Category : Finance

Productivity Question

The following is a Q&A with a seminar attendee (CSM 2010, San Diego, CA) on the topic of productivity:

Q: On the financial production assumptions, my productivity is showing 236%. What does this mean?

A: Productivity is defined in this model as billed hours divided by total hours worked. If a PT bills out 4 hours in a day and worked 8, they would have a productivity of 50% for that day (4/8 = 50%). A clarification of this model is that productivity is not an “assumption,” it is a “metric.” In other words, productivity is calculated by the model (an output) and is not assumed prior to running the model (an input).

For a productivity of 236%, this means that your particular model is billing out 236% of the hours worked by your staff. This is not possible under a traditional 1:1 care model give current regulations surrounding 3rd party reimbursement. Again, the productivity is an output, so other inputs must be altered in order to achieve a productivity in an acceptable range (less than 100%). The most obvious input to adjust will be that of FTE’s, increasing to a number that places your productivity at appropriate levels. Remember though, that increasing FTE’s will also increase staff expenses, therefore decreasing profitability. And herein lies the iterative beauty of financial modeling!!

via Vantage Forums: Productivity Question.

Vantage Forums: Breakeven analysis for medical practices

For those starting a new medical practice, program or medical service, knowing at what point your investment will “break even” is important to determining whether or not the venture will be economically feasible. The breakeven analysis provides medical practice owners with valuable information with regard to the production and time factors involved with starting a new medical practice, program or service.

Here is a link to a free breakeven analysis calculator tool (http://bit.ly/Breakeven) which will help you determine when your medical practice, program, or service will break even based on the entry of a few key data inputs.

If you have any questions about the breakeven analysis tool, or you’d like more help determining the feasibility of your new medical practice, program, or service, don’t hesitate to contact us directly for a hand.

Tannus Quatre PT, MBA
Principal | Consultant
Vantage Clinical Solutions, Inc.
www.vantageclinicalsolutions.com

(888) 827-5613

via Vantage Forums: Breakeven analysis for medical practices.

Breakeven analysis for medical practices

For those starting a new medical practice, program or medical service, knowing at what point your investment will “break even” is important to determining whether or not the venture will be economically feasible.  The breakeven analysis provides medical practice owners with valuable information with regard to the production and time factors involved with starting a new medical practice, program or service.

Here is a link to a free breakeven analysis calculator tool which will help you determine when your medical practice, program, or service will break even based on the entry of a few key data inputs.

If you have any questions about the breakeven analysis tool, or you’d like more help determining the feasibility of your new medical practice, program, or service, don’t hesitate to contact us directly for a hand.

_________________

Tannus Quatre is a private practice consultant and principal with Vantage Clinical Solutions, Inc., a nationwide healthcare consulting and management firm located in Bend, OR and Denver, CO.  Tannus specializes in the areas of healthcare marketing, strategy, and finance, and can be reached through the Vantage Clinical Solutions website.

Medical practice management 101: Budgeting

Creating a medical practice budget is one of the most important elements of running a profitable physician practice, doctor’s office, or physical therapy clinic.  The medical practice budget provides physicians, office managers and administrators with a gauge from which financial performance can be measured and operational issues identified.

There are many ways to create a medical practice budget, however our firm often recommends use of a budgeting format which clearly distinguishes those revenues and expenses that are variable in nature (change from month to month) from those that are fixed (relatively consistent from month to month).

To create a medical practice budget which outlines revenues and expenses in this way is quite easy to perform, and the reporting that comes from this type of budget is of the most easily understood.

Starting with revenues, create a list of all sources of revenue for your medical practice.  Use large categories to capture the largest sources of revenue, then gradually break down the large categories into smaller subsets of revenue.

For example, if your physical therapy clinic provides two main types of services – physical therapy and fitness classes – then these might make up your two main revenue categories for your medical practice budget.

You may wish to further break down the “physical therapy” category into subcategories such as “orthopedics,” “pediatrics,” and “women’s health.”  Your fitness classes may also be broken down into subcategories such as “weight management,” “strength training,” and “flexibility.”

It is a good idea to capture your “adjustments to revenue” within your revenue section as it is normal to collect much less than is charged to insurance companies.  These adjustments are captured in the revenue section of the medical practice budget, along with any refunds that are credited back to clients through the course of business.

Moving to the expenses category, start by breaking all of your expenses down into “variable” and “fixed” expense categories.  A rule of thumb that is often used to determine which expenses are variable versus fixed is to consider all expenses that would diminish or cease upon closure of your medical practice for a period of a month or so.  Expenses such as clinical staff (often paid based on production or hours worked), hourly office and administrative staff, most utilities, office supplies, and repairs/maintenance would likely diminish or cease, and are therefore examples of variable expenses in some medical practices.

Expenses that would remain unchanged if your medical office closed for a month or so are considered “fixed” and would  likely include your fixed management salaries, lease payments, loan repayments, dues/subscriptions, and contractual advertising expenses.

The rules for breaking medical practice expenses into variable and fixed categories are not hard and fast, but are rather dependent upon the operations of the medical practice, as well as the reporting that is desired of those that will be managing the medical practice budget.

After all revenues and expenses are accounted for within the medical practice budget, all expenses are subtracted from all revenues to come up with a number known as “net income.”  Net income reflects the profitability of the time period examined by the medical practice budget, accounting for all recorded revenues and expenses.

You can likely see that without a medical practice budget, the ability to truly understand where, why and how revenues and expenses are generated is nearly impossible.  By creating a medical practice budget, sticking to it, and revising it annually, your medical practice will have much more chance of success and profitability, and is therefore highly recommended.

If you’re interested in starting or improving your own medical practice budget, please visit the Vantage Clinical Solutions website to download a free medical practice budgeting tool that can be used within your medical practice, doctor’s office, or physical therapy clinic.
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Tannus Quatre is a private practice consultant and principal with Vantage Clinical Solutions, Inc., a nationwide healthcare consulting and management firm located in Bend, OR and Denver, CO.  Tannus specializes in the areas of healthcare marketing, strategy, and finance, and can be reached through the Vantage Clinical Solutions website.

A Doctor by Choice, a Businessman by Necessity

A good essay in the NYTimes.com which speaks to the rising commercialism of healthcare.

I didn’t bother to disillusion him, but the reality is that most doctors today, whether in academic or private practice, constantly have to think about money. Last January, Dr. Pamela Hartzband and Dr. Jerome Groopman, physicians at Beth Israel Deaconess Medical Center in Boston, wrote in The New England Journal of Medicine that “price tags are being applied to every aspect of a doctor’s day, creating an acute awareness of costs and reimbursement.” And they added, “Today’s medical students are being inducted into a culture in which their profession is seen increasingly in financial terms.”

via Essay – A Doctor by Choice, a Businessman by Necessity.

Dear Doctor: Here is half your money, take it or leave it

I recall as a student when – somewhere near the last day of school – an instructor would share the funniest things that they’d seen come across their desk throughout the year.  It was usually some 5-word blooper from a student or a simple, yet funny misstatement of history that found it’s way into a writing assignment; something that managed to set itself apart from the rest, truly catching the attention of the instructor through a countless sea of papers, essays, tests, and homework assignments.  Only the real gems would make it to that last day of school.

We’ll, I wish I could say that I’ve got a “gem” for you, or perhaps even a blooper.  If not that, then at least something that is a bit rare and unusual.  Unfortunately, the only qualification that my statement has is that is has caught our attention, and it should catch yours as well.  It’s not funny, rare, or even a blooper.

One of our functions is as a provider of medical billing services, and we consider this to be a “sign of the times” in health care and in our economy, and the statement is simply this (taken from an actual letter from patient to doctor):

Dear Doctor:

I am your patient and I have a bill for $400.  I will send you half within the month if you will agree to write off the balance.  Please sign below acknowledging this agreement.

Sincerely,

Your Patient
 
Approved:

_________________________
Medical Practice Authorized Representative

Our recommendation is simply this: If you believe in your services, your prices, and your policies, then don’t fall hostage to anyone, not even a patient.  If you feel that arrangements such as this are in the best interest of your practice, and your financial policy supports this behavior, then it certainly might be right for you.  But understand the risks of too quickly going after the quick buck in lieu of collecting the sum of what is rightfully yours as a provider of health care services.

There are no easy answers, but it is in your interest to know that these letters are coming and you should at least know how you will respond.

_________________

Tannus Quatre PT, MBA is a private practice consultant and principal with Vantage Clinical Solutions, Inc., a nationwide healthcare consulting and management firm located in Bend, OR and Denver, CO.  Tannus specializes in the areas of healthcare marketing, strategy, and finance, and can be reached through the Vantage Clinical Solutions website.

Recovery audit contractors: Don’t get RAC’d

A constant challenge in today’s highly regulated health care environment is managing medical records requests from a variety of sources.

Soon you may begin receiving requests from the Recovery Audit Contractors (RACs). As part of Section 302 of the Tax Relief and Health Care Act of 2006, the RAC Program is permanent and will be expanded to all 50 states by no later than 2010. The RAC program is administered by CMS to identify claims processing errors – both underpayments and overpayments. A 3-year demonstration project of this program was recently concluded and found the program to be highly effective in identifying payment errors, recovering $1 to CMS for every $.22 spent on the program.

The 3-year RAC demonstration program in California, Florida, New York, Massachusetts, South Carolina, and Arizona collected over $900 million in overpayments and returned nearly $38 million in underpayments to providers (CMS press release 10/6/08. For more information visit: http://www.cms.hhs.gov/RAC).

Part of the RAC program’s success is attributed to the contingency fees paid out to the RACs for the overpayments that they identify. Each RAC’s contingency fee is established with CMS and varies from 9%-12.45% of collected payments. Provider types targeted included inpatient rehabilitation facilities, hospitals,physicians, skilled nursing facilities, durable medical equipment suppliers, laboratories, ambulance, home health agencies, and hospices.

RACs may use Automated Reviews and Complex Medical Reviews of CMS claims data to request improper payments. Automated review must have clear policy that serves as the basis for the overpayment (”clear policy” means a statute, regulation, National Coverage Determination, coverage provision in an interpretive manual, or Local Coverage Determination that specifies the circumstances under which a service will ALWAYS be considered an overpayment); be based on a medically unbelievable service; or occur when no timely response is received in response to a medical record request letter. Complex Medical Record Review includes coding reviews and medical necessity reviews. Requests for records can go as far back as October 1, 2007.

In the demonstration project, the majority of requests were made of inpatient hospital stays. Analysis revealed the following breakdown: Inpatient hospital 85%; rehabilitation 6%; outpatient 4%; physician/DME/ambulatory/other 4%; and SNF 2%. Recover of payments were due to the following reasons: Medical necessity 40%, incorrect coding 35%, incomplete documentation 8%, and other unspecified reasons 17%.

Consider the following questions when beginning to prepare for RAC records requests…

1. Does your organization have a RAC Readiness Committee? If so, how frequently do you meet and what functional areas are represented on the committee?
2. Does your organization have a RAC Coordinator responsible for overseeing RAC readiness as well as responses to requests received from the RAC? If so, what are this person’s qualifications and previous position, if applicable? What responsibilities will this person have and who will they be reporting to?
3. Has your organization either developed or purchased a tool to track RAC requests and the status of claims from the point of the RAC request through resolution of the request, including any appeals?
4. Has your organization been participating with your state hospital association or other industry organizations to assist with preparations for the RACs, including identifying contact people at the RACs and sharing of common issues faced by other healthcare organizations?
5. How is your organization planning on handling appeals of RAC determinations? Are you planning on partnering with a law firm and/or any outside consultants with expertise in medical necessity, coding and documentation requirements?

There can be tremendous added costs of responding to the RAC requests. It is important to know that providers can be reimbursed for medical records photocopying costs reimbursed as follows…

• PPS provider records $.12 per page plus first class postage
• Non-PPS institutions and practitioner records,$.15 per page
• Dialysis /capitated facilities receive $.12 per page plus first class postage
• Specifically, hospitals and other providers (such as critical access hospitals) under a Medicare cost reimbursement system, receive no photocopying reimbursement.

Resources:

CMS RAC Status Reports, Statement of Work, FAQs, Expansion Schedule, Fact Sheets, Press Releases, etc. www.cms.hhs.gov/RAC/

CMS Appeals Process
www.cms.hhs.gov/MLNProducts/downloads/MedicareAppealsProcess.pdf

American Hospital Association RAC Resources
www.aha.org/aha/issues/RAC/aharesources.html

Transmittal 1457 – Redeterminations of Overpayments
www.cms.hhs.gov/Transmittals/Downloads/R1457CP.pdf

Limitation on Recoupment (935) for Provider, Physicians and Suppliers Overpayments
www.cms.hhs.gov/MLNMattersArticles/downloads/MM6183.pdf

Transmittal 1671 – New & Material Evidence (Good Cause)
http://www.cms.hhs.gov/transmittals/downloads/R1671CP.pdf

OIG Audit of Medicare ALJ Hearings 7/08
www.oig.hhs.gov/oei/reports/oei-02-06-00110.pdf

OIG Audit of QIC Medicare Appeals Processing 7/08
http://www.oig.hhs.gov/oei/reports/oei-06-06-00500.pdf

Another update on the recession, doctors, and payments

A recent article in Physicians Practice does a great job of outlining how the recession is impacting health care in different ways.  Outpatient surgeries have dropped while outpatient walk-in visits are up. 

Something tells me it’s a good time to have some conservative options under your practice’s belt.

Bottom line: Now is not the time to be driven by unanalyzed fears or groundless optimism. Be responsible for understanding your own economic forecast.

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Tannus Quatre PT, MBA is a private practice consultant and principal with Vantage Clinical Solutions, Inc., a nationwide healthcare consulting and management firm located in Bend, OR and Denver, CO.  Tannus specializes in the areas of healthcare marketing, strategy, and finance, and can be reached through the Vantage Clinical Solutions website.

Consider the cost of doing business

In determining whether you should sign a contract with a third party payer, it is imperative to know your cost of doing business. Often clinicians sign contracts with third party payers to gain “in-network” status, hoping to increase their patient volume.

However, if the contract does not reimburse at a rate higher than the cost of providing the care, the “in-network” status and accompanying patient can actually drive the clinic out of business. Increasing the volume of care delivered only adds value to the practice if the care provided has a healthy profit margin. The additional patients that are gained by having “in-network” status will actually take away from the clinic’s profit if the reimbursement does not cover the cost to provide the care. Therefore, before a contract is signed, the first step is to understand your cost to provide care. Incorrect assumptions about your costs or an inability to accurately calculate your cost of providing care will result in poor business decisions.

When assessing the cost of care, consider the difference between fixed costs and variable costs. Fixed costs are those costs that remain constant in total dollar amount within a relative range of activity. Examples would include your facility’s rent expense or the cost of a piece of equipment. These costs have a total fixed dollar amount. Regardless of the amount of care delivered the cost stays constant. It is important to understand with fixed costs the per treatment cost of business decreases as the number of treatments performed increases. The more treatments that are performed, the more the fixed cost is spread over those treatments. For example, if your facility’s rent expense is $5000 per month and your clinic performs 500 treatments per month there is a $10 cost per treatment for rent. However, if your clinic increases the number of treatments performed per month to 1000, the rent expense decreases to $5 per treatment. All other variables equal, profit per treatment increases by $5 per treatment.

Contrast this to variable costs, which are costs that vary in direct proportion to the number of treatments performed. A clinic’s laundry expense is a variable cost. With variable costs the per treatment cost of business remains constant, and the total expense of the variable cost increases with an increase in the number of treatments performed. Variable costs can not be spread out over more treatments to increase profits. If more treatments are performed, total variable costs will increase as well. For example, if your clinic’s laundry expense is $2 per treatment and you perform 500 treatments per month, the total laundry expense for the month is $1000. If your business increases to 1000 treatments per month the total cost would increase to $2000 per month. It is important to allow for an increase in these costs when budgeting for growth or expansion. With variable costs, profit per treatment does not increase with an increase in treatments performed.

Understand your cost of care before signing a contract with a third party payer. More patients does not always mean more profit.

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Bridget Morehouse PT, MBA is a consultant with Steffes and Associates, a rehabilitation consulting firm based in Wisconsin.

Cash flow considerations

There is a trend of “slowing payments” over the past several months and we are noticing clinics have higher percentages of aged account balances, particularly from patient responsibility, sitting out in the greater than 90 or 120 day columns.  With individuals continuing to struggle in this economy, they are more quickly and frequently making the decision that their medical bills can be put on hold.  Clinic owners need to recognize that this may be happening in their practice, and they should develop tactics to handle higher days sales outstanding, slowing cash flow, and patients who are creating their own payment plans (or deciding not to pay at all).

Realizing that some compassion needs to come in to play with those that are financially struggling, we are reminded by Peter Lucash that we should be collecting us much up front (co-pays and deductibles) from patients as possible; we definately should have the ability to receive credit card payments; and we should have policies and procedures in place for cash pay patients, financial hardship, and payment plans.

Implementing a collection at time of service policy will take some time. When making appointments, tell patients that you will be asking for payment. At first, if the patient balks (such as saying they don’t have their checkbook) let it pass, but tell them that you are asking for payment from now on. Over several months, you should see your collections rising and A/R dropping. At some point, of course, collections will flatten, the timing of collections stabilizes.

 

Collections are always a challenge within a practice, as you balance the desire to help patients with the business side. You want your staff your staff to remain compassionate and caring, and they are often the best people to work with your patients to collect with compassion.

 

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