PRE102: Optimizing Your Medical Practice: Current and Future Financial Performance Preconference

1. PRE102: Optimizing Your Medical Practice: Current and Future Financial Performance Preconference Owen J. Dahl, MBA, FACHE, LSSMBB Annual Conference October 6, 2013

3. Objectives

4. Today’s Health Care Dollar -------------------------$100.00 --------------------------- $60.00 is collectable 50% overhead 50% for physicians take home Adjustments ($40.00): Medicare Medicaid Managed care $30.00 of total charges go home

5. What is your vision/mission/core business • Office visits • Procedures • Ancillary revenue • All of the above • Type of patients seen • Diagnostic • Treatment • Chronic

6. Accounting 101 • Cash • Record activities when cash is in hand • Accrual • Record activities when the transaction occurs

7. Financial reporting

8. Cash Basis Balance Sheet

9. Accrual Basis Balance Sheet

10. Income & ExpenseStatement

11. Benchmark • Evaluate your practice in terms of best practice leading to improving some aspect of performance, function, financial or process improvement • Methodology • Identify problem areas • Identify how you did it before (how others do it) • Identify “leading edge” practices • Implement new and improved business practices

12. Revenue

13. What can I make? • Fee schedule • Sources of income • Medicare/Medicaid • Managed care • Traditional insurance • Patient

14. Revenue – Top line • Driven by • Contracts • Time involved • Hours to sell • Others to support your effort • Services provided • Diagnostic procedures • Treatment • Niche market

15. Top Line • New patients • Recruit • Advertise • Referral sources • Managed care contracts

16. Top Line • New services • Expand by offering something totally new • Enhance by improving what is currently offered • Factors: • Experimental • Reimbursement • Training • Capital expenditure

17. Top Line • Improve revenue • Collections • Managed care contract negotiations • Identify what contractual rates you are willing to receive, is Medicare sufficient? • Coding for service provided

18. Top Line • Patient retention • Cost of loosing a patient • Common for business to loose 15 - 20% per year • Another use of protocols • Determine when patients should return, track • How • What benefits the patient? • “free visits”

19. Expense

20. Bottom Line • Cost management • Per service • Per visit • ABC • RVU • What things are you doing that make money? • What things loose money? • What is the desired target return?

21. Overhead - allocated • Category PCP SCP • Staff 24% 16% • Occupancy 6% 4% • Malpractice 8% 15% • Supplies 6% 2%

22. Bottom Line • Financial statement • Salaries • Occupancy costs • Malpractice • Supplies • Telephone • Phone • Marketing • All other • Percentages • 20%+ • 6 - 8% • 3 - 12% • 1 - 8% • 2 - 5% • 1% • 2% • to total 50% (or greater)

23. Overhead Overhead = costs/medical revenue • $300,000 overhead costs and $1,000,000 revenue • $500,000 overhead costs and $2,000,000 revenue Which practice do you want to be?

24. Overhead Employee 20+% Variable Watch overtime, staff well, hold people accountable Benefits – cost-sharing, capped plans Supplies – review systems, protocols, shop online Your own printing and desktop publishing Fixed Malpractice – don’t be over-insured, attend training Space utilization – are you in the right location Telecommunications – consolidate, eliminate (F/V)

25. Overhead • Is the doctor overhead? A cost? • Overhead is your cost of doing business • In your practice is it too much? • Is it just right? • Measure by determining if you are getting the most out of your cost, the most from your staffing, etc.

26. How much does it cost to see a patient?

27. Careful when discussing costs How do you manage these issues? Clinically involve your physicians • Global = payer costs Vs. • Practice = daily costs of operation • Global = • DX • TX • Chronic

28. Costs

29. How to calculate cost $365,761 / 6250 = $58.52 Total expenses for period of time divided by number of patients seen in the same time period, e.g., one year.

30. Assumptions

31. Financial Statement

32. Costs Graph $283,161 C O S T Variable Costs $82,600 Fixed costs Visits

34. Office Visit Activity Only Remove Ancillary New Cost Per Visit $64.93

35. Background look

36. Cost per visit

37. Cost per hour *Could include all hours worked and divide into total income (bottom line) to determine the “cost”

38. Cost per visit / hour

39. Cost per RVU and wRVU

40. Break Even Analysis

41. Managing Your Costs Employee 20+% Watch overtime (V) Staff well, hold people accountable (V) Benefits – cost-sharing, capped plans (V) Telecommunications cost – consolidate, eliminate (F/V) Malpractice – don’t be over-insured, attend training (F) Supplies – review systems, protocols (V) Shopping online (V) Your own printing and desktop publishing (V) Space utilization – are you in the right location (F)

42. Tests and procedures in the office • Identify costs associated with this department • Staff, supplies = variable • Equipment and space = fixed • If possible, identify based on top 5 – 10 procedures done • Consider using RVU and apply all overhead to these processes as an option • Question: Return on investment = meeting expectations?

43. Hospital activity • Carve out MA and most other clinic support • Retain billing costs • Key factor is time associated with visits • Consider the use of RVU • Questions: • Is the time to walk/drive back and forth factored in and does this service bring value to the practice? • Real question of cost benefit related to time: remember $190.50 is the total cost per hour (slide 21) • Is this a marketing effort or a direct financial return?

44. Surgical Procedure • Goal: Total cost of this procedure • Number of visits • Office pre and post • Hospital • Time in operating room • Allocation of “overhead” • Awareness of options related to “total costs”, e.g., ambulatory center vs. hospital and the fact of who controls the decision • Protocol for global treatment plan = national standards or group standards? • Therapy – in office, separate cost vs. total cost

45. Program for cost management Understand costs – create a culture of monitoring cost Establish cost reduction/control goals Benchmark Utilize data available internally as well Identify drivers of costs Drill down into the processes Insure that cost reduction/control goals are consistent with the overall vision and organizational goals

46. Cost focus

47. Future revenue

48. Alternative Methods of Payment Fee for Service (FFS) FFS + Shared Savings Episode Payment Partial Comprehensive Care Payment + P4P Comprehensive Care (Global Payment) Capitation

49. Major ways to pay for care …… Source: Sustaining The Medical Home: How Prometheus Payment Can Revitalize Primary Care

50. Set Payment Levels Regulation = Medicare Price setting by Large payers = Medicare as base Negotiation between payers and providers Competition by providers Evidence based estimation – cost of each component estimated and combined