Portal de Periódicos da CAPES

OTA Presidential Address Minding the Store: Practice Management Metrics for Physician Managers

2001; Lippincott Williams & Wilkins; Volume: 15; Issue: 7 Linguagem: Inglês

10.1097/00005131-200109000-00001

1531-2291

M. Bradford Henley,

Healthcare Systems and Technology

FIGUREFigure: M. Bradford Henley, President, Orthopaedic Trauma AssociationGood afternoon colleagues, members, and guests. I thank you for the privilege you have given me of leading the Orthopaedic Trauma Association. Being elected President of OTA was a surprise and an unexpected honor. It's hard to believe that my tenure is already half over. Fortunately, the excellent Executive Director, her OTA staff, the Board of Directors, committee chairs, and members have made this a productive year, and this year's annual meeting another success. I am honored to be following in the footsteps of a long line of distinguished OTA presidents. Most of my predecessors have used this address as an opportunity to reflect on the past or prognosticate the future. I have decided to diverge from this time-honored tradition because my experience is that many physicians are eager to learn about the financial and management concerns relevant to organizing and running an efficient practice. Orthopaedists are gaining business acumen to influence, participate in, and survive within the changing healthcare environment. I endorse and applaud these efforts. My academic career has been dedicated to teaching, educating medical students, residents, fellows, and orthopaedic clinician colleagues. More recently, the topics of my presentations have transitioned from pure orthopaedic trauma to a mixture of clinical presentations and topics on practice management. I have found that my colleagues greatly appreciate the information they get from these lectures. In an effort to enhance your practice management acumen, I have chosen to use this opportunity to present a primer on the dynamics of management reporting for professional services. I will help you to understand the environmental factors that influence the need for closely monitoring professional billing activity. The heart of my presentation will focus on the practice management metrics for physician managers. I have divided these indicators into three broad categories: physician productivity data, billing data, and accounts receivable data. Dr. Canale, in his First Vice Presidential Speech (1) at the 67th Annual Meeting of the AAOS in Orlando in March of this year, advocated improved patient-physician communication. I agree with the importance of the patient-physician relationship, especially as it seems to have been eroded in the recent decade. Dr. Canale has ascribed this erosion to three factors. The first two are that speed of service has replaced personalized service and that the “increased burden of managed care has forced us to sacrifice the quality of care for the quantity of care.” While I believe both of these factors to be contributory, I only agree partially with his third factor which is that we have spent too much of our time “learning about managed care at the expense of orthopaedic education and at the expense of our patients.” During our journey through college, medical school, residency, fellowship, and into practice, our education has focused on caring for patients and providing exemplary care. The financial basics of medical practice were never emphasized. When finally in practice, most have found themselves to be unprepared for the tasks required of us as corporate employees, practice partners, or sole proprietors of a medical business. Even as employees of large organizations, most of us need to generate our salaries. This is especially true of surgeons in multispecialty practices as our revenue is often shared with nonproceduralists. Most of us work long hours and generate large professional charges. In contrast, our collections may be a small fraction of these charges. The great disparity between charges and collections often raises questions relating to the effectiveness of our billing and collecting organizations and their internal processes. Most of us do not know how best to evaluate these billing and collection efforts. What questions should be asked? How frequently should these processes be monitored? How can we know if a good job is being done? Are there any benchmarks? Our goal is to work smarter and not harder. Someone in your practice needs to understand the business side of medicine; someone needs to mind the store. While continuing medical education is surely important in providing high quality patient care, physicians should not delegate the entire management of their practices to nonphysicians without proper oversight. The responsibilities of practice management should be part of a physician manager's repertoire. “Falling in love again” with caring for our patients, as our AAOS president urges us to do, is not enough. We can't abrogate our responsibilities of practice management nor transfer them to others without providing proper oversight, or we risk the additional loss of autonomy. Effective delegation (2) means to focus on results and not the methods of obtaining those results. It means fixing firm deadlines and delegating the whole task to one person, usually your practice manager. It means expecting accountability from subordinates while providing the necessary resources to accomplish the delegated duties. Most importantly, effective delegation requires proper oversight. This requires building in proper controls, not controls of restraint but controls to periodically check and verify that the delegatee is making progress and is on the right track. In a medical practice, effective delegation means that an accounts receivable problem will be anticipated before it has an adverse influence on cash flow and not after a practice fails to meet its financial obligations. In her editorial in Orthopaedics Today(3), Dr. Cillo notes “80% of surveyed physicians believed the changes that have occurred in recent years to the American health care system would have been different if physicians had better business skills and knowledge. All groups surveyed, physicians, medical student and medical schools indicated there is a need for business training.” Dr. Cillo further says “there has been a paradigm shift in terms of the skills necessary to be not just a good physician, but a good and successful physician. Recognizing these changes, and successfully incorporating these additional skills into a physician's practice are essential in today's health care marketplace . . . Physicians must be educated in dealing with . . . the economics of health care, for economics will determine if [we] are financially able to survive to communicate with and treat [our] patients . . . Like it or not, physicians must operate their practices according to the economics and business principles that apply to all businesses.” There is a need to closely monitor professional billing and collection activity. The healthcare environment is becoming increasingly complex for academic and multispecialty groups. The rules for billing and accounts receivable (AR) management are constantly changing. Third party sponsors are attempting to minimize the escalating growth of health care expenditures. They have instituted changes including pre-authorizations, utilization reviews, diagnosis, and service frequency review for claims submitted, supporting documentation requirements for surgical and E&M services. Practices across the nation are seeing general delays in payments, increased rejection of claims, and postpayment audits with penalties. These strategies have resulted in an increasing administrative burden. This burden requires an enhanced physician and staff level of understanding of billing and the business side of medicine. Nationally, there is a seemingly irreversible trend of rising costs and declining revenues, especially during the last decade. Over the past twelve years, operating costs have been escalating. This is due to numerous factors, including inflation, pre-authorization, utilization control, payment delays, managed care, and greater practice overhead. During the same twelve-year period, revenue after subtracting operating costs has continued to decline. This is likely due to flattening reimbursements when combined with increased operating costs. For multispecialty practices, total operating costs are in the 54 to 57 percent range. For orthopaedic practices, operating costs tend to be in the range of 45 percent. Despite lower operating expenses for orthopaedic practices, we have also seen a decline in revenue over this same twelve-year period through 1999. The trend lines are nearly as ominous as those for multispecialty practices. Are you seeing these changes in your practice? Is your regional environment better or worse than these national trends? Fee for service collections for multispecialty groups have fallen and remain below 70 percent since 1997. Gross collection rate is calculated as total payments divided by total charges for a particular period. These charges and payments are unmatched, meaning that they are unrelated to each other. For orthopaedic practices in 1999, the gross collection percentage nationally was a paltry 51 percent of charges. One reason for this is that significantly less full fee for service charges are paid, as discounts are continually increasing because many payors are using fixed fee schedules with decreasing conversion factors. At the same time, physician charges are increasing, which diminishes gross collection rates even further. The net collection rate is remaining stable around 95 to 96 percent. Net collection rate is defined as total payments divided by total charges less contractural adjustments and discounts. Again these charges and payments are unmatched. They are only associated to the degree that both occurred during the same reporting period. These trends imply that physician managers need to be vigilant of their practice's billing and accounts receivable processes. Since gross collection rates are declining, we must not let our net collection percentage fall concomitantly. In multispecialty practices, professional fee revenues can no longer sustain a practice. This slide is based on MGMA data from 1993, 1997, and 1999. In 1993, physician compensation was much lower than average net revenue per physician after subtracting operating costs. Between 1993 and 1997, multispecialty physician compensation increased from 165,000 to 195,000 per year, representing a compounding rate of 3.5 percent per year, which is the same as inflation. The implication is that professional fee revenues alone can no longer sustain multispecialty practices and physician managers must look to enhancing revenues where opportunities exist but more importantly we must control costs, especially overhead. The discrepancy between physician compensation and available net revenue has been made up by enhancing ancillary revenue streams by making investments in imaging centers or ambulatory surgery centers; selling durable medical equipment, prescription drugs and other remedies; establishing in-house laboratories and physical therapy departments, and so forth. For orthopaedic practices, professional fee revenues can still sustain a practice comfortably. In 1999, MGMA data showed the average net practice revenue per orthopaedic physician, after subtracting operating costs, was approximately $413,000. The average physician compensation, including benefits, was approximately $384,000. Of this figure, approximately $53,000 was related to benefits. This is consistent with the 1998 AAOS data showing that general orthopaedists' salaries, excluding benefits, were approximately $290,000, and range upwards to a mean of $333,000 for Orthopaedic specialists. Physicians and administrators rely on information from the billing system to make critical business decisions. In monitoring current activity, it is useful to evaluate clinical productivity as well as financial trends associated with billing and accounts receivable management. Accessing this information helps to influence behavior as it relates to clinical operations and coding procedures. This, in turn, will help you as a practice manager make strategic decisions regarding third party contracting and physician and staff recruitment and retention. Seven functional areas affect billing performance. It is useful to divide these into front-end functions and back-end operations. The front-end functions include patient registration where demographic and insurance information and pre-authorization are obtained, charge capture and coding where CPT and ICD-9 codes are assigned to each encounter, and point of service collections usually relating to co-payments and deductibles. Also included in the front-end functions is making other financial arrangements for deferred payment. By monitoring key metrics associated with these functions, a practice may be able to minimize unbilled charges for example. Back-end operations include claims submission, payment posting, claim follow-up, and appeals. Monitoring financial trends for accounts receivable will help practice managers maximize practice revenue and make strategic decisions. Charge and payment data provide a summary of a period's activity. It is difficult to understand this type of basic information without tools to unravel the billing and collections processes. No single indicator tells the whole story about any process, and no single indicator should be used alone but should be used in combination to get a true picture of where the hang-ups are in the billing and collection processes. Both snapshot and trend data are important. What follows are ten key indicators to help you understand both the clinical and business sides of your practice. In an effort to understand professional productivity, relative value units are useful tools. Typically, they are reported in aggregate as relating to individual physicians in terms of charges, net collections, procedures, E & M services, and ancillary services. The reported RVUs may either be the physician work component of Medicare's RBRVS or the total RVUs. This information is helpful in tracking physician productivity and useful in faculty manpower planning and incentive plans. Good benchmarks are available from the Medical Group Managers Association. On average, orthopaedic surgeons report 14,000 to 17,000 total RVUs per FTE/year, depending upon whether or not they employ middle-level providers, such as Physician Assistants and Nurse Practitioners. The work RVUs average between 5500 and 8500 per FTE/year. Note that these figures include all medical services: surgical procedures, evaluation management encounters, and ancillary services, such as radiology. Another indicator of physician productivity is the frequency of procedures and total charges associated with inpatient and outpatient services. Activity volumes can be aggregated by provider and categorized as surgical procedures, E & M services, and ancillary services. Management reports should allow you to drill down to selective CPT codes or code category aggregates. It is often helpful to view volume trends by comparing them with prior periods (prior quarter or prior year) in calculating variances. The effectiveness of collection procedures will always decline over time. Therefore the value of your accounts receivable falls constantly and precipitously. For most Americans, paying their doctors' bills is a low priority. Credit card companies have analyzed the bill payment priorities of the American public. The most important bill to pay is the mortgage or rent. This is followed by: (2) utilities; (3) automobile expenses; (4) charge cards; and (5) installment loans. Further down the list at 9 is payment for physician services, followed closely at 10 by payment for hospital services. In the practice of medicine, interest does not accrue on accounts receivable. In fact, the longer time it takes to collect your fees, the less they are worth. Ideally, you would like to move to the left on this time value of money curve as earlier dollars are worth more to you and your practice. Therefore, point of service collections are important, especially when they represent the large co-payments and deductibles associated with elective surgery. But even if co-payments are in the range of $5 to $20 for E & M services, these small cash collections quickly add up. If you forgo POS collections, it will cost your practice a minimum of $7 per claim to bill your patients for these revenues. An understanding of the time value of money implies that you should focus on collecting high dollar accounts in the 0 to 60 days accounts receivable category. These represent the biggest bang for your buck. Note that after one year, the dollar that you billed is worth fifteen cents or less. Charge entry lag time is the interval, in days, from the date of service to the date charges are entered into or released from the billing system. In a group practice, analysis of this key metric may guide you to which processes and providers to target for improvement. It is helpful to divide the total charge entry lag into two distinct periods. The first portion being the number of days from the date of service until the billing office receives the charge document from the physician; and the second interval being the number of days from receipt of the charge document until the data is entered into the billing system and the charges released. The first lag period is generally the domain of the doctor or clinical staff, whereas the second period may be used to assess billing office efficiency. The charge entry lag does not tell you where hang-ups exists nor why, though one may surmise that the outpatient receipt lag of more than 10 days may imply that the clinic staff is batching charge slips to the business office on a weekly or semiweekly basis. A helpful analysis tool is flowcharting to see how charge documents wind through your billing system for each physician in your practice. This may help you find and fix bottlenecks or rate limiting steps. Perhaps, your processes can be redesigned through economies of scale to minimize any delays in billing. Ideally, the total charge entry lag should be no more than five to seven days. Non-billable charges result from claims that cannot be processed because of missing or invalid information. Examples of the types of non-billable charges are invalid, incorrect, or missing diagnoses, no referring physician, invalid provider numbers, incorrect or duplicate dates of services, prior authorization needed and not obtained, and additional information required. Non-billable charges should be aggregated by the type of edit, and counted with their value calculated by their cumulated charges. Non-billed charges result in a billing backlog because these claims cannot be released from your billing system. This can result in increased write-offs for these uncollected accounts. Not all physicians understand that all dollars billed cannot be collected. The practice of medicine is different from other service providers and professionals, such as plumbers, auto-mechanics, and lawyers, who all expect to be paid their billed charges. Gross charges are also known as unadjusted charges or fees. Net charges are gross charges less contractual adjustments, discretionary write-offs, and courtesy care. Net charges are different than cash collections in that net charges include bad debt. The next two key indicators evaluate a practice's gross and net collection rates. Gross collection rate is the percentage of charges collected before adjustments for a particular period. Gross refers to the total charges without exceptions or adjustments. In contrast, the net collection rate is the percentage of charges collected after adjustments for a particular period. Physicians frequently compare their collection rates. Unfortunately, this is relatively meaningless unless all physicians charge the same for their services. If I charge $2,000 for nailing a femur and receive $1,000 in payment, my collection rate is 50 percent. Contrast this with a colleague who receives the same reimbursement on charges of $3,000. Her collection rate is 33 percent, though we have both received the same payment. Therefore, comparing collection rates is meaningless between physicians from different practices. However, the comparison of gross collection rates among physicians using the same fee schedule does have relevance. Gross collection rates are difficult to manipulate by accountants, as there are no adjustments, discretionary or otherwise. In contrast, collection managers can influence net collection rates, as they may have discretion in making adjustments, such as writing off or adjusting charges. Despite this caveat, the net collection rate may be the best indicator for accounts receivable performance. The net collection rate shows whether the collectable portion of your fee is being collected. It is calculated by dividing average daily collections by your average daily net revenue. Usually, the most recent three-month period is used to calculate a rolling average net daily revenue. Ideally, this figure should be close to 100 percent. The net collection rate gives a good idea of the effectiveness of your collections, but it does not say anything about the efficiency of operations or how quickly the cash is collected. Uncollectables and bad debt write-offs are 2 to 4 percent nationally. If your practice is seeing higher rates of uncollectables, the possible reasons are a change in payor mix, an increase in uncompensated and charity care, staffing or tenure changes in your back office, credit and collections policies (excessive write-offs), or a downturn in the local economy. It is important to understand both the gross collection and net collection rates are unmatched. This means that the charges for a particular period, for example, a given month, are not related in any particular way to the cash collected during that same period. Theoretically, one may see a gross or net collection rate above 100 percent if the cash collected during a particular month was in excess of charges for that same period (for example, due to physicians' vacations). Payor mix is defined as the proportion of total charges for all payors during a specific period. It answers the question of what are your practice's funding sources. It is an indication of the performance of a practice's account follow-up staff for the current reporting period. Changes in payor mix or in the payment policies or a major third party sponsor may have a significant effect on cash flow. For example, your cash may be down for a given month if your commercial category is up for that same period. Therefore, payor mix may help explain financial trends, such as increasing or decreasing revenues or changes in your net collection rate. The matched collection rate key indicator can be used for various reimbursement analyses. It is defined as the actual percentage of charges collected on closed accounts. In contrast to gross and net collection rates that are unmatched because collections generally lag charges by 75 or more days, this indicator can be calculated only after a patient's account has been closed. Typically, matched collection rates cannot be reported until 180 or more days have elapsed from the time charges were posted. It is helpful to calculate this rate on individual services, especially those that have been reported with modifiers. An alternative to calculating a matched collection rate is to calculate the net collection rate per RVU on specific patient accounts and to compare this with the contracted rate, fee schedule, or anticipated reimbursement per RVU. Days in Accounts Receivable is defined as how long it takes to collect on charges submitted to payors. It is also called days receivable outstanding or DRO. It is calculated by taking the total gross accounts receivable, usual at month's end, and dividing it by the average daily revenue for the period, usually a rolling average of the most recent three-month period. MGMA shows a national mean of seventy-five days in accounts receivable for most orthopaedic practices, though academic practices generally have longer DROs around eighty-five to ninety days. It is also defined as the average time it takes for accounts receivable to turn over completely. It provides a quick and convenient assessment of overall collection efficiency. A lower number of days in AR indicates more efficient collections. It is an indirect measurement of payor mix, information quality (accurate and complete claims), effectiveness or point of service collections, clean claims processing, and timely and assertive follow-up procedures. Graphic representation providing both snapshot and trend data is helpful in quickly assessing this indicator. The last of the top key indicators is the aged trial balance. In performing this analysis, your accounts receivable are divided into aging categories, typically in thirty-day increments. Both snapshot and trend views can be plotted. This is a very important metric as it is useful in identifying opportunities to improve cash flow. It can target areas that can produce cash based on payor and age criteria and it can show where timeliness limitations are reaching critical stages. Payor specific trend groupings should be monitored as well. These can be very helpful for a physician manager as one can quickly identify problems that may be specific to individual payors. Remember that after the primary sponsor pays, accounts are reclassified from the primary sponsor to the secondary sponsor and eventually to self-pay so that they will move on the accounts receivable aging by payor report. In general, the zero-to-thirty-day and thirty-to-sixty-day categories are most important because of the time value of money. Increases in the zero-to-thirty-day category may represent an increase in billing activity from the preceding month, billing delays, or a catch-up of a billing backlog. Increases in the thirty-to-sixty-day and sixty-to-ninety-day groupings may be due to unclean claims, lack of compliance with fiscal intermediary standards, secondary claims not filed timely, or correspondence not responded to in a timely fashion. Increases in the 120-day and greater-than-180-day categories may represent a slow down in your follow-up of collection routine or bad debt write-offs which are not being processed in a timely manner. Benchmarks vary for these groups, but, in general AR greater than 120 days, should be less than 30 percent of your practice's total. Other information typically requested by physician managers and practice administrators includes the most frequent reasons for insurance rejections and denials, the amount of bad debt write-offs with rationale, the monthly amount of courtesy write-offs, the average patient balances, and the accounts that are being sent to collections. Benchmarking is the process of measuring yourself against your peers and competitors. Benchmarking to best practices allows you to set goals for improvement. The steps in the benchmarking and quality improvement process include identifying what is to be tracked, identifying comparators, collecting and analyzing the data. This will allow you to determine where you're currently positioned in relation to your colleagues and peers. You can now establish goals, put an improvement plan into action; monitor your progress, reassess your measurements, and modify your action plan. Remember, you get what you measure. The Medical Group Management Association (MGMA) publishes a plethora of information (http://www.mgma.com). There are many other comparative sources of information for these and other measurements. The American Medical Association (AMA) publishes similar data (http://www.ama-assn.org). For academic practices, the Association of American Medical Colleges (AAMC), publishes information in two different forms both pertaining to academic practices (http://www.aamc.org). The Internet serves as a vast data warehouse providing Medicare and other statistics. In addition, regional information sources are your state and county medical societies and other community practices. To help summarize this presentation and provide you with some tools by which to assess your practice, I have provided you with a handout listing the 10 Key Metrics discussed today (Fig. 1). Additionally, I have provided you with MGMA benchmarks for Orthopaedic practices for most of these key indicators. On the worksheet, two columns have been left blank for you to use for comparative benchmarks or for your organization's current status or goal.FIG. 1.: Practice management metrics for physician managers.In summary, I believe that the delivery of orthopaedic trauma care should be as rewarding intellectually, emotionally, and financially, as any other Orthopaedic specialty. I believe that the brightest orthopaedists choose trauma as a career because it poses the greatest challenges. Every fracture is different; there's a myriad of implants and fixation constructs and our specialty demands knowledge of biomechanics and biomaterials that exceeds those used in other Orthopaedic specialties. The challenges of Orthopaedic trauma are greater than the challenges of monitoring a practice. For most of us however, the challenges of understanding a practice seem to be greater, because of our lack of training. It is important that we have ways of easily and quickly assessing the financial well being of our practices. It is my hope that this presentation has provided you with some of the tools to make this analysis easier. Remember, when minding the store, you get what you measure.