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.

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?

On April 23rd I wrote about the benefits of using email in physician-patient communication, and how trends in this area are inevitably going to change the standards of communication in years to come.  I’ve also written about Dr. Jay Parkinson and the company, Myca, who are pushing the use of technology to improve the efficiency and cost effectiveness of the physician-patient relationship through the use of instant messaging, video-conferencing and email.

Email and other efficient modes of communication are undoubtedly in our near future as healthcare providers.  Now if we could just get the payers to notice…

Well, it looks like they are starting to notice.  As part of the medical home model, Capital District Physicians’ Health Plan is entering a 2 year pilot program which will, among other things, pay physicians for using communications such as email to improve the efficiency of interaction with patients.  This article from Times Union explains.

Currently, doctors are paid only for face-to-face visits. There’s little incentive for busy doctors to explore other types of interactions, said Bruce Nash, chief medical officer and senior vice president of medical affairs at CDPHP.

“The rest of the world’s used e-mail for a decade,” he said. “It’s been limited to a physician, because it hasn’t been paid for.”

If you read this blog regularly, this won’t be the first time you’ve read a post about the growing trend in medicine that favors reimbursement for procedures over time spent with patients, regardless of how important or necessary that time is to the overall plan of care.  As the leader of many trends in medicine, Medicare is the driving force behind this direction our reimbursement system is taking, and there isn’t an immediate end in sight.  This article from the Wall Street Journal explains how this trend is reducing the availability of needed specialty care in the United States by providing a disincentive for medical students to pursue specialty areas that rely on cognition rather than procedural expertise.

A discipline built on spending time with patients to gather clues for a diagnosis, neuro-ophthalmology could become another casualty of a medical payment system that favors high-tech procedures over low-tech exams. The median income of a neuro-ophthalmologist at a teaching hospital is $200,000, according to the North American Neuro-Ophthalmology Society. That’s a third less than most general ophthalmologists, who undergo less training but can see more patients, and do more pricey procedures, in a given day.

Many in health-policy circles have focused on how the current health-care payment system is helping create shortages among primary-care doctors, internists and others on the front lines of medicine. But often lost is how the system is endangering some of the country’s most highly trained specialties as well.

Endocrinologists, rheumatologists and pulmonologists — specialties that also don’t involve performing many procedures — face acute shortages. Many of the severest deficits affect children. Though nearly 300,000 children in the U.S. are diagnosed annually with juvenile arthritis, lupus or other complex rheumatic diseases, there are fewer than 200 pediatric rheumatologists to take care of them, according to the U.S. government’s Health Resources and Services Administration.

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.

This is where we’re headed.  A medical malpractice insurer in Oregon is now providing physicians with discounts for using electronic tools that will reduce errors and thus the opportunity for malpractice. 

You’ve heard of the tools before: computerized health records and e-mail.

As these tools are shown to effectively reduce errors and improve overall efficiency within the healthcare system, we’re going to see more and more insurers (both malpractice and 3rd party payers) providing incentives to use them.

Under the new program, 2,600 physicians insured by the company will receive patient safety discount points for connecting online with their patients using an online service called iHealth, which includes a practice Web site for physicians and secure e-mail and patient personal health records for patients. The service also includes safety messages for patients, including same-day patient notification if their medicines are subject to FDA recall or warnings.

“We are seeing increased market demand for these types of online services and we want to help our insured physicians adopt and use these tools to better and more efficiently connect with patients,” said Dieter Zimmer, vice president for patient safety and practice support for Northwest Physicians.

Kyle commented on RAC’s in his post on March 5th.  The incentives underlying RAC’s leaves much concern for those receiving (or soon to be receiving) audits, and this post by Dr. Rich at the Covert Rationing Blog makes the point that even practice owners and managers that try with all their might to comply with the ever-changing and difficult-to-understand Medicare regulations are left with little clarity in the matter, making compliance near impossible.  Unfortunately, this doesn’t hold a lot of weight as compared to the generous percentage of collections that provides the fuel needed for RAC’s to go for the throat during the recovery audit process.

The conclusion…if you haven’t already, invest in the companies involved with the recovery audits, because there is a lot of money that’s going to be made in the process.

The RACs are paid by commission. Essentially they are bounty hunters, and they get to keep 20% of whatever they collect. According to the Associated Press, hospitals and providers are just a tad worried that these contractors, being so generously incented, will prove a little overzealous in their enthusiasm to find fraud. But worried auditees should not look for sympathy from the public. “A little zealotry is what we’re looking for on the part of the taxpayers,” said Leslie Paige, spokeswoman for Citizens Against Government Waste. “We think it’s about time.” Indeed - everybody can get behind fighting fraud, which is what makes the fraud gambit such a powerful tool for covert rationing.

It is good to be an RAC, and, DrRich suggests, it would also be good to own stock in whichever companies are contracted to perform the audits. These outfits are about to harvest the vast bounty of obfuscation that Medicare has been carefully cultivating for 40 years, and has been carefully fashioning as fraud-traps for a somewhat shorter period of time.

Many providers have felt the “heat” of an audit performed by a Recovery Audit Contractor (RAC).  For those that have not heard of these groups, they are private audit companies that are contracted by Medicare to determine if clinics or hospitals have erred in their medical billing.  The process includes an auditing of charts and claims, determination of a percentage of error, and a demand for the percentage of all money received from Medicare for the previous several months to year be returned.

What concerns many providers and medical group administrators about this is the fact that RAC’s are reimbursed based on a percentage of all the money that is returned to Medicare.  Certainly, one could argue that this incentive based approach to finding errors in medical claims is questionable. 

Read this recent article by Kevin Freking to learn more about RAC’s coming your way.

The contractors have shown they’re pretty good at their work. In just three years, they’ve returned more than $300 million to the federal government — and that’s just from three states. That experiment is winding down. But a larger, national program will soon take its place.

The rollout of “recovery audit contractors” will be gradual. They’ll monitor health care providers in 19 states beginning this spring. In October, an additional five states will join.

Health care providers are nearly unanimous in their dislike of the program’s continuation, much less its expansion. Many lawmakers have similar sentiments, though it was Congress in 2006 that made the program permanent.

We are seeing more and more insurance carriers throughout the country pushing the medical community to adopt computerized health records - sometimes through higher reimbursement offerings.  Now the liability or malpractice carriers are getting involved with this by offering discounts to providers that are moving to electronic systems.

The move by Northwest Physicians follows a recent trend of liability carriers promoting online patient-doctor connectivity, with hopes of fostering better communication with patients and improved patient safety.

Under the new program, 2,600 physicians insured by the company will receive patient safety discount points for connecting online with their patients using an online service called iHealth, which includes a practice Web site for physicians and secure e-mail and patient personal health records for patients.

It recently hit the news that Blue Cross of Massachusetts is considering returning to a capitation system of payment.  While this is far from becoming a national trend, it behooves us as practice owners to remember this type of system and what it meant for our businesses.  In his article, Peter Lucash reminds us of the pros and cons of capitation and some methods to handle it from a business perspective.  

If you are approached about a capitation plan, the contract has to be reviewed carefully, and a financial pro forma has to be built and run. It shouldn’t be a hugely expensive proposition, but necessary. On the other side, you need to monitor the contract and have a good grasp of your costs.