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    Jeff Akers, CPA

    Physician groups must look for every opportunity to strengthen financial performance. While optimizing revenue cycle performance is essential, equally important is identifying ways to improve the efficiency of the overall operations of the practice. Consider these three critical yet often overlooked aspects of your practice: staffing, business overhead, and payer contracts.

    Gains made in the areas of staffing, overhead and payer reimbursements can contribute to more effective recruitment and retention, as well as boost financial performance in the long run.

    Solving the staffing puzzle

    Physician compensation and benefits represent by far the biggest portion of cash outflow for any physician practice, be it hospital-affiliated or independent. Physician staffing levels should be assessed to balance demand for services and the financial expectations of physicians.

    Achieving optimum staffing levels is a continual challenge, given the ebb and flow of demand, differences in individual physician productivity, overall compensation expense, economic conditions and uncertainties about future reimbursement rates. It is important that groups quantify these variables.

    Benchmarking the practice

    Engage in a systematic assessment of existing group staffing patterns, productivity and future needs. The process begins by determining whether staffing levels are adequate for demands. One way to do this is to calculate the current annual workload per physician in work relative value units (wRVUs).

    Generating these values allows for roughly equivalent productivity comparisons between physicians and provides an opportunity to benchmark your practice against information available in the industry and against similar groups locally, regionally, and nationwide. Total wRVUs should also be projected for the next several years based on anticipated hospital demand and/or the likelihood of new competition.

    Determining compensation

    Physician salaries, benefits, and physician expenses collectively should represent about 85% of practice revenues for hospital-based practices and some specialties (the numbers can differ greatly for primary care and high-patient-contact specialty practices). Physician-specific expenses that are included in compensation and benefits typically include items such as insurance (malpractice, health, dental, vision, disability, and life), retirement plan contributions, dues, licenses, continuing medical education (CME) costs, and payroll tax expense.

    Understanding the physician mix

    Determine whether your partner(s) may be considering a part-time schedule, leaving or retiring and (if so) in what time frame. Physician expectations regarding time off, call coverage, and income also must be factored into the equation. Your group may conclude that using locum tenens physicians or part-time physicians to help meet temporary demand spikes may be the most cost-effective path.

    Squeezing overhead

    If practice overhead excluding physician compensation and benefits expense is well in excess of 15% for hospital-based practices, key cost components may be too high. Practice overhead is considered to be any cost that does not directly contribute to compensation or benefits. Non-physician salaries and benefits frequently represent the majority of business overhead, particularly if the practice has in-house billing staff. And the costs can add up once annual raises and health insurance premiums are taken into account.

    Your group should, therefore, take a hard look at whether it is economically prudent to maintain billing operations in-house. You may instead want to consider partnering with a qualified billing vendor to reduce costs.

    Reviewing payer contracts

    When it comes to payer contracts, physician groups often neglect these agreements after the initial deal with the payer has been signed. The result can be lost revenue due to a failure to keep pace with reimbursement terms negotiated by physician peers in the market.

    Groups also must be proactive and alert when it comes to contract amendments that indicate intent to lower the fee schedule due to a desire to “streamline” or “improve competition.” The challenge is that the practice may be given as little as 30-45 days to respond, with failure to respond interpreted as acceptance.

    Contract renegotiations require similar consideration. Some commercial payers will paint uncertainty around the economy to justify negligible increases in their reimbursement rates or to delay any increases for an additional year.

    Getting started

    Streamlining areas of your practice to improve workflow and efficiency for your staff and operations will not only make an impact on day-to-day functions but your bottom line as well. By focusing on staffing, business overhead, and payer contracts, your group is sure to move the needle in 2019.



    If you're interested in learning more about optimizing revenue for your practice you can join us at MGMA's Annual Conference October 13th-16th in New Orleans. Registration is now open.

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    Written By

    Jeff Akers, CPA

    Jeff Akers specializes in financial, business advisory, and practice management services for medical practices. He provides strategic and financial analysis, performs practice reviews, prepares compensation plans, implements financial management best-practices and internal controls, and prepares cash flow forecasting for medical groups.  

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