If medical group leaders can agree on any one thing, it is the difficulty of managing a successful practice in the current economic climate of increasing operating costs and static payment levels.
Across the spectrum of practices, some are flourishing while similar organizations struggle. Looking closer at these successful organizations we see a pattern of higher productivity, more revenue, somewhat higher operating costs, but lower overhead than practices with much poorer bottom lines.
Attaining higher productivity is essential to a better bottom line, but it is not so easy to understand how it is done. Perhaps the most important factor in these high-producing practices is the least measurable: having a practice culture that facilitates production. At the same time, we can quantify other aspects in the practice, and among the variables most highly associated with higher levels of productivity is having more staff to support the providers and enable them to increase patient volume.
Unfortunately, just having more staff is not the answer. Administrators and physician executives must “thread the needle” to have sufficient staff to maximize productivity but at a cost that keeps overhead reasonable.
Fortunately, classical economics provides a model that allows us to examine optimum staffing levels. In economic theory, the production function relates physical inputs to practice outputs. Economists describe the factors of production as land, labor and capital. Production function is simply the relationship of the three factors.
Since, in the short run, a practice’s capital and land are constant, we can employ this model to examine the effects that different levels of production have on practice profits and then examine the labor (staffing levels) of the production level that optimized profits.
The graph (see Figure 1, page 14) utilizes the quartile report available from MGMA DataDive Pro Cost and Revenue 2016 to display total medical revenue per full-time equivalent (FTE) physician, total operating costs per FTE physician and total medical revenue per FTE physician (which we will term profit) for different levels of production, measured as work RVUs per FTE physician in multispecialty groups with primary and specialty care.
Examining Figure 1, we see how as productivity increases, total medical revenue per FTE physician increases. The practices with work RVUs per FTE physician in the first quartile (less than 5,559 work RVUs per FTE physician) had a median of $502,867 in total medical revenue per FTE physician, while practices in the fourth quartile (more than 8,052 work RVUs per FTE physician) had 94% greater revenue. Total operating expenses also increased, but at a lesser level, with the practices in the fourth quartile having a median that was 54% greater. Most importantly, profits in the fourth quartile were 154% greater at $374,577 per FTE physician. This information reinforces what we reported earlier in MGMA Connection magazine.
Since greater production produces greater profits, it is critical for healthcare managers to understand how to attain high production levels. The chart (see Figure 2) provides insights into the production function, displaying the units of labor (employees per FTE physician) for the different production levels.
Examining the data, there is a clear pattern that the practices with the lowest productivity have much lower staffing levels. Median total support staff per FTE physician for practices in the fourth quartile was 73% greater than practices in the first quartile. Some of the increased staff members provide business operations support, with the practices in the fourth quartile having more than twice the staff per FTE physician (1.21 vs. 0.58), no doubt due to the increased workload that results from the greater RVU production.
Most interesting is that practices with the greatest productivity have about one-third more front-office support staff and clinical support staff than the practices with the lowest productivity. The practices in the fourth quartile reported 1.56 front-office support staff per FTE physician. This category includes receptionists, medical records and similar positions that facilitate patient flow, a key factor in improving practice productivity.
Similarly, the most productive practices have 2.02 clinical support staff members per FTE physician, compared to 1.54 clinical support staff members for practices in the first quartile. Clinical support staff are the registered nurses, licensed practical nurses and nursing assistants who directly assist providers in patient care and improve patient flow as they prepare treatment and examination rooms, room patients, and clean patient care areas and instruments following patient visits and procedures.
The most productive practices are also the practices with the most revenue; these practices have somewhat higher costs but also much higher profits. Looking further at these most productive practices, they also have the highest levels for nursing staff directly supporting the providers’ care for patients, as well as more support staff in the right positions to facilitate patient flow through the practice.
Is success easy? Not necessarily, but it is a lot easier if you have the right staffing and work hard enough.