IMA Insights
Volume 13
Issue 3
March 2015
Physician Acquisition Revenue Cycle Challenges
To Our Healthcare Clients and Friends:
As a result of the changes occurring in healthcare, physicians find it difficult to remain in independent practice. These difficulties
result from many factors including increasing costs, declining reimbursement rates and changes stemming from the Affordable
Care Act. Over the last year, approximately 3,000 physician practices have been acquired and approximately 55% of practices
nationally have been acquired or merged into a larger organization. It is expected that this trend will continue or accelerate
within the foreseeable future as a result of the issues noted above, and the drive by hospitals and health systems to compete
successfully in population health initiatives, bundled payment contracts, value based purchasing and Accountable Care
Organizations.
After the hospital acquires a physician practice, a significant amount of time and effort will be required to integrate the practice’s
existing revenue cycle functions into those of the hospital’s or health system’s revenue cycle. Some of the issues relating to the
acquisition and integration of revenue cycle functions appear below.
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Volume 13, Issue 3
Physician Acquisition Revenue Cycle Challenges
CHALLENGES
Many smaller physician practices do not have overly sophisticated revenue cycle operations. It is not uncommon for a family
member to be in charge of the practice’s administrative functions, including revenue cycle. Other practices have employees from the
neighborhood that have been employed by the physician for long periods of time. Moreover, many of these practices will outsource
significant parts of the billing function to vendors. In addition to these challenges, independent physicians tend to be entrepreneurial
and assume responsibility for all decision making regarding coding, payments, write-offs, and point of service cash collection.
REVENUE CYCLE ISSUES
Staffing
Physicians are often very protective of their long-term employees. This results in a significant challenge when the acquiring hospital
or health system attempts to centralize revenue cycle functions. Many of the long term, non-provider employees are often viewed
by the physician as family members, and often the physician does not want to disrupt this relationship. The challenge is when the
revenue cycle functions are not centralized and remain in the physician’s office under the physician’s control, thereby resulting in
significant additional cost being incurred and the potential benefits associated with centralization, such as increased efficiency and
enhanced quality, not being realized. These issues pose a significant challenge to the acquiring hospital or health system.
Coding
Many independent physicians do not use certified coders to perform the coding function. These offices tend to use a superbill that
includes the diagnoses and CPT-4 codes that are most commonly used in the physician office, and the physician checks off the
diagnoses and level of service. While the physician may clearly understand the underlying coding relating to the diagnosis and level
of service, the physician’s documentation may not sufficiently support either the selected diagnosis or level of service.
In addition to the potential coding quality issues that may exist, the expected implementation of ICD-10 on October 1, 2015 poses
additional challenges. Many independent physicians and their office staff may not have received sufficient, if any, training relating to
the massive changes that may impact the practice as part of ICD-10. In addition to the coding and billing challenges, diagnosis codes
for ancillary testing will need to be updated, the current superbills will need to be replaced, if possible, and the impact on provider
productivity, due to additional documentation requirements, may have a negative impact on the practice’s financial performance.
Pre-Encounter and Registration Functions
The Pre-encounter function including scheduling, insurance verification etc., are performed by the independent physician’s
administrative staff. As a result, the quality, especially relating to insurance verification may be lacking: there may be significant
opportunity to improve the practice’s financial performance by enhancing this process through centralization and automation. The
challenge associated with centralizing this function will be resistance from both the physician and office staff. These issues, most
likely, relate to resistance to change and future employment for the administrative staff more than for any other reason.
Vendor Management
Physician practices that use bad debt and other collection vendors normally have used these same vendors for years. There is little,
if any, monitoring of the vendor’s performance, and contract pricing may be outdated and currently above industry norms. Moreover,
these vendors may have formed personal relationships with staff which will make changing vendors difficult. When the lack of
vendor management is discussed, staff members tend to become defensive and the vendor normally will become more pro-active
and responsive, attempting to maintain the existing contract. As a result, change in vendor relationships, which should be based on
quality and price, can become difficult to accomplish.
Collection Activity
Due to the personal relationships that exist between physicians and patients, many physicians will not follow a consistent policy of
sending accounts to a collection vendor. Normally, it is expected that a non-paying account will be sent to a collection agency after
120 or 150 days or some pre-determined number of days. However, in many independent physician practices, accounts can only be
3 Dickinson Drive, Suite 200, Chadds Ford, PA 19317
484.840.1984 / 484.840.0124 fax
www.ima-consulting.com
Toll Free: 866.840.0151
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Volume 13, Issue 3
Physician Acquisition Revenue Cycle Challenges
sent to collections with the approval of the physician. This process, significantly reduces the timeliness and volume of accounts that
are sent to collections and has a negative impact on the accounts overall collectability and the practice’s cash flow. The challenge is
to convince the physician that using industry established collection standards will not drive away patients; rather the patients that may
change providers are the ones that are not paying.
INSIGHTS
When acquiring a physician practice, the hospital will have an independent valuation performed to support the purchase price. The
acquirer will perform due-diligence to assess potential issues that may have not been previously disclosed; they will assess the
physical plant, any equipment, the payer mix and any other issue that may result in exposure to the acquirer. In addition to the due
diligence assessment, the acquirer should discuss its vision of the practice’s future. How does the acquirer envision the operations,
staffing and location of this practice in three or five years? What is the potential impact on the practice’s employees and patients? In
order to accomplish this, the acquirer must do extensive planning. This planning process should include sharing the vision with the
physician, considering the physician’s input, and preparing a detailed plan to present to the physician to obtain his consent. Having
the physician involved in the practice’s integration and operation planning will increase the likelihood of a successful acquisition.
As part of the practice integration process, staffing and revenue cycle functions will most likely be re-organized. This re-organization
will be essential to ensuring the future financial performance of the practice and will greatly impact the personnel that are currently
performing revenue cycle functions. For example, the insurance verification and scheduling functions may be easily transferred to
an existing centralized area, requiring little if any additional staffing. In this scenario, not only will cost be reduced but quality will
be improved. In many cases, the success of this re-organization will be somewhat dependant on the sensitivity of the acquirer to
existing employees. In order to ease the physician’s concerns relating to his employees, the acquirer should make every effort to
find alternative employment within the organization or at the very least the acquirer should agree to offer the affected employees a
reasonable severance and an extensive outplacement service. This will ease the physician’s concerns somewhat relating to the future
of his employees.
As part of the due-diligence process, the practice’s ICD-10 readiness needs to be assessed. If any information technology systems
are going to remain in place after the acquisition, their ICD-10 readiness will also need to be assessed. The overall practice ICD10 assessment should include awareness, training needs, assessment of current state of readiness and finally, the development
of a comprehensive implementation plan. This plan should include detailed timelines and the estimated costs associated with the
successful transition.
The practice’s pre-encounter functions should be carefully reviewed as part of the process. This will ensure that operational
enhancements can be implemented immediately after the acquisition is completed. While this may only be a stop-gap, until this area
is potentially moved to a centralized location, it will improve financial performance in the interim and potentially provide sufficient
training for the employees to transfer to the centralized pre-encounter function.
Once the performance of the practice’s revenue cycle vendors is assessed, a plan should be designed to transfer the vendor activity to
the hospital’s preferred vendors. The reasons for the transfer, such as improved performance and reduced cost, should be discussed
with the physician. This discussion will mitigate any resistance that could potentially result from the transfer, from either the physician
or the administrative staff.
The most sensitive area, from a physician/patient relationship perspective will be the implementation of collection policies and
procedures. Many physicians prefer to approve any account that is being sent to collections and may continue to treat non-emergent
patients that have accounts in collections. It can be challenging to change this behavior because the physician may be concerned
about losing the patient; however, the physician will agree that having a patient who does not pay is a patient worth losing. That
said, it is important to be sensitive to the needs of the community and the physician. If the physician wishes to continue to treat a
patient who is unable but not unwilling to pay, the physician should be encouraged to do so. This balance between community need
and financial performance will provide the physician with significant intrinsic satisfaction and will yield significant benefits, from a
relationship perspective, to the Hospital.
3 Dickinson Drive, Suite 200, Chadds Ford, PA 19317
484.840.1984 / 484.840.0124 fax
www.ima-consulting.com
Toll Free: 866.840.0151
Volume 13, Issue 3
Physician Acquisition Revenue Cycle Challenges
4
3 Dickinson Drive
Suite 200
Chadds Ford, PA 19317
Phone: 484.840.1984
Fax: 484.840.0124
Toll Free: 866.840.0151
SUMMARY
As a result of the significant challenges in the current healthcare environment, the number of physician
practice acquisitions continues to increase. These acquisitions must be carefully considered and planned
from both an operational and revenue cycle perspective. The revenue cycle enhancements that result from
the acquisition will enhance the value and enable the acquired practice to maintain and improve financial
viability.
*** *** *** *** *** ***
Robert De Luca,
Partner
Kimberly Hollingsworth,
Partner
Mary Ann Holt,
Partner
Anthony J. Scarcelli, Jr.,
Partner
Paul Soper,
Partner
Should you have any questions or require assistance with designing and implementing these changes, IMA
Consulting has significant experience. Please feel free to contact me at 302-584-6302 or at [email protected].
Truly yours,
Ed Ladely
Ed Ladely
Director
Visit our Website:
www.ima-consulting.com
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3 Dickinson Drive, Suite 200, Chadds Ford, PA 19317
484.840.1984 / 484.840.0124 fax
www.ima-consulting.com
Toll Free: 866.840.0151