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

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

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

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.

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

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

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

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

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%

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!

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

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

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

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.

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

www.patienteducationcenter.org

Web service providers www.max.md www.medfusion.net www.nexsched.com www.practisinc.com www.relayhealth.com

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

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

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

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 (www.mgma.com/gprn)

Cost management example: Internal collectors effectiveness

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

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

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

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%

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% 91-120 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

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: 2005 Report Based on 2004 Data

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

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

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

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

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 RosemarieNelson@alum.syracuse.edu 315-391-2695