An Educational Report Sponsored By McKesson Revenue Management Solutions
Physician Employment –
Keys to Success for Hospital Financial Leaders
Economics 101: Optimizing the Physician
Revenue Cycle
Practice Acquisitions a Growing
Imperative for Financial Leaders
Hospital leaders increasingly view
physician employment as a strategic
necessity that can better position their
organizations to meet an anticipated shift
toward outcome-based payments, the
expected requirements of the reform-driven
Accountable Care Organization’s (ACO)
delivery model, and physician recruitment
efforts made by competing hospitals.
figure 1 : Total Physicians vs.
Truly Independent1 Projected Change
2000-2013 (000s)
Physicians who are “truly independent”
have been declining at 2% annually,
projected to decline by 5% annually by 2013.
683
57%
2000
723
49%
2005
Total # of
Physicians (000s)
757
43%
2009
793
33%
2013
Truly Independent
Physicians 1
Physicians, for their part, are more open
to hospital-sponsored employment than
in the past due to the growing difficulties
associated with operating an independent
medical practice. Increasing costs – coupled
with flat or declining reimbursements – are
exerting pressure on physician incomes.
Physicians also are grappling with an ever
more complex regulatory and reporting
environment.
figure 2: Senior Finance Executives’
Assessment of Importance and Current
Performance in Physician Revenue2
EXCELLENT
18%
HIGH
68%
GOOD
MEDIUM
33%
21%
FAIR/POOR
As hospital-sponsored physician
employment grows, the physician revenue
cycle will play a larger role in revenue
contribution to the hospital. Effective
management of physician billing is
therefore essential to the hospital’s success.
Physician Employment:
Lessons Learned
Hospitals and health systems that acquire
physician groups cannot afford to adopt
a hands-off approach when it comes
to revenue cycle management. During
earlier cycles of provider consolidation,
many hospitals found out the hard way
that purchasing physician groups did not
automatically generate a greater number of
referrals and/or financial benefits. Assured
of a paycheck and thus freed from the
necessity of sustaining patient volume in
support of income, physician productivity
many times fell dramatically.
LOW
49%
11%
Current
Performance
Importance
Hospital inattention or indifference to
effective revenue cycle management also
contributed to the problem. Resulting
revenue declines and financial losses led
to the rapid unwinding of many oncepromising hospital-physician unions.
Studies in the 1990s indicated that only 17%
of hospital finance executives reported a
positive bottom line for acquired physician
practices and that, on average, losses
per acquired physician averaged nearly
$100,000 annually3.
Whether hospitals will take the steps
required to ensure the financial
sustainability of acquired practices this
time around remains to be seen. A recent
From 2000 to 2010, total operating costs
per full-time equivalent (FTE) physician in
hospital-owned multispecialty practices
increased 60.5%, from $299,758 to $521,548.4
The Consumer Price Index (CPI) increased
only 26.6% in the same 10-year period.
survey of hospital finance executives
suggests that despite the well-known
problems associated with practice
purchases in the past, physician revenue
cycle performance continues to be
suboptimal for most.
Typical Revenue Cycle Process
REPORTING
& ANALYTICS
PAYMENT
POSTING &
RECONCILIATION
BILLING
FRONT OFFICE
PROCESSES
CHARGE
CAPTURE
CERTIFIED
CODING
The Professional Fee Revenue Cycle
Given the shared processes associated
with physician billing, such as charge
capture and denial management, why
can’t hospitals simply take on these
responsibilities as part of their central
billing office functions? Unfortunately,
while many of the tasks are similar, key
aspects of medical billing are considerably
different than hospital billing functions.
The codes used, forms, regulations and
documentation requirements all are unique
and, therefore, largely incompatible with
hospital billing platforms, processes and
staff skill sets.
In addition, physician claims frequently
take a backseat to more lucrative inpatient
stays and procedures when managed by
a hospital billing office. Yet when one
considers that a primary care practice
charging $125 per office visit and doing
25,000 visits per year potentially could
gross more $3 million annually, the
2
economic impact of faulty physician
revenue cycle management becomes
apparent.
Addressing Root Causes for Under
Performance
1. Shared Technology Architecture
In most cases, acquired physician practices
typically will come with their own billing
systems. These disparate applications
usually won’t talk to the hospital or each
other. The result can be an inordinate
amount of integration work and ongoing
maintenance. And even then, there can
be no assurance that significant revenue
cycle variation and inconsistency will be
eliminated, or even reduced, across all
practice locations.
Key Considerations:
• A single, hybrid billing platform
that enables both centralized and
decentralized functionality helps insure
consistency across the enterprise.
A consolidated source of accurate
information helps hospitals roll up
financial data into a single, concise
snapshot for more accurate cash flow
forecasting. A common platform across
multiple groups also reduces software
expenses and maintenance costs.
• The platform should accommodate a
single, enterprise-wide master patient
index with robust security that can
be accessed by multi-site employed
physician operations. When considering
master patient index applications, the
costs and benefits of traditional client
server systems should be weighed
against newer cloud-based computing
technologies.
• High-performance registration and
scheduling systems also are important
pieces in the hybrid billing model.
The timely capture of accurate patient
demographic data, including up-to-date
insurance information, represents one
% Increase in
Operating Costs/
FTE Physician
Compared to
Consumer Price
Index (CPI).
2010
2000
60.5%
26.6%
FTE
CPI
of the most critical steps in ensuring
optimized collections.
2. Centralized or Decentralized
Organizational Structure
Assessing which business functions should
be centralized and which should remain at
the remote practice or clinic locations is an
important step that can affect the success
or failure of the enterprise. Hybrid solutions
that accommodate both central and remote
activities offer the most effective path to
optimized revenue cycle performance.
Key Considerations:
• To avoid duplication, minimize errors
and ensure consistency, specific
revenue cycle functions that should be
centralized include: management of
the charge master, payment posting,
claims management and payer contract
monitoring.
• Decentralized billing tasks conducted
at the clinic site may include patient
registration, scheduling, coding, and
charge entry. Staff training should focus
on ensuring standardization around
these functions.
• Flexible, dashboard reporting tools
that provide executives, managers and
physicians with detailed operating
reports covering both centralized and
decentralized business processes are
another element essential for optimal
revenue cycle management.
3. Fostering Physician Accountability
Creating a sense of shared destiny between
the hospital leaders and physicians
is important to successful physician
engagement and better financial
performance. Methods for accomplishing
this include physician financial incentives,
shared governance and operational
transparency through performance tracking
and detailed financial reporting.
Key Considerations:
• Establishing financial mechanisms
that give physicians a stake in the
financial performance of the practice is
vital to strong financial performance.
Incentives can be developed for various
aspects of revenue cycle performance,
including cash collections, physician
documentation and coding accuracy.
Incentivized physicians will be more
likely to assist in establishing best
practices among the group’s support
staff.
• Shared governance regarding policies
and procedures that affect physicians
helps create mutual trust and will
support continual process improvement
as well as stronger strategic planning.
• Providing physicians with high level data
helps them make informed economic
decisions. Metrics that reflect both the
organization as a whole and individual
facility and/or physician performance
provide unprecedented insight into
operations and serve as a basis for related
education opportunities associated with
coding, documentation and eligible
services.
4. Minimize Escalating Costs
The ability to minimize costs is obviously
critical in today’s unforgiving health care
environment. Despite the promise of
increased hospital and ancillary volume
that comes with an employed physician
network, uncontrolled costs can quickly
erode profit margins.
or upgrade expenses, certified coding
expertise, physician documentation
education, customizable financial and
productivity reporting and compliance
assistance. Common drawbacks are a
perceived lack of total revenue cycle
control, external staff involvement and
the challenge of quickly bringing billing
services back in-house without incurring
additional costs and overhead.
5. Dashboards: Converting Data into
Knowledge
Effective hospital management of the
physician revenue cycle requires the
transparency provided by dashboard
reporting applications. Reporting solutions
for hospital executives must provide ondemand access to billing and accounts
receivable data through detailed daily,
weekly and monthly snapshots.
Key Considerations:
• Drill-down capabilities in reports allow
executives to view transaction-level
information on every patient, procedure,
physician or payer.
• Advanced systems provide the ability
to quickly create custom reports that
can incorporate historical information,
forecasts, regional market conditions and
industry benchmarks.
• Dashboards also are important tools for
executives and physicians to monitor
at-a-glance individual and practice
performance.
Case Example:
Baptist Medical Adds Revenue Cycle
Resources to Support Network Growth
Baptist Medical Associates and its affiliate,
Baptist Urgent Care, make up a large, multispecialty physician group aligned with
Louisville, Ky.-based Baptist Healthcare
System. The group employs more than 75
physicians and bills about 24,000 claims per
month.
According to Revenue Cycle Director
Katherine P. Smith, Baptist Medical
Associates was aggressively acquiring
practices in 2008 to expand its geographic
footprint and specialty mix. Over a 12-month
period, the number of physicians in the
group nearly doubled. Health system and
group executives realized that keeping pace
with growth, from a collections standpoint,
would require additional revenue cycle
support.
The organization worked with McKesson
Revenue Management Solutions (RMS) to
implement a robust denial management
system and create a rigorous, systematic
patient collection process. McKesson’s
RMS also developed customized, monthly
reporting scorecards for individual practices
and the organization as a whole.
The group’s average monthly charges
increased by 56.5% over a 12-month
period and credit balances fell by 25.5%.
A/R days stand at 32.4, while A/R>120
days is at 16.6%
Key Considerations:
• Determining whether to develop and
sustain billing operations internally or
partner with a qualified billing company
is a decision that must take into account
the full range of comparative costs and
benefits.
• Benefits of owning the physician
revenue cycle include complete control
over the entire revenue cycle spectrum
and internal staff. Among the notable
drawbacks are significant capital outlay,
ongoing maintenance and software
upgrade expenses, limited internal talent
and resources, and a lack of national
coding and compliance expertise and
experience.
• Partial or full outsourcing benefits
include a fixed cost structure and no
capital outlay, no software maintenance
figure 3: McKesson Practice Focus™ Physician Activity Analysis Report
3
Summary of Key Learnings
The number of physician practices acquired
by hospitals is expected to increase as
the post-healthcare reform environment
takes shape and physician dissatisfaction
with the challenges of private practice
grows. Ensuring that these unions are
financially beneficial for both parties
requires an optimized physician revenue
cycle, mutually aligned objectives, cost
containment and effective business
intelligence. Specifically:
• Technological architecture must enable
enterprise-wide data sharing between
the hospital and the remote clinic
locations to ensure a consistent, up-todate and accurate source of revenue cycle
information.
• Determinations should be made
regarding which revenue cycle functions
are retained centrally at the hospital and
which are decentralized at the clinic site.
• Physician financial incentives and shared
governance help foster aligned interests
and optimal physician productivity.
• Co-sourced billing models can provide
significant cost savings when compared
to the development and maintenance
of a physician-specific internal billing
operation. A reputable co-sourcing
vendor can provide billing and
compliance expertise that could be
difficult to acquire by an internal billing
staff.
• Dashboards that present on-demand
snapshots of performance metrics across
a range of areas – including billing,
accounts receivable, denials, procedure
volume, and practice and physician
productivity – are essential tools for
executives, managers and physicians.
Combining hospitals and physician
practices is a complex process that can
easily come off-track without proper
planning and competent execution. By
aligning objectives and zeroing in on the
integration, optimization and ongoing
management of the revenue cycle – the
financial backbone of any physician
practice – hospital financial leaders greatly
increase the chances of financial success,
both for the acquired physicians and the
organization as a whole.
Estimated Accenture Analysis; Medical Group Management Association Analysis, American
Medical Association
1
2
Financial Leadership Council Finance Executive Survey CFO 2010
Zachary B. Gerbarg, MD, “Hospital-Acquired Physician Practices: After the Deal is Done,”
New Medicine, 1998, 2:23-26
3
4
McKesson Revenue Management Solutions
McKesson Corporation
1145 Sanctuary Parkway
Alpharetta, GA 30009
completehealthypractice.com
[email protected]
1.800.877.0132
Copyright © 2012 McKesson Corporation and/or one
of its subsidiaries. All product or company names
mentioned may be trademarks, service marks or registered
trademarks of their respective companies.
2012-RMS-05
MGMA Cost Survey for Multispecialty Practices: 2011 Report Based on 2010 Data