Practice Makes Perfect: Planning for possible cuts to Medicare reimbursement

In June, the Medical Group Management Association released the results of a questionnaire that ranked members' most pressing practice management challenges. In this edition of “Practice Makes Perfect,” we will tackle No. 5 on that list: Managing finances with the uncertainty of Medicare reimbursement rates.

MGMA recently sent a letter to Congress urging them to permanently repeal the sustainable growth-rate formula during its 2014 post-election session, ending the practice of passing short-term SGR patches. Practice administrators and executives have been forced, almost annually, to plan for potential reductions to Medicare reimbursements. While this is an ongoing and difficult situation for medical practices to navigate and prepare for, there are ways to reduce expenses or augment practices' revenue to prepare for a potential cut to Medicare reimbursement rates.

An initial step in better understanding the potential effect of a Medicare reimbursement decline is to determine the organization's financial exposure. In other words, of the practice's total collections, how much reimbursement do you expect from Medicare and what changes would need to be made if 21% of this revenue was cut?

I've worked with many practices seeking ways to enhance their revenue or operate more effectively. Some have expanded their scope of professional or ancillary services or made improvements in contracting with payers. Many have considered utilizing nonphysician providers to give clinicians more time with complex patient cases.

Another revenue opportunity that has become increasingly popular in the past three to five years is incorporating quality and patient satisfaction benchmarks to supplement reimbursement from various government and commercial payer plans. This takes some work and often an initial investment to identify opportunities and operationalize the various initiatives promoted by the different payers. However, over time a well-managed quality program could increase practice revenue by 5% to 10%.

If your practice is considering implementing a quality program, be sure to assess components such as:

• Targets or benchmarks that are meaningful to providers
• Targets or benchmarks that are attainable
• Targets that are specialty specific
• Targets that are a combination of subjective (patient satisfaction) and objective (clinical)
• Meaningful rewards and incentives
• How frequently updates will need to be provided to payers
• Whether or not you have a reliable reporting mechanism

Besides working to augment revenue, medical practices can also evaluate their expenses and do what's possible to operate more efficiently. This includes renegotiating service contracts, eliminating service lines that aren't profitable, evaluating staffing levels, and reviewing expense line items that practice administrators may not be routinely examining. My experience is that administrators who evaluate their practices' “lower expenses” often realize large savings.

I advise that practices that I work with to look at routine financial management dashboards or key indicator reporting. If you aren't already utilizing monthly reports to track the financial health of your organization, you should begin doing so. These reports should also be updated and evaluated regularly. Be sure to review operations and whether or not there is ongoing review of the measurements being taken. Perhaps the benchmarks that were being used at one time, such as accounts receivable aging targets, have shifted due to changes in the healthcare environment. For example, patient financial responsibility is much greater than it was five years ago; this could require that a practice update the data or benchmarks that it is measuring.

Medical practices will be better positioned to manage the uncertainly of Medicare reimbursement rates by setting long-term revenue goals and frequently evaluating metrics to determine how efficiently the practice is operating.

Jeffrey B. MilburnIndependent consultant MGMA Health Care Consulting Group