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Make your practice
thrive during lean times

With costs rising continually and reimbursement in a holding pattern, staying viable is more of a challenge now than ever. By combining operational improvements with new revenue streams, however, practices can boost the bottom line and flourish.

By Gina Rollins Published May/June 2004

There’s no question the business of medicine is tougher today than at any time in the recent past. Costs are up, reimbursement is flat at best, and physicians are working hard to keep their practices on a steady course. Even so, there are many opportunities to change practice economics for the better. With careful planning and implementation, you can make changes that will help your practice not only survive but thrive.

The Medical Group Management Association (MGMA) annual cost survey paints a gloomy picture of the state of medical practice. Between 1990 and 2002, total operating costs as a percentage of practice revenue in multi-specialty practices rose from 55 percent to nearly 63 percent. During the same period, total operating costs per full time equivalent (FTE) physician grew from $220,000 to $383, 521, a 74-percent increase. When adjusted to the consumer price index, the increase was 34 percent, an indication that medical practice cost increases far exceed general inflation in the overall economy. The figures for single specialty practices are similar, according to David Gans, the director of practice management resources for the Englewood, Colorado-based MGMA.

The squeeze between costs and revenue is peculiar to health care and effectively eliminates one of the most obvious corrective actions. “In any other part of the economy, if costs rose, affected businesses would change their pricing to remain profitable. Unfortunately in health care, the ability to raise prices is limited,” says Rick Cameron, a senior manager at Cejka Consulting, a search firm and health-care consulting company in St. Louis.

“A practice can charge anything it wants, but it will only receive a fixed payment from Medicare and Medicaid, and other payers are more and more tying their reimbursement to Medicare and Medicaid.”

Beyond the statistics, providers feel the weight of rising governmental regulations, payer requirements, and consumer expectations. “The requirements from third-party payers have really grown. It takes all kinds of documentation just to get approval for a routine tonsillectomy/adenoidectomy. You really have to jump through hoops, and it not only slows the process for patients, it requires an inordinate amount of staff time,” says Jane Rager, RN, the administrator for ENTAA Care, an eight-physician otolaryngology and allergy practice in Glen Burnie, Maryland.

Typical of many practices, ENTAA Care has added staff to handle growing administrative requirements. According to MGMA, average FTE support staff per physician rose from 4.57 in 1990 to 5.51 in 2002. Back in 1985, before managed care was on the front page, the figure was only 3.8.

Streamlining operations

With staffing and costs rising sharply, many practices see the foundation for improved financial health in streamlined operations and efficient use of resources. Rager says ENTAA Care took a hard look at both clerical and administrative staffing. “The only thing we have to sell is physician time, so we considered the support staff needed to make our doctors more efficient,” she says. “How many nurses do we need and what do they need to do so the doctor’s time with a patient is uninterrupted and efficient? How do we make sure there’s not a backlog at the front desk and two rooms open with the doctor waiting?” Rager also moved billing staff to work on pre-approvals for office visits and procedures. “I learned that it costs five times as much to do an appeal as it does to put out a clean claim,” she says.

Cost savings also are possible through consolidation with other practices. That can—but doesn’t necessarily—mean a physical merging of practices. For example, Fred Davis, MD and Mark Gostine, MD, created ProCare Systems, a Grand Rapids, Michigan-headquartered network of pain management specialists. “We function like a large regional single specialty group,” says Davis. “We have economies of scale in purchasing, and we do all our administrative work—billing, scheduling and practice support—in Western Michigan, where salary costs are lower. It’s transparent to patients. They dial a local number that rings in our office.” Joining the network has produced dramatic savings for some participating physicians. According to Davis, one practice cut its overhead by more than half.

Cejka’s Cameron advises providers to leave no stone unturned in looking for efficiencies. One that tends to be overlooked is the cost of office space. “Practices should evaluate that more often than they do. It’s usually the second most important expense after salaries, but they don’t look at it. Meantime, escalator clauses in rent or utilities may have made it an unfavorable relationship,” he says.

Certain philosophies or work habits also may have cost implications that physicians are unaware of. For instance, a practice that doesn’t pay competitive wages may only attract inexperienced administrative staff who leave as soon as they learn the ropes. The constant turnover entails more than added recruitment and training outlays. It also may mean lost revenue and higher expenses due to poor customer service or inaccurate billing and collections. Be aware also of physicians with less-than-desirable work habits. “Some people dictate and do their correspondence throughout the day. Then the office can all go home at five o’clock. Others are just starting their call-backs at five. That’s not necessarily a positive work environment,” says Cameron.

Technology to the rescue?

If well-implemented, technology can be an important avenue to increased productivity and lowered costs. Robert Muller, MD, a solo practice gynecologist in Slidell, Louisiana, saw his accounts receivable aging improve after purchasing an electronic billing system. “The computer’s taken away all the handwork and we’re now filing automated claims. It looks like our accounts receivable before was between 60 and 90 days, and now it’s in the 30- to 45-day range,” he says.

According to Rager, ENTAA Care cut in half the accounts receivable balance over 90 days after it began accessing account information on the Internet. “Before, you could call the payer, be on hold for 20 minutes and ask about three accounts. Now, we can see the status of an account on line and it’s made follow-up so much easier,” she says. “Besides checking on old claims, the clerks know it takes about
10 days to post an account on line, so if the claim’s not there in that time frame, they re-file it right away.”

Technology also can introduce efficiencies that save physicians time and improve patient satisfaction. Summit Medical Group in Knoxville, Tennessee uses a medication management and prescription communication tool to write electronic prescriptions and check health-plan formularies and drug safety profiles. “It sends the prescriptions directly to a pharmacy, so they’re ready when the patient arrives. It protects patient time and prevents errors and call-backs due to illegible prescriptions,” says Doug Leahy, MD, an internist with the 140-physician multispecialty practice.

On the extreme, Gordon Moore, MD, a solo family practitioner in Rochester, New York, has used technology to revolutionize his practice, Ideal Health of Brighton. He’s literally a one-man show. There’s no receptionist, no nurse, no billing clerk. Integrated electronic scheduling, billing, and medical records systems have obviated the need for office support, and dramatically cut costs. “My practice expenses are running between $2,000 and $3,000 per month, and that includes malpractice,” he says. Moore doesn’t practice full-time—he also consults and does research—but if he did, he estimates his income would be about $170,000 after expenses.

Moore is admittedly a pioneer; most practices couldn’t contemplate, much less realize, such a radically different paradigm. For starters, many still aren’t sold on the benefits of electronic medical records. Summit Medical, ENTAA Care, and ProCare, for example, all have yet to take the EMR plunge. Others that have are still waiting to see financial benefits. “We have not accrued any cost savings. Don’t get me wrong, we’re glad we did it, but we needed a sugar daddy,” says Roger Shenkel, MD, the executive director of Primary Care Partners, a 25-physician family practice in Grand Junction, Colorado. The EMR installation cost about $1 million. The practice has seen process improvements and believes the system has helped improve patient care, but it also incurred significant costs in transferring patient information to the new system and had to employ staff with higher-level, more expensive skills.

Moore contends the secret to realizing cost savings with a new system is to overhaul office and clinical processes before implementation. “You’ve got to fix the process then electronify the process,” he says. Because EMR and other applications are so expensive and the cost of failure so high, Cameron recommends using an experienced technology consultant. “Even with small practices, it’s wise to ask an outside expert. You need to have someone ask the right questions and put their arms around whether this is a good decision.”

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