Looming federal regulations and a proposed 9.9 percent reduction in Medicare Part B physician reimbursements are pushing medical practice managers to maximize resources and increase efficiency. In the Birmingham area, administrators in large and small practices alike are feeling the pinch. Stark Phase III “There’s a new Phase III (scheduled to take effect December 4, 2007) that concerns referrals and financial relationships between physicians and hospitals,” said Debi Waldrup, administrator of Pulmonary Associates of the Southeast, a seven-physician practice. “Some of it is just clarification, but yet that’s another thing we have to deal with. Stark III tells practices how they can divide up their income to provide bonuses for the physicians.” “You basically cannot incentivize a physician to bill ancillary services under the new guidelines,” said Helen Combs, administrator of the Alabama Allergy and Asthma Center, a group of four physicians. “So for instance, you can’t incentivize a physician to bill labs and make their compensation based upon productivity in that area.” Real estate agreements for practices also will be affected by the new Stark regulations. “There are physicians who are paying under-market leases on space because they are providing services for another doctor,” Combs said. “Let me put it into perspective: Doctor A leases space to doctor B, and doctor B pays $100 when the market value is $1,000. In turn, doctor A takes the receipts from doctor B, so he’s not really the owner but he makes it attractive for him to lease that space at a discount. It’s going to affect a lot of the hospital-based practices because they do that with a lot of their campus physicians.” Phase III will also influence physician recruitment agreements, sales of equipment to hospitals, and certain arrangements made with hospitals and independent labs, Waldrup said. Medicare Reimbursement The proposed 9.9 percent reduction in Medicare reimbursement is “huge, especially if your practice is 80 percent Medicare” such as with Pulmonary Associates, Waldrup said. “It’s hard to be creative to make up that 9.9 percent because everything else goes forward,” Waldrup said. “You want to do pay increases for your staff. It’s hard to stay competitive when that happens.” Waldrup cited a report from the Medical Group Management Association that shows that after the 9.9 percent reduction, the Medicare Part B reimbursement rate will be lower than it was in 1999, while practice operating costs have increased 42.5 percent. “Even though this is just Medicare, what happens is a lot of the smaller private insurers follow the Medicare fee schedule,” Waldrup said. “So it doesn’t just affect our Medicare population.” Increased Patient Responsibility “Over the past five years, since healthcare savings accounts came out, the patient has had a larger financial responsibility,” Combs said. “Blue Cross and other insurance companies have increased their patient responsibility, so their co-pays are higher, their deductibles are higher, their co-insurance is higher. A lot of these plans pay 80 percent, and the employee or the insured pays 20 percent. It used to be a 90/10 split. Now it’s going to an 80/20 or a 70/30. We’re seeing that more and more. We’re seeing a lot of patients with $50 office co-pays.” Combs said her practice has found it challenging to find new ways to ensure that patients stay current with their balances because “we no longer can depend upon our cash flow from our insurance payers. A portion of our monthly collections — it’s typically 30 percent for us — is from our patients. So we have to be really current with our statements, we have to be accurate with our statements” to ensure a quick turnaround on payment. “We have to stay on top of that to make sure we are financially viable. That is becoming more and more of a challenge for every practice.” Personnel Expenses “The biggest expenditures that any of us have are staffing and benefits,” said Bill Cockrell, administrator of CardioVascular Associates (CVA), a 28-physician practice with nine locations in central Alabama. “It always comes down to: Do you have the right staff? Do you have too many or not the right ones? We have worked very hard to make sure that our people are capable of different jobs. At CVA, we have a very rich benefit package, but that’s something groups have to look at now. How much can a group pay for health insurance? For most groups that offer health insurance for a family, the rate is probably going to be in the $800 to $950 range per month. Well, the group picks up a third of it: $300 times 12 times how many employees you have — that’s a healthy overhead item. So how much longer can you do that?” Cockrell added, “It’s the same thing with retirement. Some groups have better 401(k) plans than others. Physicians typically don’t like to give things and take them away from their employees because employees are loyal, but some groups are getting to the point where they have to deal with that.” Combs said, “Salary and overhead from your personnel side should be about 28 percent of your practice expenses. In most practices, that’s their largest expense, and that is not including physician compensation. If you’re running your practice at 50, 60, 70, 80 percent overhead, there’s not a lot left there at the end of the month to play with.” Combs added, “Keeping that personnel ratio intact is so important, but sometimes — short of laying people off and re-staffing for less money — it’s hard to do. There’s a loyalty factor and there’s also a marketing perspective to it. You may have someone who’s been in your practice for 20 years, and because of their length of service and experience, you may be paying them above market. But the patients know them and like these people. The patients build relationships with your nurses or whomever, and it’s hard to put a price on that.” Increasing Efficiency Several advances in technology can help practices become better organized, said Mike Ingram, administrator of the Autonomic Disorders and Mitral Valve Prolapse Center in Birmingham. “Electronic medical records is certainly a big issue that’s very cost-prohibitive in small practices like mine (three physicians), but it’s something that’s very much on the cutting edge and helpful in many ways,” Ingram said. “There are some companies out now that are providing a service that is sort of an interim step toward the electronic medical records, having to do with imaging the documents that you have. It’s one step short of going to a full-blown EHR (electronic health records) system.” CardioVascular Associates is in the process of converting to electronic medical records, Cockrell said. Electronic records have reduced monthly transcription costs more than 80 percent at CVA, he said, “but we spent a lot of money getting to this point” of payback. Another recent positive development is electronic recredentialing of physicians. “Not every payer utilizes that, but for the ones who do, it makes it a lot more simplified,” Ingram said. “You get online updates of your physicians’ credentials so that you don’t have to fill out volumes and volumes of forms on every different payer. A number of the payers have combined together, and they use the same credentialing data that you’re able to input online.” Maximizing Resources While expenses continue to rise, practice managers look for ways to cut costs. Of course, some expenditures cannot be reduced, such as office leases and malpractice insurance premiums. “Unlike any other business, we can raise fees all we want to here, and we’re not going to make a dollar more than what Medicare and the private payors want to reimburse,” Cockrell said. “So we have to be very aggressive about maximizing the use of the resources we have and paying attention to the dollars that go out of here.” Cockrell recommends bundling office supplies with medical supplies through the same vendor to ensure a bigger discount. “We try to roll things together as much as we can so that we can get volume pricing,” he said. “For a bigger group like CVA, that’s a little bit easier for us because of our volume. If I’m a small group, I’ve got to look for a group purchasing organization, somebody that I can tag onto.” Another area where CVA saves money is service contracts, Cockrell said. “Unless it’s a really unusual situation, we don’t buy service contracts on equipment,” he said. “The reason is that the cost for the service contracts is so high and most of this equipment rarely breaks. My guess is we save about $400,000 a year by not buying service contracts but instead paying cash for any repairs. Look at whether or not it’s valuable to have a service contract. If it’s a really special piece of equipment that you’ve got to have and you can’t afford to be down, then sometimes a service contract is worth it.” November 2007