Physicians know times are tough, yet somehow certain practices manage to prosper while others struggle to keep their doors open. What are the successful groups doing that their peers are not?
Better performing medical groups are savvy contract negotiators, manage their revenue cycle aggressively and spend more on their staff and operations.
So says the latest benchmarking study from the Medical Group Management Association, which examined the primary factors that improve medical groups' bottom lines. MGMA published the study in cooperation with the University of Pennsylvania's Wharton School of Business and Physicians Practice, a Baltimore-based healthcare communications company.
"There are some prevailing ideas in the industry, and one of those has resulted in physicians who are overly concerned about overhead rates," says Elizabeth Woodcock, chief researcher at Physicians Practice. "We found that practices that have an equal balance between cost containment and increasing revenue, and even a balance weighted on the revenue cycle, were the practices that were most successful."
Those groups have made a commitment to accounts receivable and collections as well as to managed care contracting, Woodcock says. This also involves capturing information accurately and in a timely way throughout the cycle, which often requires a cost-effective investment in staff.
"It's a game across all the fields," says Michael Whitbeck, administrator of the Northwest Primary Care Group, a physician-owned group with three clinical sites based in Milwaukie, Ore. The 18-physician group, which also employs two nurse practitioners, receives about half of its payment through fee-for-service and the other half through risk contracts.
In Oregon, Whitbeck says, risk contracts hit the scene in 1995. People started ignoring PPO contracts, and capitation rates remained static for many years.
"We woke up and said we couldn't live off it," he says. "Despite our excellent utilization, we continued to have diminishing returns. So we began canceling contracts, taking on new contracts and playing hardball."
Whitbeck points to one example of a single contract that represented a third of Northwest Primary Care's business. After forming an IPA with several other groups, the decision was made to cancel that contract.
"The (health plan) decided they couldn't do without our delivery system so they came back to the table, and we negotiated a much more favorable contract for 2001," Whitbeck says. This has helped the group make up some lost ground, he adds.
The MGMA report found that better performers prepare for contract renegotiations as soon as the agreement has been signed by making sure the group can answer the questions health plans are likely to ask. They are able to do that by tracking information closely and frequently.
The findings underscore the importance of accountability-to patients, group owners, employees, health plans, government and the community-for improving performance. Each of these parties is entitled to full and complete answers on how results, or a lack of them, were achieved, the study says, which requires a coordinated staff effort.
Terry Cortez, administrator of Gurnee, Ill.-based Northern Lake Medical, an eight-physician primary care group, says he uses about two dozen individual indicators, including measurements that compare individual physicians.
"I can see at a glance what is not as it should be, and I can manage that immediately," Cortez says. "If there's a bulge in accounts receivable for a particular doctor, we can find out why and bring it in line."
Everyone has access to the data, allowing them to benchmark within the group. "Physicians compare themselves to their colleagues, or to their own performance last month or last year. These numbers are very valuable," Cortez says.
Accountability of this type is consistent with the study's emphasis on the importance of providing physicians with financial and practice management system reports. For example, better performing groups tie physician compensation to a formula that often includes productivity, cost savings, utilization, patient satisfaction and citizenship. Physician buy-in helps doctors understand the group's objectives and the requirements to meet them.
"Our focus has been on each physician becoming profitable within the context of the group," Cortez says. Yet this doesn't always require a group-wide standard for doing things. "If we see similar cost structures at two different practices, there's not going to be any reward in making one conform with the way the other runs," he says.
On the other hand, when one of the new practices at Northern Lake Medical reported 30% higher costs ($61 compared with the group average of $47) on a per-visit basis in 1998, Cortez says changes had to be made.
"We had a lot of meetings, talked about productivity and services being performed. Some of the changes were very painful, and initially, there was a lot of resistance," he says. "But now I would point to that practice as having the most sound cost structure in the group." The practice is now at the current group average of $43, reflecting a group-wide improvement in lowering costs.
Under a "new billing office" model highlighted in the report, the contract defines the billing process. The basis of accounts receivable in this model is formed by the definition of a clean claim, provisions for prompt payment, time limits on takebacks and the avoidance of retroactive denials.
One of the most basic controls the study recommends is a daily reconciliation of charges and cash receipts against a transaction activity report to assure there are no missed charges. Larry Gansmann, medical group manager at Northern Lake Medical, says physicians find it more palatable to participate in this process when they understand the ramifications for the group as a whole.
In addition, time and again group managers stressed the need for front-office staff to concentrate on patient insurance verification and eligibility by maintaining accurate and up-to-date information. The benchmark study claims that better performers educate their patients up front about their written policies for time-of-service payments. They don't consider this improper because they "want to be in business to serve their community tomorrow," the study says.
With regard to technology, researcher Woodcock says the study's findings were contrary to its original hypothesis that better performing groups would embrace the latest the Internet has to offer.
"These practices do a lot of research and are very aware of what applications are out there," Woodcock says. "But based on their own return on investment analyses, they proved to be very cautious investors."
Northwest Primary Care's Whitbeck echoes that conclusion. Recently, the group did move entirely to electronic billing in order to avoid the errors and subsequent late payments of paper claims, Whitbeck says. But for now, Northwest will stick with the practice management software it has used for 10 years to take care of registration, the business office and the health plan office.
"We're sitting pretty tight on that right now, watching the market," he says. And although the group has all of its transcription and lab information online, which helps the business office staff to download chart notes for insurance bills, it does not use electronic medical records.
All this attention to detail and data accuracy requires a staff with the time, the training and the drive to make sure information is recorded correctly. And that, says MGMA survey operations project manager Daniel Jaynes, requires quality people.
"Better performers have more of an investment in support staff," Jaynes says. Creative groups retain billing and nursing staff, whether through incentive programs, profit sharing or better compensation.
"I'm definitely higher than the MGMA median for compensation per full time employee," says Whitbeck. "Would I love to cut costs there? Yes. But would I be cutting into revenue at the same time? Yes."
The report contains best practices data collected from respondents to MGMA's 2000 cost survey and a supplemental practices and procedures survey. It is a self-selected subset of MGMA's membership, and consequently data may not be representative of the general range of medical practices.
Another important note: MGMA acknowledges that a complete economic analysis of any group requires consideration of the group's mission, market, payer-patient mix, group makeup and revenue stream diversity.
"The most effective groups have a physician and administration team that works together to change with their environment," Woodcock says. "They are grounded in very sound business practices that form a culture that allows them to be flexible year to year. They produce sustainable results."