Article Reprinted from the MGMA Wisconsin – ConnectEd – Summer 2012.  Click Here to View WMGMA-Summer-Newsletter

Why is it always about money? Because that’s how we keep our doors open! The primary push of the Patient Protection and Affordable Care Act (PPACA) is to reduce health care costs. If clinics plan to keep their doors open they need to understand all of the factors involved in maintaining a profitable balance in the medical practice.The best way to do this is to break the clinic into component parts. When you stop to think about the process of managing a business, a medical practice is no different than any other service-related business. There are three main areas of focus: income, expenses and operations. Simply increase your revenues, minimize your expenses and develop operational efficiencies. That should be easy enough to tackle, right!?

It’s the revenue generating process where rules and regulations can become complicated beyond comprehension. When you are dealing with literally thousands of ways to bill for the services provided by a medical practice, the issues become overwhelming. Then the government and independent insurance carriers step in with their ever changing rules and regulations to make sure the medical practice complies with these processes.

It is this unique part of the health care industry, however, where numerous opportunities exist. The better a medical practice understands how their revenues are generated and the compliance risks associated with this process, the greater the opportunities.

 

Compare Your Statistics

Comparability is the best first step to take. This can be done both internally as well as externally. Here are a few focus areas that help a medical practice compare whether it is prospering versus surviving:

Pricing Your Procedures: In most cases, a very simple algebraic equation can be used to develop a fee for a procedure. The equation consists of three parts: relative value units, a conversion factor and the resulting fee. We can use Medicare’s relative value units. The conversion factor is usually a multiple of Medicare’s and the fee is the result of a simple multiplication of the two.

50 Highest Procedures by Specialty: These comparisons should be made relative to gross charges, frequency and relative value units. Identifying these three components allows a medical practice to easily compare to other medical practices and identify differences. In the fictional general surgery example for gross charges by procedure code in TABLE A, the physician can be compared to other general surgery physicians nationally.

 

 TABLE A: 50 Highest Procedures by Specialty  

National

Practice

CPT Code Description

Work RVUs

Rank

Percent

Rank

Percent

Charges

47562 Laparoscopic cholecystectomy 11.76

1

3.79%

7

1.57%

16,819

99213 Office/outpatient visit est 0.97

2

2.47%

14

0.69%

7,410

47563 Laparo cholecystectomy/graph 11.47

3

2.03%

36561 Insert tunneled cv cath 6.04

4

1.95%

99232 Subsequent hospital care 1.39

5

1.69%

99223 Initial hospital care 3.86

6

1.66%

99214 Office/outpatient visit est 1.5

7

1.66%

11

1.02%

10,864

45378 Diagnostic colonoscopy 3.69

8

1.63%

1

34.22%

366,206

99204 Office/outpatient visit new 2.43

9

1.57%

49505 Prp i/hern init reduc >5 yr 7.96

10

1.52%

10

1.18%

12,636

 

Evaluation & Management (E&M) Utilization: Office visits are still some of the highest generators of revenue in most medical practices. Specialists many times look at these as loss leaders, which is a big mistake. Two issues need to be addressed when it comes to E&M utilization; revenue and compliance risk. In the example for internal medicine, TABLE B compares the clinic’s or provider’s utilization to all other internal medicine providers nationally.

 

TABLE B: Established Office Visits
Code

Current Freq.

Current / Calc. Fee

Current Gross Charges

Current Practice Dist. %

National Dist. %

Variance Practice v. Control

ReDist Annual Freq.

Redist Gross Charges

Charge Differential

99211

35

45

$1,575

2.88%

4.67%

-38.32%

57

$2,553

$978

99212

30

75

$2,250

2.47%

3.91%

-36.87%

48

$3,564

$1,314

99213

675

125

$84,375

55.56%

44.85%

23.86%

545

$68,120

($16,255)

99214

450

195

$87,750

37.04%

41.05%

-9.77%

499

$97,256

$9,506

99215

25

250

$6,250

2.06%

5.52%

-62.70%

67

$16,758

$10,508

Totals

1,215

$182,200

100.00%

1,215

$188,251

$6,051

 

Patient Acuity: Identifying how sick your providers’ patients are compared to other providers in the same specialty is a must. The new quality standards will use this as their focal point. In the general surgery example used for TABLE C, the relationship between the E&M acuity and the non-E&M acuity can be identified.

 

TABLE C:  Acuity Factors
Component Descriptions

Control

Practice Average

Variance Average

Total Acuity Factor

6.413

10.426

62.59%

Work Acuity Factor

2.905

3.852

32.59%

Total Acuity Factor as a percent of Control

162.59%

Work Acuity Factor as a percent of Control

132.59%

E/M Acuity using Total RVUs

2.661

2.350

-11.71%

Non-E/M Acuity Using Total RVUs

11.477

12.940

12.75%

Acuity Differential – Total RVU

0.232

24.46%

E/M Acuity Using Work RVUs

1.498

1.269

-15.29%

Non-E/M Acuity Using Work RVUs

4.804

4.656

-3.08%

Acuity Differential – Work RVU

0.312

12.21%

 

Modifiers: The overuse and misuse of modifiers creates a considerable compliance risk for the clinic as well as individual providers. Not applying modifiers to the appropriate procedure also creates potential lost revenue.

Relative Value Units Generated: Assigning values to procedures has been an accepted method of differentiating the level of care provided to patients for years. This needs to be done by provider for each area of care: surgical, radiology, pathology, medicine, E&Ms and HCPCS codes.

Provider Performance: Each provider’s performance needs to be evaluated in a number of areas.

  • Provider financial production by charges, revenue and expenses.
  • Relative Value Units broken down by component and compared to national numbers.
  • Compensation compared to specific specialties nationally.
  • Productivity ratios compared to expense ratios.
  • Time by procedure classification compared to national standards.
  • Charges by category.
  • Volumetrics is the number of procedures produced and the related time per procedure.
  • Designated Health Services Production.
  • Acuity of patient base needs to be segregated by E&M and non-E&M classification.

Each of these is important for comparability, which in turn identifies possibilities for improvement as well as compliance risk areas.

Internal and External Considerations

Internally individual providers can be compared to each other. Comparisons can also be made relative to a budget or comparing one year to the next for trends and changes. Are revenues increasing or decreasing? If so, can the reasons for this occurring be identified? Reimbursements may have changed or the patient mix may be different. Whatever the reason, the medical practice needs to know the reasons why.

Externally there are many sources for comparison. Surveys are a perfect starting point. In addition to the MGMA and AMGA annual surveys, specialty associations conduct studies related to important aspects of a specific specialty. However these are typically done on a less frequent basis.

Remember, Knowledge is Power! The more you know about your medical practice the higher the probability of your success and satisfaction.

Key Takeaways:

  1. To prosper in today’s health care environment and with the implementation of the Patient Protection and Affordable Care Act (PPACA), understand your practice better.
  2. You can’t look at the “big picture” to evaluate your medical practice, you need to break it down into its component parts and identify opportunities for improvement.
  3. You have opportunities to increase your revenues, but it may come with compliance risks.

 

Disclaimer: All content provided in this article is for informational purposes only, and is subject to change. Contact a DS+B professional before using or acting on any information provided in this article