Rx for practice management

SpRing 2014

Use templates to monitor financial performance

8 steps to implementing ICD-10 in your practice

Group medical visits ... still a viable option

Placing a value on your medical practice

o make effective management decisions, practice leaders must have access to up-to-date, comparative information

about their finances. A variety of report templates can help you aggregate key data to accurately monitor financial performance.

Monthly financial report

One important template is a one-page monthly financial report featuring a variety of “must watch” indicators. The report should include:

x Total charges by day and by physician,

x Total payments and refunds,

x Total A/R and their age,

x Gross collection ratio,

x Net receipts (actual/budget),

x Operating expenses (actual/budget),

x Net income,

x Total encounters,

x New patient visits, and

x Full-time equivalent staff.

Followed regularly, these numbers are good measures of your practice’s month-to-month financial health.

Annual report

This template draws much of its data from the aforementioned monthly reports. But annual reports must incorporate even more operational detail and descriptions of long-term trends to reveal a practice’s mission, objectives, strengths and challenges. The template should include:

x Ancillary receipts,

x Physician compensation,

x Operating expenses (total and by site),

x Overhead percentage,

x Capitation payments, and

x Gross collection ratio.

The template can also include space for photographs and employee profiles to give readers a better idea of the human elements of your practice.

RVU report

A relative value unit (RVU) report template measures productivity based on RVUs. With high-quality RVU data, the report can be used to negotiate managed care contracts, revise phy-sician income distribution formulas, set fees and track relative resource use.

The template is a list of billing codes relevant to the practice, with an RVU for each one. The frequency for each code is multiplied by the RVU to arrive at total RVU. If the marginal cost per code is available, it can be multiplied by the code volume to get the total cost for each code.

Payer evaluation report

Occasionally, a practice wants to evaluate its payers. In these cases, a template displaying comparative data can be useful when renegotiating an existing

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Use templates to monitor financial performance

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contract, deciding whether to drop a payer or choosing a new one. There are two formats for a payer evaluation report:

1. The practice’s profitability for each payer. This uses the same structure as the RVU report to derive a practice’s total operating costs and receipts for the codes billed to each payer. Use these fig-ures for negotiating your fee schedule or evaluating overall practice profitability.

2. The payer mix collections report. This indicates how promptly payers pay claims, moni-tors the effectiveness of the practice billing staff and tracks the relative size of each payer as a percent of practice business.

In either case, the template should draw from five sets of quarterly numbers for the practice’s payer mix: Medicare, Medicaid, commercial, managed care (capitated and noncapitated), and self-pay. Each set needs to include charges, payments/receipts, collection ratio and A/R.

Fee schedule report

This template begins as a simple list of the practice’s most commonly billed codes. Then, for each code, you insert:

x The practice’s fee,

x Its cost for providing that coded service, and

x The fees reimbursed by each of the payers with which the practice contracts.

The resulting report can help billing staff verify that payments received are accurate. In addition, the fees in a proposed new contract can be compared to those in current contracts. The template also supports arguments for renegotiating existing fees.

Proposed service report

Often, practices need to decide whether to add a new service (or piece of equipment) or drop an existing one. Because these decisions are made with an eye on generating new net revenues, your practice should determine whether it’s more prof-itable to bring the service in-house or continue to outsource it.

A proposed service template offers four steps toward creating a cost/benefit analysis and report:

1. Identify the codes that will be billed for the service.

2. Estimate the likely service volumes and reim-bursement amounts (revenues).

3. Determine the time needed to perform the service and the office resources it will require (expenses), taking into account factors such as convenience, patient satisfaction and quality of care.

4. Subtract expenses from revenues to get profits.

Most of these steps will be assumptions, so be sure to run different scenarios at different service volumes, expense levels and reimbursement rates.

Getting started

These templates can help maintain an ongoing, high-level awareness of your practice. They also provide a basis for benchmarking your operations — either by comparing current performance to historical per-formance or by judging your practice against national standards available from organizations such as the MGMA. For help creating or refining the most rel-evant templates for your practice, work with your financial advisor. x

Why templates?

Templates can help condense, organize and present critical data in a format that facilitates practice operations and management decisions. Most templates can be generated by standard practice management systems. If some data isn’t available on your system, the template can be modified to add or delete entries.

Although templates do efficiently synthesize a variety of financial metrics to create helpful reports, they’re not the only means of measur-ing financial performance. Be sure to continue looking at other, traditional sources of financial information such as comparative financial state-ments, cash flow statements, general ledger detail and payroll details.

he original compliance date for imple-menting ICD-10-CM and ICD-10-PCS was Oct. 1, 2013. That date has now

been revised to Oct. 1, 2014, but there won’t be any more grace periods or extensions. If you don’t act now, you’ll likely encounter higher eventual costs and disruption of the practice’s revenue cycle. Here are eight steps toward avoiding those dire consequences:

1. Understand the new coding system and its benefits. The current ICD-9-CM system uses three to five digits or characters to define 13,000 codes arranged in 17 chapters. The new ICD-10-CM system has three to seven digits/characters in its 69,000 codes and 21 chapters. The ICD-10 codes will enhance operational processes by more accu-rately reflecting patients’ conditions and improving payment processing. Payment operations will be streamlined through greater automation and fewer payer/physician inquiries, leading to fewer delays and inappropriate denials.

2. Prepare implementation support and infrastructure. Create an ICD-10 implemen-tation task force, composed of senior manage-ment, clinicians, billing/coding personnel and information systems. Issue continuous updates on

implementation progress and any new govern-ment mandates. Publicize them through internal communications and staff meetings; then gather the necessary tools and resources and set a timeline with specific completion dates.

3. Conduct an internal systems assessment. Look at your practice’s systems and how they interact with one another to process the procedure codes. Start with the practice infrastructure; then move on to work processes that use codes and the computer systems that facilitate those processes. Also, examine connections to other business areas of the practice and to external entities. The latter will include the clearinghouse your practice uses, as well as its practice management and EHR vendors.

4. Create a budget for the switch. The MGMA estimates that a practice of 10 physicians will incur the following costs in moving to ICD-10:

Education $ 4,745Process analysis $ 12,000Superbill changes $ 9,950IT costs $ 15,000Increased documentation $ 178,500Cash flow disruption $ 65,000

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8 steps to implementing ICD-10 in your practice

Examine connections to other business areas of the practice and to external entities. The latter will include the clearinghouse your practice uses, as well as its practice management and EHR vendors.

hree simple words: Group medical visits. Before you dismiss the idea, keep in mind that it’s been a well-established

offering of many practices for years. And there’s a reason why — both doctor and patients can gain many benefits simply from listening to each other.

How it works

There are two types of group visits. The first is the shared medical appointment (SMA) or the cooperative health clinic (CHC), where eight to

12 patients with the same chronic condition meet with a doctor for two to three hours. Much like a support group, SMAs or CHCs are held monthly or quarterly with the same group of patients.

After staff registers the patients, verifies insurance coverage and takes vital signs, the session begins with an introduction of the day’s topic. The doctor then addresses each patient individually about his or her specific condition and creates individual treatment plans. During the meeting, medical chart entries are

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Group medical visits ... still a viable option

You can also expect expenditures for:

x Staff time on the ICD-10 project,

x Documentation review, and

x Extra staffing and overtime costs.

Keep in mind that you may also experience tem-porary loss of productivity, including rebills, rejec-tions, EOB work, medical necessity rejections and follow-up.

5. Prepare for the impact on clinical documentation. Because the new codes demand greater specificity in describing billed services, more detailed medical record documentation will be nec-essary. This throws a lot of responsibility back onto the doctors who prepare the records. They’ll likely receive many more coding inquiries seeking further clarification of diagnoses. Consider inputting coding during the patient encounter. Place coders in close proximity to the care team to allow immediate interaction on weak documentation.

6. Train clinical and administrative staff. Identify who will require education (such as cod-ers, billers and providers) and the type and level

of needed learning. The AAPC recommends that clinical staff receive 16 to 24 hours of training, while clinicians and ancillary staff should get six to 10 hours. You may wish to collaborate with other local practices to offer a single training program to all staff members.

7. Conduct external system testing. Implementing ICD-10 will require a number of interactions with external trading partners: After PM and EHR software has been modified, the systems must be tested internally and tested again with the practice’s clearinghouse. The test results will suggest workflow changes. The tests should also be conducted with major health plans to see whether newly coded claims will be accepted and paid.

8. Remain alert for ongoing compliance issues. Once your system changes are up and running, watch for changes to compliance dates and payer payment/documentation policies. Note any variance in staff productivity and monitor the readiness level of external partners. Your health care advisor can help you throughout the ICD-10 implementation process. x

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made as though it were a series of separate private visits. Patients can ask questions about their own or others’ cases.

The second form is the drop-in group medical appointment. These meetings last half as long as an SMA or CHC, are attended by any patients who choose to appear, and tend to address a variety of episodic or acute care conditions.

Everyone wins

Group visits have the potential to satisfy everyone involved. Physician productivity increases, because they see more patients in a day and increase their primary care billings. And group visits can be a nice departure from the usual routine.

Several clinical disciplines are involved in the visits, improving coordination of care. This can lead to fewer specialist referrals, ER visits and repeat hospital visits by group members.

Patients may be more satisfied with their doctors and trust them more because conversations are informal and informative. They’re also supported by other group members, whose experiences and questions could prove instructive.

Patients will become more knowledgeable about the disease processes affecting them, too, improving their overall health care education. And, patients may better adhere to their medication regimens and self-care guidelines with the support of others.

But privacy issues can arise in a group session. Before joining, advise patients that personal health information may be disclosed during a group visit and that they may be asked to sign a HIPAA disclaimer acknowledging this fact.

Ground rules

It may take a few sessions before the practice becomes comfortable with group visits. Your staff will need to explain the purpose and structure of the meetings to patients. And they’ll need to gather the same types of information from attendees as they would for an individual office visit. In addition, doctors will need to develop a new presentation style for these meetings.

A common question about group medical visits concerns billing. No third-party payers currently distinguish between group and individual visits. Plus, there’s no CPT code for group visits. So it’s best to bill for each patient as though he or she had been seen individually. Most of the time that means using standard evaluation and management (E/M) codes 99212 to 99215.

Some coding consultants have suggested using 99499 (“unlisted evaluation and management service”) and 99078 (“physician educational ser-vices rendered to patients in a group setting”). Make sure you check with the appropriate payers beforehand. The same documentation must be completed for components of the visit — such as vital signs, lab tests, medical history, physical examination and therapy decisions.

The right circumstances

There may be some pushback initially from certain patients who are used to seeing a doctor one-on-one. But, after the first couple of meetings, many participants bond well with their physicians and group members. That doesn’t mean group medical visits will work for every practice. But, under the right circumstances, they’re a viable option. x

Patients may be more satisfied with their doctors and trust them more because conversations are informal and informative.

hysicians often think about selling their practices. Perhaps a local hospital wants to draw some doctors into an ACO. Or the

doctor is weary of day-to-day business chores and wants to sell out to another group of physicians. A likely question might be: What’s my practice worth?

4 factors

Generally, four factors will be used to estimate the value of a medical practice:

1. Tangible personal property. For most prac-tices, the value of the furniture, equipment and other assets — minus the amount owed for loans and payroll taxes — is small and may amount to less than $25,000 per doctor. Supplies inventory may have significant value, and should be valued at the historic cost of each item. Prepaid expenses and security deposits are considered assets, and prepaid malpractice insurance also may be significant.

2. Patient A/R. This is one of the largest assets of a practice, but it’s often not fully collectible from either insurers or patients. To determine A/R collectible from insurers, multiply the number of

services that haven’t been paid for patients covered by an insurance plan by the amount to be reim-bursed (not necessarily the amount charged).

3. Office building. If the doctors own their office building, it was likely appraised at the time of acquisition. If the appraisal is more than two years old, get a new one, as the value may have changed. Any mortgage balance should be subtracted from the building’s fair market value to arrive at the physician’s equity interest.

4. Intangible assets. Practices have many intan-gible assets, including patient medical records, an established workforce and commercial potential. They’re usually referred to as “goodwill,” which is the most subjective element of a valuation. Some factors that influence goodwill include the level of competition, patient types, third-party payer mix and fee schedules, and practice location. Goodwill may be zero or have very little value depending on whom it’s being sold to.

The purchase or sale of a practice will be one of the largest and most complex transactions a doctor will ever undertake. Understanding the factors that go into pricing a practice can help ease the process, and ensure that both buyers and sellers feel they got a fair deal.

Appraisal and assistance

Valuing a medical practice should be conducted only by a qualified expert. A sale to a hospital will be subject to laws such as Stark, whereas a sale to another physician group may not be subject to the same laws. Engage a professional that has dealt with both types of sales to guide you through the maze of rules and laws. x

Practice notes

Placing a value on your medical practice

7This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. ©2014 RXsp14

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