How often do we as healthcare practitioners answer medical questions for our family, friends, co-workers and/or colleagues with little thought of getting reimbursed for our time and knowledge?  Probably quite frequently.  How often do we do so for patients?  I would assume less frequently, but probably still quite often.  For example, answering patient’s questions when they sit in on their spouses medical visit, when you see them at the local store or at the kid’s games, when they call you on the phone, or when they send you an e-mail.

A recent post I read calls these types of interactions “Curbside Consults”.  The article provides a rough estimate of cost per minute for the practitioner to provide these “free” consults.  Now, with the particular example in this post, consult was given to a colleague - another physician - via e-mail.  The author calculates that it cost him about $6.00 to offer this advice.  I think the majority of practitioners would offer this same type of support to a colleague without question.  However, how frequently is one willing to do so for patients?  These $6.00 consults given for free to patients could pile up over a year’s time.

What really struck me in this post, however, is the last paragraph:

The sad fact … is that curbside consultations don’t fit into any reimbursement model for health care.  And by the way, the “price” for a curbside consult isn’t even $6 — it’s $0.

I have a small correction to this statement: historically, “curbside consultations” have not “fit into any reimbursement model for health care”.  True, if one continues to bill CPT codes for when the patient is face-to-face in the office, then they are stuck with the philosophy that there is no other reimbursement model.  However, it really is time to begin thinking outside the box like so many entrepreneurial practitioners throughout the country are already doing.  We have some prime examples in Steven Knope and Jay Parkinson who have cash structures that allow them to cover these types of consults regardless of whether they are in the office, at the patient’s home, in the grocery store, or answering a patient’s e-mailed question.  We need to reshape our thought patterns when it comes to getting reimbursed for ALL of our valuable time and knowledge…

I’ve seen providers cringe when discussing financials, especially when breaking them down to a “per-patient” basis - as if by having the discussion we are boiling down human lives into mere numbers, and not as “people” as they so deserve to be discussed.  As an entry level practitioner years ago, I found myself cringing in the same way, choosing to live in my own professional world that somehow didn’t acknowledge that economics actually do have a part in healthcare.

It was years later that for the first time I heard the adage, “No margin, no mission.”  This resonated with me, not because it was a bold or particularly interesting statement, but because I heard this from a very compassionate, experienced, and business savvy pediatrician with whom I worked.  Wow, you mean if we can’t achieve a margin on what we’re doing, we’re not going to stay open to fulfill our mission?  Pretty straightforward, and pretty true I thought.

It was years after this that I went back to school and earned a degree in business, after which time it became crystal clear to me that physicians, physical therapists, dentists, and anyone else in the healthcare industry really need to know the numbers.  It’s not that the numbers are more important than our patients - they’re not.  They are important BECAUSE of our patients. 

Without a margin on the services we provide we will not be open for long, and we’ll do no good to anyone.  And if we want to be involved with the provision of free care to the medically underserved, which I encourage of all my clients, then we must make sure that we have good margins in the aspects of our practices that allow for it, so that we can afford to pass on these economic benefits to those that need them.

This post from Medblogger.net speaks to a recent Medical Economics publication that discusses the financial breakdown of a $100 office visit.  It’s a good read, and an important concept.

If you’re an internist who receives $100 for a 99214 office visit, expect to pocket only $41 in profit. The rest of the money goes for overhead such as malpractice insurance ($3.50), equipment and its repair and maintenance (another $3.50), supplies such as tongue depressors and copy paper ($6), rent and utilities ($7), general operating expenses such as telephones, accounting fees, advertising, medical journals, licenses, and taxes ($11), and employee salary and benefits ($28).

I love working with numbers to model sound business decisions for healthcare clinics.  I haven’t always been that way, and in fact it wasn’t until after business school was well underway that I began to understand how truly important numbers are to making good decisions.

One of the most valuable concepts I learned in business school is the concept of opportunity costs.  Opportunity costs are the costs associated with the “opportunity” foregone when decisions are made, or resources are allocated to a certain area - necessitating that those same resources can no longer be applied elsewhere.  By nature, opportunity costs are easily obscured, and for those unfamiliar with the concept, poor decisions can be made in the absence of an opportunity cost analysis.

This concept has tremendous applicability in business, and especially in healthcare.  As the industry becomes more resource intensive and as reimbursement for healthcare services dwindles, making the right decisions about the allocation of resources is critical to the survival of healthcare practices.

I published an article on this topic in Advance for Directors in Rehabilitation that I’d like to share with you here.  The article goes into detail about the concepts that underlie the definition of opportunity cost as well as some practical examples of using opportunity cost analysis to make good business decisions in private practice healthcare.  The principles apply whether your business is a medical clinic, physical therapy practice, dental facility…or even a used car lot.

Opportunity cost is the trade-off associated with a decision or purchase-something that must be given up in order to get something else. Stated differently, opportunity cost is the cost related to not putting your resources to their best alternative use. When speaking of purchases or monetary decisions, the monetary cost of something plus the opportunity cost yields the true cost of the decision.

When working with clients, we often find 2 things: (1) practice owners want to be more profitable, and (2) cutting expenses is not always an option.  At its most fundamental level, a healthcare practice’s profit is based on the equation: revenue - expenses = profit.  So, if expenses can’t be reduced significantly, the next place to look is at the revenue side of the equation.

Revenues are controlled by 2 elements, volume and price.  Increase either and you increase revenue.  We love to see increased volumes, but sometimes the easier (and quicker) fix is to make sure a practice is collecting the maximum amount allowed by its payers (i.e., “allowable” price is maximized).

Enter fee schedules.  In the complex healthcare environment we live in, selling a healthcare service is not as easy as charging a price, getting paid, and going home.  A healthcare practice that gets reimbursed from insurance companies must set a fee schedule which dictates how much the practice will charge for each procedure performed within the practice.  It is off of this fee schedule that the insurer will allow payment for the procedures performed.

If there are multiple payers for the practice it can be a bulky task to have a fee schedule set for each individual payer, so practice owners sometimes opt to use one fee schedule for all payers.  Getting back to the revenue issue, this is where problems sometimes lurk.  Insurance companies have different rules and allowable expenses for medical care, and they don’t all reimburse the same.  So, if a practice has a fee schedule set for one insurer that doesn’t exceed what they “allow” as payment, money is left on the table by the practice.  This can easily happen when using one fee schedue for all payers and is of obvious concern to practice owners.  The good news is that, relatively speaking, it’s an easy fix.

To make sure fee schedules are maximizing reimbursement from payers, make sure that they are set above the allowable amounts for each payer, for each charge.  If one fee schedule is to be used for all payers, then make sure the fee schedule exceeds the amount allowed by the highest reimbursing payer (for each charge).  If multiple fee schedules are being used, make sure that each schedule establishes a fee that exceeds the allowable amount for the payer (again, for each charge).

As you can see, the concept is fairly simple, but the time necessary to establish and maintain proper fee schedules for a medical practice can appear daunting.  It is recommended that the time and energy is spent however, as a significant sum of money can be easily left on the table by not establishing appropriate fee schedules. 

This article excerpt from the Medical Group Management Association (MGMA) provides more information on this important topic.

Medical practices may leave large sums of money on the table because they don’t devote enough attention to developing and maintaining fee schedules. Your practice’s fees should match or exceed reimbursement levels from your best payer to maximize the negotiated amount it can receive.

Of course we don’t “plan” on it happening, but we should have a plan nonetheless.  Running out of money in private practice does happen, and as this post from the Independent Urologist points out, this has an obvious (and usually immediate) impact on a partner’s take-home pay.  It pays to be prepared and this post has some great ideas for how to be ready should a cash crisis strike your practice.

If you have savings or a source of income that can last 1 year, you can go off on your own. Otherwise, I don’t believe that this is a viable option, unless you have an established practice, a loyal patient and referral base, and an unenforced no-compete clause. In that instance, you may be able to become cash positive in 2-4 months. Here’s how to start.

We frequently review practices’ insurance contracts and reimbursement rates when consulting on their overall revenue cycles.  Unfortunately, time and time again providers have signed contracts with payers in which they are making less money per visit than it costs them for that visit.  Net for the business is in the red for each of these visits.  Begin seeing more patients with these insurances and the business has less and less of a chance of survival.  Ultimately, the business may have to close.  We consistently coach practice owners to know what their cost per visit is so that they can make smart decisions when it comes to signing up for or remaining in contract with an insurance company.

Obviously, we consult in this fashion to look out for the best interests of the particular practice that we are working with.  However, what if this trend spread throughout the country and more practices started paying attention to their costs per visit relative to their reimbursement rates?  The end result may be health care reform on a much bigger scale.  I recently ran across this post that speaks to this idea.

As dealing with insurers becomes less rewarding monetarily and the hassle-factor continues to increase, the time will come when it will no longer be worth my while to contract with them. At that point, I will stop doing so. As it happens, I believe that many other physicians in situations similar to mine will come to the same conclusions as I, and will also choose to terminate those contracts. The eventual result will probably be that no outpatient primary care physicians will participate with insurance.

At that point, the insurance companies will almost certainly adjust their business model to take the new reality of non-participating physicians into account. With any luck, they will move towards something that looks like actual insurance (think home and auto; coverage only for catastrophic care) and will therefore be considerably less expensive. Who knows; they may even have to make do with less revenue. That’s what capitalism is all about, isn’t it?

We all know how it works — for a number of reasons insurance companies make it difficult for physicians to make money.  By nature of the volumes of insured parties, insurance companies can essentially force physicians to accept insurance contracts at rates that, alone, won’t even keep the doors open to a medical practice.  It’s a tough business, but physicians and other healthcare providers have to abide in order to stay alive.

So, physicians in recent years have become creative and decided to go after the pocketbook of the patient and have justified this by improving the level of service and personalized attention provided.  This model, while chastised by some, makes a lot of sense.  Called “concierge medicine,” critics claim that the model discriminates against those that can’t pay, and doesn’t provide care where it’s needed; only where it’s paid for.

Whether or not one agrees with these arguments, the finger needs to ultimately point back at the insurance companies who have extracted a reasonable level of profitability from many physicians; so much so that physicians have gone out and adjusted the playing field through business model innovation with the creation of concierge medical care.

Well, insurance companies are striking back — at least they’re beginning to.  Some insurance companies simply don’t like the thought of concierge medicine competing with them for the patient dollar and have used “contract violation” as the grounds for dropping physicians from their contract panels based on the concierge model.

This post from “Repairing the Healthcare System” provides insight into the issue, citing Cigna and United Healthcare as opponents of the practice of concierge medical care.

Recently Primary Care Internists have attempted to decrease their stress by limiting their practice. They are converting their medical practice to Concierge Care Medical Practices. MDVIP has created a national network of 210 physicians so far who practice concierge medicine.

Several models of concierge care decrease the need for a physician to have a large panel of patients, decrease stress and paperwork while creating the ability for physicians to enjoy their medical practice once again.

Healthcare insurance companies are unhappy and are starting to become punitive to patients and physicians who use this innovative approach to medical practice.

“Doctors who charge an annual fee to patients in exchange for customized care including house calls are drawing the ire of some health insurance companies.”

“United Healthcare confirmed it is dropping four local doctors from its network in April because the company disapproves of their so-called “concierge medicine” model.”

“Cigna is also condemning the practice, in which physicians charge an annual retainer of $1,500 to $1,800 for patients who then receive more personal care. The claim is it is in violation of the physician’s contract with the insurer.”

Albert Fuchs is a primary care physician and business owner.  After realizing that he couldn’t keep up with the pace of his busy practice, his answer wasn’t to simply hire additional staff, but rather to drop the least profitable of his insurance contracts…then another…and another…and another. 

Dr. Fuchs kept dropping insurance contracts until he had none left, leaving him with a practice free from the rules imposed upon him by insurance companies, and a practice that provides great care and excellent service. 

This won’t work for all medical practices, but this innovative approach to the issue of excessive volume has contributed to a practice that is likely more profitable than if approached by hiring to keep up with the pace of unprofitable contracts.  This solution has also provided him with the resources to provide regular free clinics to serve those that can’t afford his services.

Read this article by Dr. Fuchs in today’s LA Times to hear how and why he did it.

Every politician and his Aunt Martha has a scheme to overhaul American healthcare. But not one of them will solve this problem: Most doctors are awful at serving their patients. The typical hair salon pays more attention to customer service than the typical doctor.

Why? Even the best medical schools give short shrift to practice management. So a doctor can emerge as a skilled diagnostician without a clue how to run a business that serves consumers. In fact, many physicians find it distasteful to think of medicine as a business at all. They feel that it’s their mission to serve as many patients as possible rather than to provide the best care possible. Most significant, today’s doctors are preoccupied with the bureaucracy of insurance companies, so much so that they’ve lost the simple logic of the doughnut shop model.

It’s an interesting dilemma that we often see new practice owners face.  That is, they want to keep their expenses low and end up tackling every business-related task that there is, and at the same time want to see as many patients as possible to get cash flowing as rapidly as possible.  What usually happens is that the business-related tasks begin to eat away at time that the provider should be in front of patients.  Patient time = cash flow.  Less patient time = less cash flow.  One hour with patient = more money made than it costs to have someone else perform business-related tasks.

A key challenge to handling business growth is whether you are able, and willing, to give up control and delegate certain business tasks to others who are:

• More skilled at the task
• Able to complete the task at a lower hourly rate than you
• Easily trainable to do the jobs that you dislike or are no good at

Here is a quick down-and-dirty to figure out your own “hourly rate”.

Let’s imagine you want your business to gross $300,000 in 2008. And you plan to work a 40-hour week (good luck if you can get away with this!) for 48 weeks in the year.

Your hourly rate is $300,000 ÷ 48 = $6250, and $6250 ÷ 40 = $156.25. In order to make $300,000 in a year, you need to be bringing about $156 an hour in revenue. That means that when you are answering your own emails, you are costing your business roughly $156 an hour to do so.

In her recent post, Kennealy tells us the four tasks that MUST be delegated to someone else, either in-house or to an outsourced company: 1) Housekeeping, 2) Bookkeeping, 3) Administrative support, and 4) Managing technology.  These are tasks that you can find someone that will cost less than your time to do the same job and perhaps a better, more effecient job.

Kennealy goes on to discuss three things that the owning provider MUST hold on to: 1) Strategy development and business planning, 2) Marketing, and 3) Content creation or program development.  These things are critically linked to the owner’s vision, goals and selling efforts.  This doesn’t mean that outside help can not be employed to assist with these things (i.e. consultants, branding companies), but the provider definitely needs to sacrifice some patient time to focus on these elements…these are the elements that get more patients in the door.

Here is a great post from a physician who asks the very valid question: Why don’t we pay more for better service in the healthcare? 

Whether defined by more experienced physicians, better bedside manner, or increased time spent trying to figure out exactly what’s wrong, better quality doesn’t affect the bottom line in a medical practice - physicians get paid the same even though they’re acting different.  This poses a natural barrier to incentive which doesn’t favor improved care in the U.S.

The solution isn’t simple though.  In a system that already lacks for enough to go around (money AND physicians), how do you pay better physicians more and still subsidize those in need…

How we pay physicians creates problems.  We have a totally irrational payment structure, which discourages thinking and encourages doing.  We have a payment structure which drives physicians towards speed and away from careful consideration.

Unless we recognize the importance of the payment system and revamp that system, we will continue to get what we pay for - quick, incomplete visits - too many procedures - unwillingness of physicians to communicate with emails and phone calls.  And just remember not to blame the physicians.  They are making economically rational decisions.  If you design payment as Medicare has, you will reap the weak seeds that you have sown.