Squeezing more out of your practice's bottom line

A column answering your questions about the business side of your practice

By Karen S. Schechter amednews correspondent— Posted Jan. 19, 2004.

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Question: I am seeing approximately the same number of patients as I have over the past few years, yet my practice's bottom line continues to decrease. I have considered hiring a nurse practitioner to help boost revenues. What else can I do to increase the profitability of my practice?

Answer: This question continues to plague physicians as insurance reimbursement decreases and key expenses, such as liability and employee health insurance, keep increasing.

Let's examine both sides of the profitability equation: revenues and expenses.

You indicate that the number of patients you see remains constant over the years. While this may be true, it is important to evaluate the types of patients you are seeing. Volume is not the only driver of revenue.

Key information to look at is the acuity of the patients being seen and the payer mix. The acuity of patients determines the office visit level that is assigned, as well as the number of additional services that are provided and submitted to insurance companies for reimbursement. If the percentage of higher-level office visits has decreased over the past few years, then it follows that revenues would follow suit.

Look to see if the payer mix has changed over the years. Are you treating more patients with lower reimbursement rates than you have in the past? One way to perform this analysis is to identify the five to 10 CPT codes that generate the majority (75% or more) of the practice's revenue. Then look at how the top payers are reimbursing the practice for those codes.

In a real-life example, physicians discovered that one insurance company represented 25% of the practice's charges, yet it only brought in 15% of its revenue. If the payer is not a predominant one in your area, you may choose to stop being on its panel. Even if that is not a viable option, this type of information can be used to help guide your practice's marketing efforts. Changing the payer mix can have a positive effect on the practice's cash flow and bottom line.

We recommend that at least once a year practices participate in a coding audit performed by an outside coding specialist. These audits may be invaluable in identifying coding opportunities (based on the chart documentation) that could increase the practice's revenue. Explanation of benefits reviews can also be helpful.

The billing and collection process can also impact the practice's bottom line. This starts with the co-pay collection rate, which should be 90% to 95% of those office visits that require a patient co-payment. Assume that 50 patient office visits a week are associated with insurance plans that require a co-payment, and that the average co-payment is $25. A 10% increase from 85% to 95% (or collection from five more patients a week) would bring in $125 more a week.

Another area to look at is the monthly adjustments. These represent the amount of charges adjusted off the account due to contractual arrangements. If the overall adjustment rate is greater than 35%, this could be a signal that too much is being written off. At that point it would be advisable to have an EOB/denial review to try to identify the causes of the increased adjustment amounts.

Finally, look at the patient accounts that are more than 120 days old. Is there a collection protocol at your practice, and is it being adhered to on a regular basis? Are you still seeing patients who owe money? The answers to these questions and the actions your practice takes to rectify any of these problems will affect the practice's bottom line.

Looking at expenses

Dealing with the expense side of the profitability equation is not easy, especially because there are many expenses that are beyond your control. Therefore, the key may not be cutting costs, but rather making better use of the resources.

In the area of staffing, the issue may not be how much is being spent on payroll. Instead, it may be related to the quality of the staff. How productive and effective is the staff? Sometimes one higher-paid employee can take the place of two less-effective, lower-paid employees. In other instances, the investment in staff may have to be increased to ensure that the practice hires and retains high-performing employees that could help increase the profitability of the practice by working harder and better.

Look at the cost per patient. This can be derived using estimates of contributing costs, relative value units or by performing cost accounting analysis. Assume the practice has 4,800 visits a year and the average reimbursement per visit is $75. If the average cost per visit is $50 and can be reduced to $48 per visit, the profit margin would increase by almost $10,000 in the first year.

This brings us to your question about hiring a nurse practitioner. There are several items to consider. First, are there exam rooms available to accommodate additional patients? Will you have the time to train and supervise a nurse practitioner?

Finally, does the practice have the financial capability to support a nurse practitioner during his or her first six to 12 months of employment? It typically takes that long before a nurse practitioner can begin supporting his or her salary and related expenses.

If your answer to all three questions is affirmative, then this may be a good way to boost revenues. However, you may find even greater benefit in addressing some of these other issues that we have examined.

Karen S. Schechter amednews correspondent—

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