1. Physician Practices Today – Business Realities & Opportunities
Rosemarie Nelson, MS
Principal, MGMA Health Care Consulting Group
October 2006

2. 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

3. Dynamic relationship More revenue Higher operating costs
Operating expense increases
Total profit rises
How is it managed?
Productivity
Profit
Expenses
Revenue

4. 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

5. Selection criteria by performance area:
Profitability and Cost Management
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).
Productivity, Capacity and Staffing (nonsurgical specialties)
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)
Greater than median for total procedures per FTE physician; and
Anesthesia practices, greater than median for ASA units per FTE physician.
Accounts Receivable and Collections
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.

6. Opportunity Thesis – “There are no perfect solutions”
“Nothing achieves 100%”
“Many small changes add up”
If others can improve, why not your practice?

7. Benchmarking- MGMA Hematology/Oncology (where you stand vs
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
65.32%
71.85%
79.76%
85.18%
Support staff
4.23
7.36
8.89
13.35

8. Advantages of Benchmarking
Where is the opportunity?
How much?
Starting point for change?

9. 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

10. Health Plan Contracts and
Incremental Revenue Should you accept poor paying contract? Obvious answer – No! Practical answer – project the numbers!
Proposed 50%
? Participate, or not?
Payor B 70%
Health Plan Contracts and
% of fee
Payor A 80%
Current practice
Medicare 58%

11. Practice A – Full practice (limited access)
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!

12. Volume Problems (inadequate patient base)
Access:
Who controls the appointments?
Convenience vs. productivity
Convenience for:
Physicians
Staff
Patients
Hours/days
Marketing:
Do you have a hook?
Cost
Patient network

13. 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

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

15. 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
500
Source: Collation of MGMA, Physicians Practice, Camden.
Note: Billing includes charge entry.

16. 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

18. Web service providers www.max.md www.medfusion.net www.nexsched.com

19. Billing structures Centralized Decentralized Hybrid
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
Payments and follow up centralized

20. 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

21. 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

22. Time/cost spent per FTE physician
Hours/year
Cost/FTE
Support staff time on phone with pharmacies - formulary
25.8
$375
Support staff time on phone with pharmacies – Rx substitutions (generic)
23.7
$344
Support staff time on phone with pharmacies – Rx refills
133.0
$1,929
Support staff time on phone with pharmacies – other issues
26.9
$390
Physician time on phone with pharmacies – formulary issues
15.7
$1,570
Physician time on phone with pharmacies – Rx substitutions (generic)
14.4
$1.442
Physician time on phone with pharmacies – Rx refills
80.8
$8,083
Physician time on phone with pharmacies – other
16.4
$1,636
Support staff time verifying patient coverage/copayment/deductibles
267.3
$3,876
Support staff time resubmitting denied claims
63.8
$925
Total cost per year
$20,570
2004 MGMA – Analyzing cost of administrative complexity in group practice (

23. Cost management example: Internal collectors effectiveness

24. 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

25. Reports as management tools
Monitor
Trends
Duty of curiosity
Decision making
Project impact
Measure and monitor

26. Metrics to Manage Office services Prior Year Totals
Prior Year Monthly Avg
Sept
Oct
Nov
Running monthly avg
New Patient visits
372
31.0 36 27 37
33.3
Office consults
226
18.8 19 17 23
19.7
Est. patient visits
10982
915.2
991
892
987
956.7
Total encounters
12296
1024.7
1114
1006
1122
1080.7
You name the service
1235
102.9
108 92
111
103.7
Lab procedures
8241
686.8
692
670
675
679.0
Xray studies
1120
93.3 96 87 97

27. Metrics to Manage Financial Data Prior Year Totals
Prior Year Monthly Avg
Sept
Oct
Nov
Running monthly avg
Beginning A/R
$213,983
n/a
$234,026
$239,154
$230,985
$234,722
Gross charges
$1,542,110
$128,509
$140,260
$131,410
$146,295
$139,322
Adjustments
($32,500)
($2,713)
($2,960)
($3,155)
($3,080)
($3,065)
Insurance write-offs
($187,344)
($15,612)
($18,420)
($20,050)
($20,100)
($19,523)
Adjusted charges
$1,322,266
$110,184
$118,880
$108,205
$123,115
$116,733
Gross collections
$1,324,638
$110,386
$115,672
$118,440
$118,406
$117,506
Receipt adjustments
($22,415)
($1,868)
($1,920)
($2,066)
($1,744)
($1,910)
Net collections
$1,302,223
$108,518
$113,752
$116,374
$116,662
$115,596
Ending A/R
$237,438
$235,859
Change in A/R
$20,043
$5,128
($8,169)
$6,453
$1,137
Net collection ratio
98.5%
95.7%
107.5%
94.8%
99.0%

28. Metrics to Manage A/R Aging Prior Year Totals Percent of Total Sept
Oct
Nov
Running monthly avg
Mthly Avg Percent of Total
Current
$91,036
38.91%
$96,182
$93,355
$98,114
$95,884
40.87%
31-60 days
$52,188
22.31%
$51,260
$48,365
$54,104
$51,243
21.84%
61-90 days
$35,104
15.00%
$36,514
$35,598
$35,269
$35,794
15.26%
days
$21,764
9.30%
$15,358
$10,596
$12,183
5.19%
>120 days
$33,864
14.47%
$39,842
$39,355
$39,517
16.84%
Total
$233,956
100.00%
$239,156
$227,269
$237,438
$234,621

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

30. 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

31. 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

32. 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

33. MGMA Cost Survey Says… Physician comp method that rewards productivity
Good communication among physicians, administrators, staff
Effective physician-administrator management team
Clearly defined roles and responsibilities for physicians, administrators, staff
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

34. Better Performing Practices:
That which gets measured gets managed.

35. 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
Rosemarie Nelson, MS
Principal, MGMA Health Care Consulting Group