For example, while hospitals can maintain their bottom line by cutting expenses, practices need to enhance revenues, Mr. Halley says. While about half of a hospital's costs are variable and thus potential targets for cuts, only about 15 percent of a practice's costs fall into this category. Put another way, the two major fixed costs for a practice — paying physicians and their support staff — make up 65-70 percent of practice expenses, while a variable cost like clinical supplies usually makes up only 2-8 percent of expenses in a primary care practice.
Therefore, Mr. Halley says hospital-owned practices need to focus on revenue enhancement, not cost-cutting. He offers the following eight best practices for hospital executives who want to improve their practices' bottom line. The advice focuses on primary care practices, the key element of a practice-acquisition strategy.
1. Match physician capacity with expected volume. If you build it, they might not actually come. That is, only a finite number of primary care physicians can thrive in a certain geographic area because patients will not travel far. As a rule of thumb, a practice should not be more than a 10-15 minute drive from a patient's home, work or school in an urban or suburban area. No matter how highly regarded your primary care doctors are, patients aren't going to drive that far to see them. You need to obtain accurate statistics on how many primary care physicians the area can support and hew to those figures.
That said, people will travel farther to see specialists because patients won’t see them regularly and simply expect to travel farther for them. So the issue for specialists is making sure they will have enough relationships with primary care practices to justify specialists' numbers, and making sure these primary care physicians will stay with them. Your referral network could be decimated if a competing hospital purchases several primary care practices and redirects their referral patterns.
2. Adjust your payor mix. Once your payor mix is set, it will be hard to change. Patients tend to stay with their doctor over time. That means a practice needs to decide upfront how many low-paying Medicaid patients and no-paying charity cases it can afford to have. Practices often decide they have an obligation to society to care for a certain number of these patients, but a failure to strictly monitor the number of these patients may risk a practice's long-term financial viability, and that doesn't help anybody.
You can look at payor mix another way: you'll need enough paying patients to cover your overhead. If you have practices at several locations, you may want to designate one location for the low-income patients and design services specific to their needs. This is better than giving them nowhere to go and seeing them end up in your ED. You may even want to seek designation for sites to qualify as federally qualified health centers. While Medicaid pays something like $34-$38 per visit, the range for an FQHC is around $110-$120. FQHCs must provide extra services, such as use of social workers, but even with these extra obligations this designation may be worth it.
3. Monitor fee levels. To optimize payment, it is essential to have a common fee structure throughout your physician network and review that fee structure regularly. The fee level for each code should be at least equal to what you get from your highest payor. If your quoted fee falls below that level, your highest payor is likely to adjust the payment downward. Monitor fees once or twice a year by reviewing the explanation of benefits (EOB) that accompanies each payor's payment.
4. Emphasize customer service. The loyalty of patients or referring physicians to your practices will be crucial to their success. Primary care practices depend on referrals by one patient to another and specialty practices depend on referrals from one primary care physician to another as well as positive patient experiences with the specialist.
The most important elements of customer service for patients and their referring physicians are easy access to care and clear communication. New practitioners tend to excel in this because they have open appointment schedules and more time on their hands. Patients have quick access to an appointment and the doctor is happy to write detailed progress notes and letters to referring physicians on care provided. But as the physician gets busier, access and communication decline. Patients get disgruntled and the physician risks losing them.
Before this happens, the practice needs to figure out how to successfully manage higher volumes while still providing high-quality care and maintaining a caring disposition to patients. It is essential to monitor patient satisfaction through surveys, keep up on the new-patient ratio (new-patient visits as a percentage of total patient visits) and set demanding customer-service targets for referring physicians and their patients.
5. Improve productivity. Productivity has always been the essential ingredient of financial success, and the bar will be raised higher going forward. One thing that seems certain about healthcare reform is that reimbursement will decline, so the doctor will have to become more efficient. We dedicate a great deal of our time and attention as consultants to helping practices with productivity.
One way to boost productivity is having enough nurses to assist physicians so they can comfortably see more patients per day. The most productive practices learn to delegate many tasks to nurses and other staff. When a clinical assistant or nurse is right outside the exam room door, taking over immediately so that the doctor can move on to the next patient, the doctor can go from seeing 26 patients a day to seeing 28. On the flip side, when you don’t have enough nurses, everything takes longer. The doctor finishes the exam and the nurse is not available because the phone rang or some unexpected task came up.
To make sure the doctor always has a nurse or clinical assistant available, consider hiring an extra assistant beyond those already assigned to each physician. This is adaptable even to a solo practice: hire a second, part-time nurse to come in at noon. Physicians who consider themselves busy seeing 25 patients a day could bump that number up to even 30 a day by hiring another nurse. And in addition to driving productivity, extra nurses help turn the practice into a more caring place for the patient.
6. Make sure doctors document their work. When primary care physicians work on the patient's chart, they tend to focus on clinical issues. They don't think of billing and compliance issues and usually undercode and underdocument in these areas. Put another way, they may be providing more services than they bill for. The busier the practice is, the more easily this happens. A very busy doctor may simply not have the time to document beyond the clinical essentials. The answer is to relieve this doctor of extra chores to afford additional time for the chart. Above all, doctors need ongoing education and feedback about how to code accurately and someone needs to review their coding and documentation for accuracy.
7. Manage the billing process. Hospitals owning group practices often make the mistake of clumping all billing activities into the hospital's central billing office. You can’t mix these two very distinct forms of billing. Also, a centralized billing process disengages the practice site from accountability. The practice needs to focus on data verification, point-of-service collections, proper credit extension and private-pay follow-up. Then a central processing office, dedicated to the practices, can process primary and secondary insurance claims, conduct insurance research, produce monthly patients’ billing statements and support the pre-collections process.
8. Retain services at the practice. Another mistake hospitals make is moving laboratory, radiology and other ancillary services out of the practice and into the hospital. While this enhances the hospital’s bottom line, it takes a crucial source of revenue away from the practice and is a big inconvenience for patients, forcing them to travel to the hospital for services normally available at a physician’s office. That's a good way to drive patients away.
Practices should not only keep these services but should add more of them to meet rising patient expectations as well as provide extra revenue. The primary care practice, in particular, needs the extra funds to supplement its high fixed costs and low margins. While extra services typically make up 10-15 percent of net revenue of the typical primary care office, with some additions they can account for 20-30 percent. These services may include stress tests, colposcopy screening for women and even endoscopy screening. Primary care physicians can provide endoscopy with the proper training, facilities and equipment. It will be easier to add ancillary services at group practices with at least three or four providers.
In conclusion, two points need to be made about carrying out these measures.
- Work with your physicians. The hospital needs to create a shared vision with the physicians in its practices. Although your physicians are employed, they still need to be consulted for initiatives to be successful. Provide a way for the doctors to partner with the hospital both in conception and implementation of policies. This can mean having one or more physicians attend planning sessions and bringing important proposed changes before physicians as a group.
- Work on one practice at a time. Rather than impose one set policy on all practices within your network, keep in mind that each practice has different problems and different solutions. That is, physician networks break even one practice at a time. To ensure accountability, each practice needs to maintain a site-specific performance improvement action plan.
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