics, performing digital X-rays and pulmonary function tests.

Talk the talk - Howard complains that she doesn't "know the jargon to fuss with [payers] about fee increases and things like that. I just don't know how to counter them." Gibbons says his single dedicated biller, Felicia Marsh, is "the only one who has a first-name relationship" with payer contacts. That's a good start, but if Howard is going to assist in the billing process, as she does by checking claims and resubmitting denials, she needs to be as well-versed as Marsh. They both should work to establish cordial relationships with the payer contacts - after all, you can catch more bees with honey, as the saying goes. It's key to know who to go to to get questions answered - and crucial to understand the interests of the payer when it comes to contract negotiations. And keep detailed notes on what transpires during your calls to them.

Confounded by Coding

Of course, another way practices can ease a cash-flow crunch is to take a good, hard look at their coding processes to determine if they're leaving money on the table. Like so many others, Gibbons finds the coding system "completely inexplicable - modifiers and bundled charges are the first two mysteries that come to mind," he says.

As far as coding education goes, Gibbons says the practice "gets a couple of newsletters" and, of course, a new CPT codebook every year. Still, he feels frustrated; inaccurate information has been part of the problem.

"One of the things the consultant was supposed to do for us was give us good codes for standard things. After we were up and going for a year or so, and I started looking at them and many of them were just downright wrong, and a bunch of them were getting us far less than we should have ... ," says Gibbons.

For example, the consultant gave the practice "a global code for supplies, which has nothing to do with what supply it is and how much it costs us." A common service like injections is a money-loser too, according to Gibbons. "For Pneumovax we were losing about $50 every time because it's not reimbursed. That was something that the consultant told us that was just wrong information."


There are RVUs for injections, but they are only paid if there are no other services payable under the physician fee schedule billed on the same date by the same provider. Otherwise these services are bundled into the service for which payment is made. And keep in mind, this applies to Medicare, a fraction of the practice's business. In this case, Gibbons needs to do some digging to understand why private payers aren't covering it. It's important to realize that there is a world of difference between correct coding and actually getting paid. Private payers may not strictly follow CPT rules, or they'll establish their own rules about payment. The only way to know for sure what will be covered is to call payers and ask questions.

That said, here are some tips for navigating the chaotic world of coding:

Unbundle when you can - Is there any recourse when a payer bundles two charges into one (usually smaller) fee? Some. If you're treating Medicare patients, you must have the "Correct Coding Initiative (CCI) Edits Manual," available at www.cms.hhs.gov/physicians/cciedits/ and embedded in most coding software. Four issues will run you $300. It will help you make some sense of commonly bundled pairs. Medicare also publishes status codes every year in its fee schedule (go to www.cms.gov). Commercial payers may not necessarily follow Medicare's lead, and will have their own bundling rules, which they may not readily share with you. To dispute bundled claims, try sending appeals letters that include backup from Medicare, your specialty society, or the AMA.

Start with accurate information - Thankfully, Gibbons uncovered the bad coding information he had before too much time had passed. It's important to stay as current as possible. Buy the new CPT and ICD-9 code books every year and change your encounter forms to reflect the new codes. And make sure physicians and billers/coders are familiar with the official code descriptions, rather than becoming too dependent on the summaries on your encounter forms.

Be an E&M expert - One practice consultant we know estimates that practices typically lose 12 percent of revenue to undercoding, many because they get stuck in a middle-of-the-road approach. That can mean about $70,000 per FTE physician based on median total medical revenue. In both family practice and internal medicine, 99213 is the most-used code, according to the Medical Group Management Association (MGMA). Can you do better? Probably. Get to know how the increasing levels of complexity for office visits are defined. Once you're familiar with them, use a cheat sheet, and check yourself regularly.

Specifically, Elizabeth Gibbons probably would benefit from understanding the rules regarding selecting an E&M based on time. She tends to focus on patients who are anxious, depressed, or have other psychosocial issues, and spends a lot of time counseling. If she spends more than 50 percent of a given visit counseling, and documents carefully, she can probably select a higher E&M based on time than she could based on the complexity of the visit.

Modifiers are your friends - Why? They can help you get paid more by adding a layer of detail to the service you provide. Here are some common modifiers and what they mean:

-24 applies to an unrelated E&M service provided during the postoperative (or global) period by a single physician.

-25 applies when a significant, separately identifiable E&M service is performed by a single physician on the same day as another procedure or other service.

-51 applies when multiple procedures are performed during a single visit.

-76 applies when a single physician repeats a procedure.

-77 applies when a procedure is repeated, but by a different physician.

Get some coding coursework - Take advantage of coding courses like those offered by the American Academy of Professional Coders (www.aapc.com), including workshops and certification.

Gibbons worries that there will come a day when staff costs will outpace the practice's revenue. Staff get annual raises and enjoy a nice benefits package that includes dental and health insurance (the practice pays more than 80 percent), a 401(k) plan, and a flexible spending account.

"If we can't get the insurance companies to pay us any more per year, and we have to keep giving everyone a raise, what are we going to do? [Elizabeth and I] are going to have to take less and less for our own salaries. We'll make less and work harder to make ends meet. I don't know what the answer is," Gibbons says. Sound familiar?

Reward the Right Way

Here are a couple of suggestions: Consider making pay increases merit-based, rather than simply giving cost-of-living increases. That way, staff members will have greater incentive to do their best, and raises won't come to be expected. The same goes for practices that give year-end or holiday bonuses "just because." It creates a situation in which everyone is rewarded regardless of whether they've pulled their weight - a sure way to make morale plummet, especially among your hardest- working people. Set specific performance goals for each person and review frequently how they are doing.

Tie staff rewards to financial goals. Billing and front-desk staff, in particular, are positioned to improve the flow of cash into the practice. Set goals for submitting clean claims the first time, number of claims worked per day, collecting copays or reducing days in accounts receivable. Then be specific about the reward - a percent of collections, say, or a predetermined amount per claim.

Are staffing levels right? Counterintuitive as it sounds, the most efficient practices have above-average support staff per physician. On the flip side, could the practice gain efficiencies through technology? Larger practices we know have saved tens of thousands of dollars by reducing medical records staff and eliminating costly chart pulls with an EMR.

Money In, Money Out

Finally, Gibbons wants to be sure the practice's overhead is in the right place, and that the group can develop and maintain a consistent budget.

"We've never had a strong monthly budget," says Howard. "I really try to compare [office supply] prices and stay on top of ordering medical supplies. The regular bills like the light bills and the phone bills stay pretty constant so that's not a big issue. Trying to keep supplies under control is one of the main things."

The fact is, the bills - more accurately, the payroll bill - appears to be an issue. The percentage of the practice's revenue that is going toward overhead is too high. According to The MGMA Cost Survey: 2004 Report Based on 2003 Data the median percent of revenue as overhead for family practices is less than 58 percent. But according to figures Gibbons supplied, 60 percent of its revenue is eaten up by salaries alone. Add equipment, supplies, insurance, utilities, etc., and a whopping 93 percent of the practice's revenue goes toward total operating costs. It's true that, in general, costs for family practice are on the high side. Still, the practice should examine its staffing and salary levels and other expenses to get more closely aligned to national averages.

The practice is paying down a mortgage on a two-unit condo and has refinanced at least once for a better rate. "We often look at that and say, 'OK, we're not making as much as the other guys but we do [own] the building,'" says Gibbons.

Owning the building is fine - it means the practice is building equity, although industry consultants warn that properties used as medical offices don't appreciate the way residential properties do.

Maintaining and periodically analyzing a budget is a great way - too often neglected, especially by smaller practices - to keep an eye on revenues and expenses.

On the revenue side, consider:

  • The number of office visits and procedures needed to meet your practice's earnings goals.

  • New services that will bring in more profits or that will attract more desirable patients.

  • Services that will be reduced or eliminated because of changes in staffing or payer contracts, or competition.

  • Ways to improve coding accuracy, charge capture, and collections.

On the expense side, be sure to look at:

  • Changes in routine expenses - rising supply costs, expected changes in patient volume, or changes in practice contributions to employee benefits or compensation.

  • The addition of new equipment or vendor services such as medical equipment, computer software or hardware, copier service, or other contracts. The practice plans to add an EMR within a year or so. This expense is a major concern for most practices, but it should also be considered an investment in the practice's future efficiency and profitability.

  • Decreases in expenses resulting from expired maintenance or service contracts or loan/lease payoffs.

Finally, the Gibbonses should at least reflect on the negative effect of physician time off on cash flow if they continue to feel strapped. Between the two of them, Greg and Elizabeth Gibbons work six days a week. That said, Elizabeth is very clear that the couple has made certain choices about their lifestyle: "We made a conscious decision - our goal is not to have a new car and a big house, but have an enjoyable life and promote values we reinforce with our patients." Still, is it possible one or both of them could manage another day, or even half-day, say on Saturday mornings, when working patients might prefer an appointment slot?

These are terrific goals to have, ones they have met well. But at some point in the future - for other practices in the same boat - expanded clinic hours may be a consideration.

Joanne Tetrault is special projects editor for Physicians Practice. She can be reached at jtetrault@physicianspractice.com.

This article originally appeared in the January 2006 issue of Physicians Practice.