Red flags in practice performance

By Rebecca Anwar, Ph.D. & Judy Capko

Is it possible to run a profitable and efficient medical practice, small or large, when managed care gains dominance? The answer is yes, but only if you are willing to develop practicable strategies, make sound decisions and have a vision for the future.

Like it or not, managed care is here to stay. HMOs, PPOs and Medicare are all forms of managed care that have an impact on your financial health. Capitation is gaining ground and brings with it concerns for managing risk and finances. The combination of reduced reimbursement and increased operating expenses is a major migraine for most practice administrators.

Faced with these inevitable and unwelcome changes, physicians and administrators are fast discovering they must take control of their expenses and develop a plan for using their staff and ancillary services wisely.

The first step in regaining control is to analyze four areas of your practice financial operations: Collection ratio, Total accounts receivable, Procedure production and revenue, Income and expenses.

Collection ratio. Analyze your collection ratio for the past three months. If it falls below 90 percent after contractual adjustments, view this as an indicator that you don’t have control of your billing department.

Also, don’t allow accounts to “age” more than 120 days without scrutiny. The key to having an outstanding collections ratio is to hold your staff accountable and educate them about the importance of collecting accurate patient data. Know your contracts. For example, your receptionist should make sure the patient’s insurance status is up to date. Collect the co-pay up-front, even from patients having private insurance plans!

Are you losing time and income because of inaccurate coding? If so, identify the problem and correct it. Inform your staff about any billing errors. Set up procedures to monitor and control input and output.

Total accounts receivable. This should be no more than two to three times your monthly charges. For example, if your group practice monthly charges amount to $200,000, your total accounts receivable should be no more than $600,000. Review sudden or gradual changes in your accounts receivable. There are a couple of factors that could cause an increase in outstanding charges or accounts receivable. If your staff is negligent in sending out “clean” claims, you will experience delays in being reimbursed. Also, your A/R could be spiraling because a major third-party payor may be experiencing financial difficulties and is taking longer than normal to reimburse you for services rendered.

If you have difficulty identifying the cause of outstanding charges, it may be time to call in an expert who specializes in accounts receivable analysis, billing and accounts receivable control.

Procedure production and revenue. Examine several months of charges by procedure to learn where charges are being initiated. You can also determine which third-party payors are accounting for most of your charges and which procedures are the most profitable.

You can analyze charges and services generated by individual physicians in your group. Examine variables between the providers and the kinds of services they are performing. Are they in line with your practice standards? That way, any inequities of services or charges by different providers will show up.

Income and expense report. Analyze this on a monthly basis to detect trends and ascertain changes in your practice, i.e., what’s going up or down. If you spot a red flag, look at the itemization of expenses in that category. When you find what’s causing the increase, address the problem immediately.

If your overhead is constantly rising, examine your personnel expenses. Has there been an increase in staff overtime; have employees been added; too many raises been given out, or is the part-time staff increasing their hours? Before you make any drastic changes, find out if these higher personnel costs were justified because of increased production.

Administrators may find this kind of investigative work time-consuming, but it is essential in analyzing business indicators and practice performance. It is equally important to get the time and attention of your Executive Board to enable you to share data that can influence future decisions and ensure you are headed in the right strategic direction. That is why it is critical that administrators work in tandem with the Executive Board and have their support.

Spending two hours a month on a strategy meeting to review this data will prevent further headaches and lost revenue in the future. This board meeting should have an agenda that focuses on providing reports on financial management, human resource issues, operations and market shifts. Attendance should be required and minutes recorded to outline action items, deadline dates and responsible (assigned) party.

Beyond this, action items should be reviewed the following month to track and monitor activity, and hold responsible parties accountable.

Leadership and management skills are essential to succeed in a competitive managed care environment. A skilled administrator sets the tone for the success of the practice. But the administrator must have the support of the board and all providers, along with the authority essential to manage business functions and hold staff accountable.

Business and leadership skills must continually be fine-tuned to manage change and stay on top. Beyond superior business skills, administrators need to focus on the basics essential to being a leader in order to maintain high morale, maximize productivity and increase performance. A good leader is someone who:

• Respects and appreciates.

• Can give constructive criticism and praise.

• Is well-organized.

• Can take charge but not control.

• Uses diplomacy to deal with confrontation.

• Can motivate.

A good leader has excellent communication skills and respects and appreciates subordinates. He or she tells their staff what’s expected of them but lets them choose their own path to complete a task. Have confidence in your employees. Let them make mistakes as part of the learning process. A good leader measures and rates the results, not the process.

Both administrators and physicians need to master the art of delegation. Otherwise, they will feel burdened with work and responsibilities that can easily be handled by someone else.

Physicians, as your practice’s revenue-producer, should be using their time efficiently. In addition, mid-levels must be cognizant of how they use their time and resources. If they are performing a task that can be done by another staff member, delegate it.

Administrators, buried in additional business and financial management burdens, will never be able to identify ways to expand the practice, generate more revenue, stay competitive and ensure the practice provides superior service unless they and the providers are willing and confident to delegate tasks to staff.

If you don’t have confidence in the delegation process, it may simply mean your staff needs additional training, or you may be delegating to the wrong person. An important aspect of delegation is the follow-through. Hold your staff accountable: did they complete the task and was it done well?

A common problem area for practices experiencing internal economic crisis is that they are not using their resources— staff and equipment—wisely. For example, some centers buy a state-of-the-art computer system yet only use 30 percent of its capabilities. Keep in mind that initially, it may take extra time to train staff to learn new programs and equipment functions. However, the extra effort will pay off if it reduces staff time and improves efficiency, enabling them to work on other tasks.

Before purchasing expensive equipment, analyze whether it will increase revenue or productivity. Where is your break-even point?

Some doctors jump on the latest health care trends by purchasing expensive clinical or office equipment. Others join fellow physicians by investing in laboratories, x-ray facilities or surgi-centers, then encounter government and insurance company regulations that limit where they can send their patient for ancillary services.

Are you using your staff to full advantage? A skilled administrator should not be spending valuable time gathering simple data or information that could be collected by an assistant. For example, if you are considering purchasing a new computer system for the office, have a staff member conduct the initial investigation, making contact with computer company reps, gathering brochures, etc. Then, the assistant can turn this information over to you for analysis, after which you can make recommendations to the physicians.

One of the best ways administrators can navigate the turbulent waters of the managed care environment is by being pro-active rather than reactive. On an on-going basis, analyze the viability of the insurance plans you accept or are considering carrying. This is necessitated by the volatile and complicated nature of third party carriers.

For example, you may discover that only 10 percent of your patients belong to Headache Insurance Co., yet their paperwork and red tape takes up 40 percent of your staff time. You need to evaluate whether keeping this plan is conducive to your practice’s financial health.

By the same token, because of the volatile nature of the health care industry, you must keep a constant pulse on health care plans in your community. If a major employer in your community suddenly switches to Headache Insurance, you will have to seriously study whether your practice can afford not to accept the plan.

Being pro-active means being informed about your patient mix and their third-party payors. This will help you pinpoint any changes you are experiencing. Armed with this data, you can develop strategies to create the kind of practice that will give you the fewest headaches and provide the greatest financial rewards.

Patients today are far more assertive about their health care than their counterparts of the 1970s. Because third party payors frequently place restrictions on the kind of health care they may receive, educate your patients about their insurance plan’s limitations in a positive way. By communicating this, you can help them take responsibility for their health care and make informed decisions.

While it is easy for administrators to feel powerless when their practice is continually being pressured by the constraints of legislative and third party payor regulations, they can take charge of their future.

Keep abreast of any changes in your practice by having annual strategic planning meetings with key staff members. Make future decisions based on hard data rather than emotional responses.

A trend for practices this decade is to strengthen their position in the marketplace by merging with other practices. There are many advantages to this approach, including the sharing of expenses and staff, a broader geographic presence and having more negotiating power with third party payors. A highly skilled administrator is key to overseeing such a complex operation, along with the guidance of an experienced health care advisor to deal with complex strategic planning and managed care issues.

For practices that prefer to stay in their current practice structure, it is essential to have a top-of-the-line administrator. Here, the old adage is generally true: you get what you pay for. Today’s administrator is a multi-skilled individual who must continually keep abreast of the latest developments in health care industry changes. Stay on top of these changes by investing in continuing education for staff so they can keep current: taking seminars, reading medical journals and networking. Physicians need to support management’s membership in national organizations such as Medical Group Management Association (MGMA) and Professional Association of Health Care Office Managers (PAHCOM). The knowledge and tools managers bring back to the practice are invaluable.

It will come as no surprise that the No. 1 expense of running a practice is payroll. Some physicians and administrators react to increased personnel expenses and reductions in reimbursement by immediately “down sizing” their staff. Instead of this kind of knee-jerk reaction, take a look at your current staff to see if changes can be made to make them more productive and efficient.

In addition, examine key indicators that are generally the culprits that contribute to increased personnel costs.

It is worth noting that if you are concerned that your personnel expenses seem way out of line for your specialty and size, do research to see if your practice expenses fall within the norm. MGMA and the National Association of Health care Consultants have statistics on these kind of expenses for most specialties.

For most medical practices, regardless of specialty and size, the heady days of the income-generating ‘70s went out with polyester leisure suits. Yet, with thoughtful planning and execution, it is still possible to practice “good” medicine and make a profit in the managed care ‘90s. Yes, health care delivery and management will continue to change, but by being informed and being pro-active you can have a say in your future.

Begin today by taking the necessary steps to ensure economic survival. Address any problems immediately, rather than letting them get out of control. Examine opportunities and always know your current economic and competitive position. Be proactive and accept that change is inevitable. Work with competent advisors in responding to change and developing a managed care strategic plan. Lead the way with a vision for the future!

Rebecca Anwar, Ph.D., is based in Philadelphia, PA and Judy Capko is based in Newbury Park, CA. They are senior consultants with The Sage Group, Inc., a national consulting firm specializing in managed care assessments, integrated practice formation, strategic planning and practice management, quality improvement and marketing for health care providers.