The Centers for Medicare and Medicaid Services has issued a proposed rule that would cut payments under the Medicare physician fee schedule by an average 4.2% for calendar year (CY) 2004. With this proposed cut, you can expect managed care plans who tie their reimbursement system on Medicare rates to follow suit with a reduction in their rates. What this means is that most medical practices can expect some sort of a decline in revenues next year. So instead of waiting until next year to face this potential negative financial impact, NOW is time to start planning and strategizing on how to address it head on. In other words, now is the time to ask how is a practice going to increase revenues in order to offset the potential declines in service reimbursement. Here are some ideas.
Adding ancillary services
A practice should analyze the services that it is now referring out (i.e giving away) that it could bring in house and begin using to generate revenue. This immediately brings in a conflict with hospital-owned practices since the employed physicians refer most ancillaries to the hospital. In other words, because of the government rules, the physicians cannot look to these revenues for additional compensation. However, still look for these opportunities – there might be ancillary services the hospital does not render or does not want to render that could be provided by the practice itself.
Examples of ancillary services that most medical practices could implement include lab, radiology (ex. X-Ray, mammography, echo testing, bone density testing, etc.). However, keep in mind capital will be required to acquire the assets necessary to add ancillary revenues to the practice.
Adding doctor/physician extenders
As a result of declining reimbursement, physicians are spending a lot of time on certain patient treatments that do not pay very well. In other words, from an efficiency viewpoint, they are spending time on patient care that could and most times should be rendered by someone else (i.e. by a lower cost provider). Adding an extender to a practice can increase revenues simply by freeing up physician time to do other, better paying clinical activities. For example, an extender could conduct certain post-operative visits, which usually are not paid if treatment is within a designated global surgical period. Extenders could also be used to add patient volume, especially in primary care practices. Many busy practices hire extenders in order to allow patients quick, convenient access to a healthcare provider for simple medical conditions. This way patients would not have to wait a long time for an appointment. As a result, this leverages the volume (i.e overall total number) of patients a practice can treat on a daily basis.
Adding locations
In many service areas, the “tentacles” of a medical practice must branch out to increase revenue. Practices have been very successful adding satellite locations in areas that are either underserved or need a more quality, qualified physician. For example, some practices in urban areas have gone out and set up satellite offices in other parts of their county, which are usually geographically outside the urban area itself. Again, a significant amount of capital will normally be required to start up the office from scratch. This is why it may be more practical to acquire or merge with an existing practice. The emphasis would then be on increasing the efficiency and profitability of that practice site.
Adding other services
Look to see if there are any “program services” that can be created that could lead to additional revenues for the practice. This strategy can sometimes be coupled with the adding of ancillary revenues as discussed previously. For example, a practice can partner with a hospital and possibly other providers to create a women’s program. Some primary care practices have added urgent care services and hours to their practice. Other practices are focusing on preventive medicine care and related health issues. The objective of this strategy is to increase patient volume as a result of these new service programs.
Competing for managed care contracts
The objective here is to go out and obtain exclusive contracting arrangements that will add both patient volume and profitability to the practice. This usually means entering into a capitation arrangement with an HMO or similar third party payer. To do this, the practice must do two things. First, it must make sure it is positioned so that a payer will want to award a contract to the practice. In other words, it must have something to sell to the payer. For example, primary care practices are attractive to those payers who want to award global risk contracting arrangements. Second, the practice must market itself to these payers. This means going out and meeting with payer representatives about potential contracting arrangements. The meeting should solicit from the payer what kind of exclusive contracting relationships it is looking for and more importantly, what it thinks about the practice itself. In other words, find out if the payer would even consider awarding a contract to the practice.
Improving operations and productivity
In most cases, revenues can be increased for a medical practice simply by improving operations and physician productivity. For example, many practices have problems with their billing and collection activities, including receivables management. Charges do not get billed on a timely basis, collections at the time of service are inadequate, there is a failure to detect incorrect payer reimbursement, and receivable follow up is unstructured or non existent. All of this (and these are just a few examples) can lead to high receivables and low collections – in other words, lower revenues. The entire billing and collection process should be analyzed and evaluated to see if there are any improvements that can be made that could increase practice revenues.
Next, practice owners should look closely at CPT coding patterns. This is critical for those practices operating in a fixed fee environment because fee schedules cannot be increased to generate additional revenues. First look at each physician’s coding for evaluation and management services. Many doctors undercode these services and many do not know how to bill for consultative visits. Look at all other coding issues related to your specific medical specialty. Are modifiers being applied correctly? Are surgical complications identified and billed correctly? Are all available CPT codes being billed? These are just a few examples.
Make sure the practice fee schedule is maximized. There should not be any billing of a service where the billed charge is approved 100% for payment by the payer. This is especially true for managed care payers. To identify these situations, you must have a system in place to review the Explanation of Benefits (EOBs) that are received from the payers with each reimbursement. Look for those charges that were approved 100% for payment. When identified, the related service fee on the practice charge master should be increased immediately.
Finally, for hospital-owned medical practices, increasing physician productivity can result in an immediate increase in revenues. History has shown that physician productivity often declines after a physician practice is acquired. This is usually because the incentives in the employment contract are misplaced. In these situations, the incentive should be placed on the doctor’s base salary and not any bonus possibilities. A doctor will often maintain productivity if he or she knows that his or her base salary could decline if productivity targets are not met.
