One of the most prevailing misconceptions in the business of medical practices within an integrated delivery network is that downstream revenue to the hospital from physician referrals justifies the heavy practice losses.
While this certainly seems like a credible assumption, it simply is not true—and such a belief could have a potentially devastating effect on your healthcare organization’s ability to compete in an ever-changing market.
Here’s the reality: Medical practice losses drain precious capital from the hospital or health system—dollars that could be spent on updating technology, acquiring specialty services, improving the quality of care, or employing other strategic initiatives.
So how do you come out ahead when you are in what seems to be a losing game? We have found that a group-wide revenue improvement strategy can work wonders in helping a healthcare organization win the medical practice game.
Although the initiatives described below do include reducing and controlling expenses, they focus more on optimizing revenues. The medical practice business, with its high fixed costs and low profit margin, succeeds on the revenue side of the income statement, which is why we place special emphasis on revenue at the individual practice level and the medical group level.
Critical Initiatives for Improving Your Revenue Game
These eight initiatives can improve net patient revenue in primary care practices and employed or affiliated specialty groups:
- Pay attention to your volume-capacity mix. This involves matching your medical group’s capacity with the integrated delivery network’s ability to attract patients to the primary care practices and affiliated specialists. In mature markets where the supply of primary care providers meets or exceeds the demand for services, the volume-capacity question becomes especially critical.
The development and growth of integrated delivery networks has the potential to enhance efficiency and improve overall healthcare outcomes. It also enhances the market power of healthcare organizations, especially in markets with significant barriers to entry. Limited competition creates greater market power.
Obviously, the volume-capacity revenue factor is heavily influenced by how effectively your organization can leverage your market power to secure better payment rates and other contract terms. Managed care plans focusing on selective contracting and utilization management have significantly less leverage in contract negotiations.
- Manage your medical group’s payer mix up front. Managing a provider group’s payer mix has many financial, ethical, mission, and even legal considerations. Patients/customers want to build a long-term relationship with their preferred provider. Because patient turnover rates are relatively low, changing a poor payer mix in a primary care practice is a slow process. It’s far better to manage the payer mix up front and insist on filling practice capacity with patients who participate in higher-margin health plans.
If changing a poor payer mix is simply not an option, creative healthcare delivery methods may be a better solution for you. Care delivery models such as telehealth are quickly becoming a high demand. Telehealth services require much fewer resources for care delivery and can help drive volume. Additionally, telehealth services can reduce issues with appointment ‘no-shows’ that are prevalent in the care delivery of the uninsured, Medicare, and Medicaid communities (as patients do not need transportation in order to receive care).
- Establish a common fee structure. To optimize payment, have common fees for service throughout the medical group network, and review your fee structure frequently. When reviewing your fee schedule, include comparisons to ensure that your rates are set higher than payer reimbursement rates. It is also common practice to establish a self-pay fee schedule that is standard across the medical group network.
While you do want to ensure that you are optimizing reimbursement, you must avoid price gouging the patient in the process. Pricing transparency is becoming critical in the patient’s provider selection process.
- Compensate providers based on productivity. The key to the success of any medical group is the productivity of its providers. Those who operate at or below median levels of benchmark productivity will have difficulty creating viable practices. To avoid this problem, adopt a compensation model that promotes high productivity and a corresponding culture among provider peers.
- Develop strong relationships with patients and referring providers. Primary care practices depend upon referrals from established patients as their primary source of new-patient volume. Develop a culture of excellent customer service that attracts and retains a group of loyal patients who refer their friends. Monitor patient satisfaction through surveys and the new-patient ratio (new-patient visits as a percentage of total patient visits) and set demanding customer-service targets. Specialty physicians should treat both patients and referring providers as customers.
Nurture and build upon the strengths, resources, and problem-solving abilities across the integrated delivery network. Individuals, organizations, and societies can all gain through building social capital, which involves developing high levels of collaboration, cooperation, reciprocity, and trust as members of the healthcare community work together for mutual social benefits.
- Provide ongoing coding and documentation training. Primary and specialty care providers are trained to document for clinical purposes, not always for billing and compliance. But the federal government’s fraud and abuse investigations in recent years underscore the importance of accurate coding for billing by physicians and advanced practice providers.
Providing ongoing education about how to code accurately—and reviewing providers’ coding and documentation—are two tasks that can positively impact practices and medical groups. Trending CPT code utilization and routinely monitoring changes can help to quickly correct potential issues. Constant and ongoing feedback to all providers is always beneficial.
- Update your approach to revenue cycle management. Integrated delivery networks that own group practices tend to centralize the billing process for both practice and hospital billing. The problem with this approach is that many of the steps in the revenue cycle occur at the group practice site. The typical centralized billing approach disengages the practice site from accountability for those steps and leads to higher days in accounts receivable, a lower collections percentage, and frustrated patients/customers and staff.
You can drive revenue cycle performance by adopting a model where the billing office and the practices share responsibility for receivables management and align accountabilities appropriately.
In such a model, the practice sites focus on eligibility verification, point-of-service collections, proper credit extension, timely and accurate charge capture, and private-pay follow-up. The billing office supports the practice sites by processing insurance claims and patient statements, conducting insurance research and appealing denied claims, supporting the pre-collections process for private-pay patients, providing updates such as payer rule changes to the practice sites, and monitoring denial trends to prevent future delays in claim payment. Site managers have accountability for revenue cycle performance and become internal customers of the billing office.
- Provide a convenient service mix. In many integrated delivery networks, laboratory and radiology services are provided in the hospital, which enhances the hospital’s bottom line but penalizes the high-fixed-cost, low-profit-margin primary care business—not to mention that it forces patients to travel to the hospital for services normally provided in a medical office. To increase patient volume, it’s wise to enhance the services provided by your medical practices. The hours a practice site is open and the services it offers have a significant effect on the practice’s bottom line and the medical group’s competitive position.
When working with medical groups, make sure both physician leaders and executives have a say in conceiving and implementing group-wide initiatives. In an integrated delivery network, winning the medical practice game starts with the development of a partnership between health system leadership and employed and affiliated physician leaders. This partnership creates a shared vision focused on achieving the operational objectives of your integrated system and providing excellent care for the patients you serve.
Interested in learning more about conducting a medical group operational assessment? Gain access to the downloadable guide here.