Know Your Business

April 1, 2005

How to control key financial indicators in your practice

Juliet Breeze, MD, is no coupon clipper who hangs sheets at
the windows for curtains and makes her staff recycle paper clips.

But through creativity and tough negotiation, she saved Richmond Bone and Joint Clinic more than $66,000 a year in overhead -- one reason she's quick to smile her gracious Texas smile as she invites you into her plush orthopedic office building complete with physical therapy and imaging.

It would be great if every practice had a Dr. Breeze keeping
an eye on the bottom line, but most struggle along not really sure from month to month if things are good, bad, or ugly,
financially. That can make for some sad end-of-year surprises.

On the following pages, meet some practices that tracked three key financial indicators right -- with tactics you can use as inspiration in your own practice, and some tools to help you crunch the numbers. Consider it networking made simple.

Get a grip on overhead

Since 2000, costs rose from 59.3 percent to 60.3 percent of revenue for multispecialty practices -- and it hovers around 58 percent for family practices (MGMA Cost Survey, 2004 Report Based on 2003 Data). It's a hefty portion of your revenues. Keeping it under control takes a little creativity. Look to Juliet Breeze as your muse.

A family practitioner by training, Breeze has been acting as the practice administrator for the Richmond Bone and Joint Clinic of Richmond, Texas, for the past two years. From the start, she jumped right into cost cutting.

First, the practice began contracting with a utility broker to keep energy costs consistent.

"Instead of paying for the energy on a month-to-month basis," says Breeze, "we buy a chunk of electricity that we would expect to use for the year ahead. We're locked into a rate that is spread out over the course of the year. 

"The benefit is that, number one, the monthly power bill remains very steady, and you don't have seasonal ups and downs. This makes the physicians really happy when their distributions aren't bouncing all over the place. And we're not subject to rises in the power costs."

How much has Breeze saved the practice in power bills?

"We were able to reduce our average power bill from $8,000 a month to $5,200 a month. And in our satellite office, we saved $150 a month. So we had a total cost savings of $36,000 a year," Breeze says. Not bad.

Next Breeze took on the cost of insurance -- both professional liability and healthcare for the staff.

"As for malpractice insurance," she says, "it's ugly for everyone. In Texas we don't have a whole lot of choices. There are only two or three companies that provide malpractice [coverage] right now. So 'shopping' is not exactly the right word for what I did."

Instead, Breeze looked at the local marketplace. What kind of coverage did other physicians have? She discovered quite a few carried less coverage than her physicians did. So, she says, "We dropped our extent of coverage to meet the minimum requirements of the hospitals in our area." Breeze figures she's not only saving the practice money, but in effect, reducing its possible risk.


Before, with the higher liability coverage, "We were maybe looking more attractive as a group to sue because we were the highest ranked policyholder in the [area]. So we thought, 'Hey, why don't we get in line with everyone else, and then we don't stand out ... ." 

She took an even more aggressive approach to saving on healthcare insurance for the group and its employees by going to a self-insured model -- a step "for strong stomachs," she warns, because it involves a certain combination of guesswork and luck.
The practice had been spending $15,000 a month on healthcare - $180,000 a year. Were they getting their money's worth? Breeze doesn't think so. The insurance company only paid out $14,000 in claims a year, on average.

Breeze thought, "There's got to be a different way of doing this." So the practice bought a policy with a cap. To the employees, the change was minimal. They had the same benefits, the same deductible, the same copay -- and a bigger network of providers to choose from. And the practice would never spend more than $15,000 in a given month before the secondary insurance would kick in. 

"When we did that, the price for the same amount of people was $6,000 a month. We pay $6,000 a month, and then we pay their health bill up to $15,000 a month. And then we're reinsured," Breeze explains. In all it's saved the practice more than $30,000 a year on health insurance.

Despite the fact that the practice has grown (and experienced one or two "bizarre health problems" among the staff), Breeze says the savings are there, in part because most employees rarely file a claim. "Even after adding 17 employees, [it] turned out to be a substantial benefit," she says.

Slim down staff costs --  Employee costs are a significant part of the total overhead picture for most practices. According to MGMA, support, administrative, clinical, and ancillary staff costs hog up to 58 percent of a practice's operating costs, on average (Cost Survey, 2004 Report Based on 2003 Data).

MGMA reports on best practices also indicate that those groups with more staff actually tend to be more productive and more likely to be financially sound. Sound counterintuitive? To some, yes.

"That was one of the biggest psychological barriers that I had to break down at our practice," says Breeze. "The physicians were afraid of hiring more people because, in their minds, more people meant more people's pay. And they didn't see the upside, which is if you hire correctly, you will increase your collections." 

Traditionally, physicians have judged how many staff they need by looking at benchmarks on support staff per physician. Instead, design your staffing around your volume -- how many patients you see in your office and in the hospital, how many phone calls your office handles, and how many claims and bills are sent out.

If you're spending more than half of your expenses on personnel, consider not only the total number of employees you have but also their salaries. Are you paying close to market? Colleagues and help-wanted ads are good resources for judging if you are paying too much, but also try the Staff Salary Survey published by The Health Care Group each year (available for purchase at www.healthcaregroup.com), or the Professional Association of Health Care Office Management (PAHCOM). The group's Web site, www.pahcom.com, links to independent salary surveys and includes its own survey (available only to members).

Also, think about whether it would it be less expensive to hire a part-time or per diem employee than to keep paying full-time salaries and benefits. Technology can help, too.

Nancy Babbitt, administrator for Roswell Pediatric Center in Alpharetta, Ga., did both. She hired six part-time people to do data entry, and has ended up saving $160,000 in staff costs since her practice began using an EMR. Likewise, at The Jackson Clinic in Jackson, Tenn., Jan Matthews, the clinic's information systems director, expects to see annual savings of $500,000 because "we cut our medical records staff from 40 down to 15."

Cut capital expenses -- Many practices become strapped when they have to make major equipment buys (or leases). Some simply find costs prohibitive and end up inhibiting their own growth. They don't do what it takes to stay competitive and offer the best service to patients.

"Our practice needed some very high-dollar items, and we didn't have the money in the practice. We were going to have to borrow the money in order to get those things," Breeze recalls. "We saw the amazing cost savings over time in using digital X-ray instead of using chemical processing, conventional X-rays. However, digital X-ray is extremely expensive -- we were looking at items that might cost between $200,000 and $300,000."

Rather than going the standard leasing company route, the physicians in the practice formed their own, independent equipment company, securing a note for the loan with their personal funds, and they now lease the digital X-ray equipment to the practice over a seven-year term at a competitive interest rate.


"It allowed the practice to get the best equipment in a cost-contained way and allows the physicians to have a nice investment if they so choose," says Breeze. "We don't ever have to make a huge cash output at any one time, and we also keep the practice free of debt."

With a concerted effort to control overhead costs, and overhead assigned a set percentage of revenue, the physicians' take-home pay is consistent. No surprises, no in-fighting. More time for them to spend on patients. And for Breeze to keep up her creative approach to saving money.
-JT

Shake up your payer mix

Two years ago, Capital Surgeons Group, PLLC, dropped out of a health plan's HMO network over insufficient payments, giving up 25 percent of the group's revenue. "At the time it was a very significant decision," acknowledges Tammy Stokan, the group's contract specialist, and something that the practice -- like many others -- would not have even contemplated years ago.

In the past, the 10-surgeon group "really had an attitude that, if a contract came in the door, they would sign it," Stokan recalls. In this case, however, dropping the contract turned out to be a good thing. 

At the same time, the Austin physicians also made a strategic decision to keep the health plan's PPO business. That steady stream of PPO patients, who cost the health plan more than if they'd been in the HMO, led the health plan to come back to the surgeons with a much better offer to rejoin the HMO network just 18 months later. "We are happy to be back in," Stokan reports.

Unlike most practices, Stokan's has not been afraid to shake up its contracts and payer mix, and has enhanced its finances as a result. The group does it through a more sophisticated approach to contracting.

"There is no contract that does not go through multilevel scrutiny," Stokan says. "We are looking longer and harder than we used to. We are definitely more discriminating than we were four years ago."

The group's payer mix now stands at about 28 percent Medicare, 2.5 percent Medicaid, and 61 percent commercial, with the balance private pay. The surgeons no longer accept any Medicare or Medicaid managed-care patients -- only those who have traditional Medicare fee-for-service.

Letting go of the HMO but not the PPO business "was one of those decisions where we had the data and we could separate them out; we could split it out by line of business," says Stokan. "That has been a huge part of our strategy. We have terminated a lot of payer contracts in the past four years, but that does not mean we don't work with them at all. We have eliminated some poor lines of business."

Stokan says the payer mix has "shifted tremendously" during recent years. "Medicare has been fairly steady, Medicaid was a little higher. We had a lot more charitable care and uncollected debt," she says. Currently the group has about 60 contracts with payers, compared to more than 90 several years ago.

There is no "magical" payer mix. Some Medicaid-only practices are profitable; they make up for lower reimbursement with higher volume, smaller office space, and fewer staff. Many practices are thrilled to get Medicare rates; others won't accept anything less than 130 percent of Medicare.

Payer mix is dictated by the population of patients you are serving and the physical location of your practice. Internal medicine practices, for example, tend to see a lot of Medicare patients. If your practice is located near a population of patients who hold commercial insurance with high physician rates, you may be fortunate enough to capture them. Patients will not usually travel more than 15 miles for their primary care unless there are no alternatives.

And it's key to understand, no matter what your mix, if any one contract is not living up to its promises and is not worth renewing, it should be renegotiated -- or discontinued if you can't get the deal you want.

One tool that helps Capital Surgeons review its contracts is a software program called Phynance, which was developed by Medical Present Value (MPV), Inc.


MPV was founded by James Rubin, MD, an anesthesiologist who says he was frustrated by never really knowing what he was going to be paid for his services.

Too often, Rubin says, physicians start "doing high-fives down the hallway" based on fee schedules or contracts with payers, failing to realize conversion factors, formulas, and other methods that are used to reduce provider payments.

"We thought we knew what we were doing, but, in fact, we couldn't predict the value of the claims," he says of his own practice. In contrast, Phynance analyzes claims for an office based on a specific payer's "reimbursement logic, including contract data, formulas, fee schedules, and payment rules," so the practice knows what to expect. Error and denial rates by payer are also available, which helps offices determine whether to drop a payer from the mix.

"The gravy on MPV is that it gives a huge warehouse of data in terms of contracts, billing habits ... we can do an analysis down to CPT-code level by payer," Stokan adds.

Offices can ask their payers directly for information about factors that influence payment, Rubin adds, so they can be "aware of all the variables" that can go into adjustments, including site of service and local medical review policies. Armed with this information, practices can determine if, and how, to change their payer mix, he says.
-TD

Productivity's a click away

Are your physicians less productive than they could be? Do they spend a lot of time dictating patient notes and writing out prescriptions? What about other staff? Is their time taken up with seemingly necessary but mundane tasks?

That was the situation at Jackson Clinic, PA, a Jackson, Tenn.-based multispecialty practice. But instead of trying to work faster, they worked smarter -- using technology.

The gradual introduction of an EMR with prescribing and transcription capabilities, plus adoption of other technologies, has boosted efficiency, says Jan Matthews, the clinic's information systems director.

Generally, the practice spends about 2 percent of its annual budget on information technology. "Our focus for the last decade has been IT. Practically all of our workflows are IT-driven, and where they're not, we probably are seeing lower productivity," Matthews says.

The clinic, which has 14 locations, has had an EMR since 1999, purchased from Wang Healthcare, Inc. In 2003, the clinic's 130 physicians began using a wireless tablet PC made by Motion Computing. Last year, Jackson did away with paper charts.

One result is that staff members are no longer needed to pull charts from a central location. "We see over 2,000 patients a day in multiple locations, and we no longer have the issue of having to transport charts," Matthews says.

Overall, the move to a paperless environment is expected to produce big financial savings -- to the tune of $500,000 as a result of using the paperless record.

"We cut our medical records staff from 40 down to 15," Matthews adds.

 The physicians have also seen a positive impact on their lives. "Some of them will tell you that their day is shorter," says Matthews. "When they go home at night they don't have to worry about whether they did everything they have to do."


"I agree the EMR has made me more productive," says Carlton Hayes, a pediatrician with the group.

Being able to access the EMR from the hospital or from his home "has also resulted in increased productivity and flexibility regarding when work is done," says Hayes.

Over the years the practice also has encouraged physicians to tap into the electronic prescribing technology included in the EMR and part of the handheld PC. Currently the practice faxes prescriptions to more than 300 pharmacies. This has been another time-saver and has improved medication management, Hayes adds.

"Electronic prescribing through our EMR has made maintaining a medication list in the record much easier," Hayes says. "The additional feature we have of being able to fax prescriptions directly to pharmacies has resulted in significant reductions in our staff's time spent on calling pharmacies to authorize renewals."

Hayes also believes he has become more efficient as a result of the point-of-care documentation he does for some of his patient visits, such as well-child check-ups, diabetes management, and cardiovascular risk-factor management. Matthews says the practice has seen a reduction in transcription costs as more of the group follows Hayes' example.

Scheduling physicians' on-call days has also been improved through technology. The clinic purchased Call Scheduler, a software application from Adjuvant, Inc., which distributes the on-call days and keeps track by physician.

"In the past, we would keep up with a paper calendar of the call schedule and send copies to all physicians in the department," to the hospital, and to others who needed to know, says Matthews. "This system not only saves a tremendous amount of time in the on-call scheduling process, but it makes those call schedules available to anyone on our network."

Even greater gains in productivity may lie ahead, says Hayes.
"Hopefully, in the next 12-18 months we will transition to electronic ordering and tracking of ancillary services, such as lab and X-ray."

-TD

Theresa Defino is an editor for Physicians Practice. She can be reached at tdefino@ physicians practice.com.

Joanne Tetrault is director of editorial services for Physicians
Practice. She can be reached at jtetrault@physicianspractice.com.

Capture Those Charges!

Controlling costs and increasing productivity is great, but if services aren't billed, you're only winning half the battle.

John Hajjar, MD, was pretty sure his 11-physician urology group was missing some charges. But he was surprised to find that about 20 percent of inpatient services performed by doctors in his seven-office practice in New Jersey were never billed. And 35 percent of urinalyses performed by the group never made it onto an encounter form. The total lost for 11 physicians added up to $20,000 to $30,000 a year.

To make sure you're capturing every possible charge

  • Use a formal charge-capture form instead of scraps of paper. Print the forms on a pad and on heavyweight paper so they are harder to lose.
  • Review the forms to make sure all the information needed for billing is included.
  • Try numbering encounter sheets so none go unaccounted for.
  • Don't batch charge capture. Record visits soon after their completion and quickly report them to the billing office for better accuracy and cash flow.
  • Consider using a handheld computer for charge capture. You can download encounters onto your practice's billing software when you get back to the office.