There are two ways to improve your net income: increase your revenue and decrease your expenses. In theory, the potential to do the former is infinite, whereas the latter is limited by the minimum cash necessary to run your practice. But the reality many physicians face is that they can only see so many more patients, launch so many ancillary services, and so on. Therefore, overhead management is crucial.
To get the biggest return on your efforts, begin by analyzing what you currently spend in your two biggest expense categories, which are typically staff wages and rent.
Paying for people. Healthcare is not unique in that its No. 1 expense is generally payroll. As a result, staff layoffs are pervasive in most industries in tough financial times—leading to a misconception that eliminating positions is the only way to make a significant dent in practice overhead. But this is not always the case, says Jerry Hermanson, MBA, CHE, senior consultant at Healthcare Integration Consultants, Inc., in Highlands, NC. In fact, some situations cry out for more hands on deck.
For example, "if you want to invest in a practice administrator, many times that will improve your cost structure and profitability because you'll be able to keep track of the changes in practices, not only saving money but also on the revenue side," Hermanson says.
For the most part, you want to see your staffing ratio— the number of full-time equivalent (FTE) staff members per physician—in line with specialty-specific benchmarks, such as those provided by the MGMA.
You should also determine how much you spend on staff wages relative to collections, broken down by category—administrative, billing, back office, front office, and so on. Divide each of these line items into your collections to arrive at their percent of collections. Phairas explains that this number, along with the number of FTEs in each category, can be analyzed according to the following rules of thumb: If both indicators are higher than the norm, you are probably overstaffed; if both indicators are lower than the norm, you are probably understaffed.
Save on your space. Most practices' second-highest expense is the lease on their office space, which accounts for 5%–10% of overhead relative to collections, Phairas says. Again, obtain benchmark data to determine what your peers are spending. Physicians are wise to have these data and a corresponding budget in hand when they first negotiate a lease, but it's not impossible to make changes at other times.
"You don't have to wait until the end of a lease to renegotiate," Hermanson says. "If economic situations have changed in your market—property values have gone down, interest and inflation rates have gone down—you may be able to renegotiate. We've seen a lot of that in the past year or so."
This story was adapted from one that first appeared in the June edition of The Doctor's Office, a publication by HealthLeaders Media.
The trend these days in health plans is to put physician performance under a microscope, going so far as to issue publicly-posted report cards that rank physicians relative to their peers.
Well, turnabout is fair play.
At its annual House of Delegates meeting this week the American Medical Association announced the release of its first health insurer report card, which is supposed to provide information about the "timeliness, transparency and accuracy of claims processing by health insurance companies."
Is this a jab at payer-issued report cards? No, says William A. Dolan, MD, an AMA board member. But it does reflect the poor state of physician-payer relations today and is the result of physician frustration (to put it mildly) with the bureaucracy and inefficiencies of managed care.
"What we'd like to do is bring transparency and accountability to these insurers," he says.
The AMA argues that the billing process eats up about 14% of physicians' annual revenue, and the report cards, which are part of a larger "Cure for Claims" campaign, aim to cut that number down.
"I use the analogy of an ATM," Dolan says. "What if you went to the ATM and 67%-82% of the time you would not get the amount of money you wanted to withdraw? Or, 3%-12% of the time, you wouldn't get anything."
The report card rates insurers on payment adherence, timeliness, denials, transparency, and compliance with pricing rules, but the overall campaign also recognizes physicians' role in the process and offers tips and education for improving claims processing and coding.
Will the pressure on insurers be effective in reducing the estimated $210 billion in billing-related annual healthcare costs? Not by itself.
A spokeswoman for America's Health Insurance Plans has already shifted the blame by arguing that it takes two parties—both insurers and doctors—to improve claims processing.
But the report card is just "one form of fighting back," Dolan says. Other arrows in the physician's quiver include more aggressive tactics such as class-action lawsuits.
If I were a major health insurer, I wouldn't be worried about the report card so much as the physician discontent—and growing willingness to "fight back"—that it represents.
Other issues that came out of this week's AMA house of delegates meeting to keep an eye on:
Guidelines on medical tourism. This is a first for the AMA, and the principles address "financial incentives, insurance coverage for care abroad, and care coordination." It sounds like the AMA has developed an acute awareness of medical travel.
Report on RUC recommendations. According to Dolan, the Relative Value Update Committee recommended ways to improve the valuation of primary care services, with no opposition from specialists.
Recommendations on "mystery shoppers." The AMA ethics council debated the benefits and drawbacks of medical mystery shoppers and issued a report on the matter. Many physicians are opposed to unidentified "fake" patients, but as Marketing Editor Gienna Shaw points out, mystery shoppers can improve quality and customer service.
Resolution against Ricki Lake. Well, not against Ricki Lake personally, but in a statement of opposition to homebirths performed by midwives (without doctor supervision) the AMA did mention Lake's public support for at-home deliveries. In another turf-defending resolution, the AMA sought to define who could rightfully use the terms "doctor" and "resident."
Elyas Bakhtiari is a managing editor with HealthLeaders Media. He can be reached at ebakhtiari@healthleadersmedia.com.Note: You can sign up to receive HealthLeaders Media PhysicianLeaders, a free weekly e-newsletter that features the top physician business headlines of the week from leading news sources.
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