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Benchmarking Your Practice For Financial Success

Presented By: Debra Phairas, President

Practice & Liability Consultants, LLCwww.practiceconsultants.net

©Copyrighted 1990, updated yearly 2010

2009 study "Medical Practice Today: What Members Have to Say," Medical Group Management Association

1, 850 administrators responded

♦ 36.6 % - have postponed capital expenditures

♦ 34.7 % - experienced a rise in uninsured patients♦ 34.7 % experienced a rise in uninsured patients

♦ 34.5 % - have implemented a staff hiring freeze

♦ 33.9 % - have slashed operating budgets

♦ 33.3 % - improved billing/collections processes

♦ 33.1 % - have witnessed a decline in revenue

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Source: Medical Economics, November 16, 2007

Doctors feel weighed down by business responsibilities

What is “Benchmarking”

♦Comparing “Best Practices” key financial data with your peers to identify areas of strengths and weaknesses to improve your financial picturefinancial picture.

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Prepare Better Profit Loss Reports♦ Purchase Software, e.g.. QuickBooks

♦ Train Managers, org ,

♦ Explain to CPA its use as a management tool

♦ Scrutinize every month – Look for trends to nip negative ones early

Reducing Overhead“Lean, Mean, Fighting Machine”♦ Learn comparison data for overhead line item expenses

♦ Medical Group Management Association (MGMA)– (888) 608 5602– www.mgma.com– Physician Compensation Report and Cost Survey Report

♦ Practice Support Resources – (816) 455-7790

♦ American Medical Group Association AMGA – (703) 838-0033

♦ National Society Healthcare Business Consultants – 703-234-4099

♦ Specialty Society Studies

Income and Expense Ratios♦How does the practice ratios compare to

“norms?”

– Have Manager or CPA prepare profit/lossHave Manager or CPA prepare profit/loss reports with a column for each line item expense to be divided into actual total collections - % to collections

– Staff and rent are the two largest expense categories

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Where the specialties rank in earnings2009 Gross Collections 2009 Net

$1,850,206 - $2,428,395 $424,414 - $ 469,089Cardiology$1,383,356 - $1,815,655 $413,015 - $ 456,491

Orthopedic Surgery$1,920,052 - $2,250,068 $462,565 - $ 511,256

Gastroenterology$1,362,322 - $1,788,048 $385,520 - $ 426,101

$1,678,736 - $2,203,342 $392,357 - $ 433,658Otolaryngology

$1,114,094 - $1,462,248 $329,261 - $ 363,920Ophthalmology

General SurgeryUrology

$1,402,889 - $1,841,292 $304,581 - $ 336,642

Figures are medians for all fields of practice combined.

OB/GYN

$784,456 - $1,029,599 $200,074 - $221,134$608,050 - $798,066 $208,021 - $ 229,918

NeurologyInternal Medicine

$985,387 - $1,293,321 $241,793 - $ 267,245$1,066,933 - $1,400,350 $283,724 - $ 313,589

SOURCE: Practice Support Resources, 2009

Family PracticePediatrics

$674,588 - $885,396 $210,362 - $232,505

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Benchmark Comparison – Family Practice2009

ComparisonAMGA

2009MGMA

Cost Survey2009

MGMACompensation Survey 2009

NSCHBC2009

PSR2009

Charges 713259 $914,681 $588,696 $503,376 $674,588 -885,369

Adjustments n/a $295,370 n/a $270,416 30-34%

Collections $441,167 $630,160 $383,731 $517,393 $519,154-681,390

Expense n/a $400,682 n/a $349,845 $331,049-434,502

Net Income $211,789 $224,844 $196,808 $169,165 $210,362-232,505

Source: Medical Economics, September 18, 2009

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Your Practice?

MGMA2009

NSCHBC2009

PSR2009

Staff Salaries 26.36 22.90 24-28Benefits 6.50 2.40 5-7Clinical Supplies 3.76 6.40 6.6-7.6Clerical Supplies 1.83 2.20 2-3Rent + Utilities 7.12 7.30 7.8-8.8Telephone 2 11 1 10 N/A

Expense Ratio Comparisons in % – Family Practice

Telephone 2.11 1.10 N/A

Malpractice 1.80 2.10 1.7-2.7Maintenance N/A .80 N/A

Acct./Legal .56 1.40 .8-1.3Promotion .48 .30 .3-.7Dues/Subs N/A .50 N/A

Auto N/A .60 N/A

Depreciation N/A 1.30 N/A

Cont. Ed/Travel N/A .50 N/A

TOTAL EXP. RATIO ? 50.52 65.50 48.2-59.1

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FTE Full time Equivalent / MD♦What is your total staff payroll as a

percentage of gross income?

♦What is your Full Time Equivalent♦What is your Full Time Equivalent staff ratio to physician?

♦Varies by Specialty:– 2.01-7.08 FTE/MD

Source: Medical Economics, November 16, 2007

Total support staff cost % to Revenue

General administrative 3.22 Patient Accounting 3.58 Managed Care administrative * Other Admin. Support .15 Housekeeping / maint/ security * Medical receptionists 4.75

Operating Cost: StaffingOperating Cost: Staffing

Medical receptionists 4.75Medical secretaries/ transcribers 2.08 Medical records 2.35 Registered Nurses 2.97 Licensed Practical Nurses 4.52 Med assistants, nurse aides 4.51 Clinical laboratory 2.30 Radiology/imaging 1.87 Other medical support svcs * Contract/temp support staff *

Source: FPSource: FPMGMA Cost MGMA Cost Survey 2009Survey 2009

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Gen Surgery Cardiology FP OrthoMean Mean Mean Mean

Total FTE support staff 2.34 6.04 5.20 6.17General administrative .25 .31 .29 0.33Patient accounting .48 .79 .77 1.04Managed care administrative * .11 * 0.12Information services * .15 .17 0.15

Staffing per FTE Physician for Staffing per FTE Physician for Anesthesiology, Cardiology,Anesthesiology, Cardiology,

and Family Practice Single Specialty Practices and Family Practice Single Specialty Practices

Housekeeping/maint/security * * * 0.08Other admin. support * .56 * 0.85Registered nurses * .75 .46 0.45LPNs, medical assistants * .37 .80 0.33Medical receptionists 2.03 1.25 2.44Med. secretaries/transcribers 1.04 .41 1.76Medical records .24 .39 .35 0.39Laboratory * .18 .46 *Radiology/ imaging * .83 .28 0.662Other med/ ancill services * .38 * 0.76

Source: MGMA Cost Survey, 2009 Report

National Society Certified Healthcare Business Consultants Data 2009

♦ 4.34 FTE per Family Practice

♦ 3.93 FTE per Internal Medicine

WORKSHEET FOR COMPARISON OF OPERATING EXPENSES Category

Norm Your Practice Variance (+ or - )

Total Professional Gross Receipts

Practice Expenses expressed as a % of gross receipts

Continuing Educ. Depreciation Drugs/ Medical Supplies Employee Benefits Equipment Rental Janitor Laboratory

Laboratory Laundry/Linen Legal/ Accounting Malpractice Ins. Office Expense Office Payroll Prof. Car Upkeep Rent Taxes - Payroll Telephone Other Total OVERHEAD EXPENSE RATIO

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Analyze Your AccountsReceivable every month

♦ Hold Billing Staff/Co accountable for good ratios –Incentivize or Penalize

♦ Accounts Receivable Aging Table

♦ Accounts Receivable Ratio

♦ Gross Collection Percentage

♦ Adjusted Collection Percentage

How do your percentages compare ?

YOURS Family Practice 2009MGMA Average

_____ < 30 days (56.44% per MGMA study) _______________31-60 days (13.22% per MGMA study) _______________61-90 days ( 7.39% per MGMA study) _______________91-120 days ( 5.33% per MGMA study) _______________>120 days (17.61% per MGMA study) __________

Source: MGMA Cost Survey, 2009 Report based on 2008 data

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Family Practice Accounts Receivable Ratio

FORMULA:

Total Accounts Receivable = A/R Ratio1/12 Annual Fees or Charges

MGMA = 1.08NSCHBC = 1.34

Source: MGMA Cost Survey, 2009 Report based on 2008 data

Family Practice Gross Collection Percentage

FORMULA:

Actual cash collections = Gross CollectionGross Charges Percentage

MGMA = 67.32%NSCHBC = 77.2%

Source: MGMA Cost Survey, 2009 Report based on 2008 data

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Family PracticeAdjusted Collection Percentage

FORMULA:

Actual cash collections = Adjusted Adjusted Charges (Charges-adj) Collection

PercentageMGMA = 96.01%NSCHBC = 94.9%

Source: MGMA Cost Survey, 2009 Report based on 2008 data

DATA, COLLECTION % AND Anesthes. Cardiology FP Ortho.FINANCIAL RATIOS Median Median Median MedianTot accounts rec ($/phy) 186940 241437 84189 347,346Tot accounts rec ($/prov) 91779 178881 61601 220,589 0 - 30 days % of total A/R 54.13 55.54 56.44 53.8 31 - 60 days % of total A/R 15.76 12.45 13.22 15.83%

Accounts Receivable Data, Collection Accounts Receivable Data, Collection Percentages and Financial Ratios Percentages and Financial Ratios

for Selected Single Specialty Practicesfor Selected Single Specialty Practices

y 61 - 90 days % of total A/R 9.08 7.17 7.39 8.01 91 - 120 days % of total A/R 5.90 5.36 5.33 4.86 Over 120 days % of total A/R 15.14 19.48 17.61 17.51Months gross FFS charges in A/R 1.57 1.15 1.08 1.42Gross FFS collection % 43.22 44.44 67.32 4257Adjusted FFS collection % 90.49 98.31 96.01 93.1

Source: MGMA Cost Survey, 2009 Report based on 2008 data

Billing and Collection♦ Appeals and Denials – Make sure staff has enough

time for this

♦ Patient Payment plans –♦ Patient Payment plans • “we understand your financial problems, lets work out a way to

settle your account” • put in writing, red flag rules – identity theft• www.carecredit.com

♦ Collection agencies – may need to use more

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Billing and Collection

♦Make front and billing a team

♦Have them guest visit shadow each other

♦Reduces errors

Billing and Collections

♦Health Savings Accounts – Patients need to pay up front with HSA debit cards

k bi d C di C d♦Take Debit and Credit Cards

♦ Set firm policies and make patients sign when also receiving patient rights and responsibilities

Evaluate Productivity♦Number of patients seen♦Number of new patients seen to measure

practice growthb f ffi d h i l i i♦Number of office and hospital visits

♦Number of surgeries / procedures or high revenue generation

♦ Income generated by doctor

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Year: Medical Practice of: Month: 1 2 3 4 5 6

Monthly Actual Variance Yr-To-Date Yr -To-Date Variance Budget Monthly Budget Actual Physician Product. Office Visits

Monthly Productivity ReportMonthly Productivity Report

Hospital Visits Ratio MD Office Hrs

Ratio Staff / Pts. Staffing

Mean 25th

PercentileMedian 75th

Percentile90th

PercentileInternal 3 436 2 480 3 326 4 233 5 092

2009 Ambulatory Visits

Internal Medicine

3,436 2,480 3,326 4,233 5,092

Family Practice

4,199 3,079 3,962 4,907 6,062

MGMA 2009 Physician Compensation and Production Survey

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Number of Outpatient Visits for All GroupsCardiology, Invasive 2,460Family Practice 4,199General Surgery 1,556

Source: MGMA Physician Compensation and Production SurveySource: MGMA Physician Compensation and Production Survey2009 Report2009 Report

Internal Medicine 3,436OB GYN 2,327Orthopedic Surgery 2,920Pediatrics 4,547

Physician Hours Worked per Week

Mean 25th

PercentileMedian 75th

Percentile90th

Percentile

Family Practice

36.05 33.00 36.00 40.00 40.00

InternalMedicine

35.88 32.00 36.00 40.00 40.00

MGMA 2009 Physician Compensation and Production Survey

Staffing♦Create job descriptions

– hold staff accountable, e.g., A/R ratios

♦Create incentives♦Create incentives– reward staff for ideas that make or save the

practice money

♦Create Per Diem staff positions – reduce hours if necessary

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“Have you been waiting long?”

Save Time, Make Money

Practice Patterns that Contribute toHigher Overhead

♦Coming in late, running staff into overtime

♦ Stay on time, can see another 2-3 patients per day

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Budgeting

♦A budget is a financial plan of action and activity.

♦Try to live within your budget

♦Train managers to use Excel Spreadsheets

Year: Medical Practice of: Month: 1 2 3 4 5 6Item Monthly Actual Variance Yr-To-Date Yr -To-Date Variance Budget Monthly Budget Actual Charges:

Sample Monthly Report Format

Income: CollectionsOther Deposits

Expenses:Payroll Rent Supplies TOTAL

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Monthly Flash Sheet for ABC Medical Clinic

Dr. A Dr. B Dr. C Total Last Month Last YearProduction $65,059 $55,267 $59,872 $180,198 $175,648 $166,542Adjustments $55,316 $56,448 $40,558Receipts 129,645 $115,963 $103,850Refunds 3,549 $2,514 $2,874Cash on hand 25,145 $14,785 $24,798Gross collections ratio 72% 66% 62%Net collections ratio 101% 95% 81%Total AR $375,678 $380,654 $335,485Total AR $375,678 $380,654 $335,485A/R ratio 2.1 1.7 1.5 MGMA avg. 1.3

Current 30 days 60 days 90 days 120 daysAged AR $131,487 $41,325 $33,811 55,600Percentage 45% 11% 9% 10% 25% MGMA avg. 45% 25% 10% 5% 15%

Total operations expense $75,645 $70,587 $59,466Overhead percentage 59% 61% 58% MGMA avg. 48%

© Karling & Associates© Karling & Associates

QUESTIONS?

♦Email Debra Phairas

– dphairas@practiceconsultants.net

♦ (415) 764-4800