Posted on Dec 27, 2016

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Of course, medical practices are also in business to provide a living for the doctors and staff.  Small practices are especially burdened by administration and compliance reporting. It’s important to look for solutions that streamline data collection, but also methods to automate or outsource analysis and reporting.

What we typically see in smaller independent medical practices — on average with 20 or fewer practitioners — is no different than what occurs in other small businesses. The physicians wear many hats to oversee the business and to serve patients. They will hire part-time staff in scheduling and bookkeeping to book-end the practice delivery. A patient gets scheduled, treated and sent a bill.

Well, it used to be that easy.

Federal law and insurance companies have made the business of physician compensation very complex. In order to get paid, practices must jump through many hoops to be considered a preferred provider, agreeing to reduced fees for service, adopting specific systems to monitor patient outcomes and reporting on those outcomes. One of the more recent laws, the Medicare Access and CHIP Reauthorization Act (MACRA), has analysts questioning whether the requirements will lead to more small medical practices selling to large hospital systems in the coming years.

The Centers for Medicare & Medicaid Services (CMS) has been fairly responsive to easing the transition of small practices into the system by 2018. Their vision, however, is for as many as 125,000 physicians to participate in Alternative Payment Models (APMs) by 2018. Medical groups that have half-heartedly adopted EHRs or used them inconsistently to report on quality measures may be challenged to adjust to certified EHRs and updated quality measures.

The bottom line is that practices can no longer rely on a few staff internally to run their practices efficiently and comply with external forces. Practice management systems can help to streamline insurance submissions, accounting, billing, payroll and reporting. There are many practice management software solutions available to practices today, and it’s important that these systems are cost-effective, user friendly and compatible with other systems in the practice.

Several back office functions can also be outsourced to professionals who specialize in them, including human resources, payroll administration, performance management and even recruitment. Also, there is IT support, legal expertise and medical billing. The right vendors will be efficient and pass along savings through fewer errors, a third-party perspective on best practices and healthier accounts receivables.

Take payroll. Keeping up with changes in payroll compliance and customized employee elections can be a time-consuming and costly undertaking in-house. The best outsource payroll providers will identify opportunities for greater security and efficiency such as employee self-serve online portals to download pay stubs or personal tax information.

Perform a cost-benefit analysis of any function you are considering for outsourcing. Tally up the salary and benefits of a full-time equivalent employee to do the job correctly as well as the cost of system upgrades, training, supplies and office space. Then look at the percentage a vendor will charge to do the function for you. A good billing company, for example, can reduce accounts receivable of more than three months old below national benchmarks provided by the Medical Group Management Association. Compare accounts receivable in your practice now to national benchmarks to determine if outsourced bookkeeping could be a hidden source of cash flow — especially if the billing company chosen uses certified medical coders to appropriately code the practice’s work.

What other technologies increase health practice productivity?

Although it’s not usually what most practitioners prefer to focus on, the business bottom line is a huge concern — whether practices remain independent or have M&A as part of their growth or succession plans.

The right key performance indicators (KPIs) may vary by practice, but in general a dashboard program that outlines KPIs can be very effective for practice owners to get a baseline of health for their practice and to discuss areas for improvement.

The best dashboards offer:

  • 12-24 critical core performance indicators that match top organizational goals
  • Information organized for quick and easy comprehension
  • Integration with daily practice management and culture, so that individual physicians get into the habit of monitoring KPIs.

According to a presentation by QHR Learning Institute, one of the biggest sources of practice loss is productivity levels vs. compensation — accounting for 59% of practice losses.

Therefore, it’s not a surprise that the majority of KPIs will fall into the revenue cycle. As measurable indicators, KPIs can include, but are not limited to:

  • Gross charges
  • Net charges
  • Gross/Net collection percentages
  • Work Relative Value Unit per provider (wRVU)
  • Charges per wRVU
  • Collections per wRVU
  • Accounts receivable aging overall and over120 days
  • Charge entry lag
  • Days in accounts receivable by payor
  • Denial rate by payor
  • Self pay balances
  • Bad debt write-off
  • Patient encounters per day
  • No show rates
  • New patients as a percentage of total visits

KPIs like these will ultimately answer the question: Is this a profitable practice?  If the answer is no, there are certainly areas for improvement that can be monitored and measured through a focus on KPIs. For example, a focus on wRVUs per provider will show true work output of each provider and create an opportunity for setting productivity goals. It can also pinpoint real barriers to productivity. Without the baseline measurement, however, physicians won’t know if they need to boost productivity or if perhaps the practice is underpricing services.

Tracking wRVUs can also tie into appropriate physician compensation measured against national benchmarks, and if the practice needs to hire more staff.

KPIs can also bring to light operational inefficiencies that make a big difference on cash flow. Tracking “charge entry lag” can show how soon charges are entered into the system after the date of service. The management team will quickly see that a lag of 3 days can lead to a lag on A/R and cash flow over time.

Best practices dictate that KPIs are reviewed weekly to help practices make improvements over the short-term. This diligence avoids long-term impact on profits. By the time quarterly financial reports come out, it is too late to make adjustments and you have little more than a historical record to file under “missed opportunities.”

Physician Shortages Tied to Cost vs. Compensation

It is no secret that the cost and time to obtain a medical license is less attractive than it used to be. The guarantee of a healthy salary to offset college expenses just isn’t there anymore. The American Association of Medical Colleges projects a 17 percent increase in demand for physicians through 2025, despite higher use of non-physician clinicians, greater use of alternate care settings, delayed physician retirement and changes in payment and delivery systems. Addressing the shortage, AAMC advocated for greater use of technology and more efficient use of physicians and care teams.

Current and future physicians and dentists overall need to recognize the increasing impact of the business of medicine on their practice, but also on their own health and wellbeing. Alarming rates of physician burnout are only adding to the challenges in the industry. It doesn’t necessarily mean that medical students should add more business and finance courses to their demanding curriculum. Like any smart professional, they can leverage technological and outsourced support.

Cornwell Jackson’s Business Services Department offers a wide range of outsourced financial services to serve small medical and dental practices — including outsource payroll processing and solutions to improve cash flow and productivity. While you focus on care outcomes of your patients, we can address the business side of a healthy practice. Contact us for a consultation.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at or 972-202-8000.