The Cost of Doing Business in Medical Practice

Transcription

1 The Cost of Doing Business in Medical Practice Tennessee MGMA April 1, 2016 Gatlinburg, TN Owen J. Dahl, MBA, FACHE, CHBC, LSSMBB 1 2 Attendees will be able to... Identify how to determine the cost to see a patient Explain costs and the issues surrounding management Design practical solutions on managing the practice Increase the bottom line through implementation and effective financial management 3 1

2 Why discuss costs? Revenues are going down! Payment models are changing Contract rates are going down, are your contracts profitable? Are all services offered profitable? Should you close/open an office? Invest in ancillary services? ROI? 4 Physician Payment Reform National Commission on Physician Payment Reform, March 2013 Transition from FFS in next 5 years Payers eliminate stand alone FFS Transition to payment based on quality and value Re-calibrate FFS to change behavior toward quality and cost effectiveness, penalize behavior for over use or mis-use of servic3 HHS goal Alternative Payment Models, APM % FFS payments to quality or value % All Medicare FFS % % MACRA No SGR Payment options MIPS or APM NO more MU or PQRS but... 2

3 MIPS Composite Score 10 Cost use of resources 15 Clinical Practice Improvements 50 Quality - PQRS 25 Advancing care - MU 7 MIPS Incent v Adjust Based on the MIPS composite performance score, physicians and practitioners will receive positive, negative, or neutral adjustments up to the percentages below. MIPS adjustments are budget neutral. A scaling factor may be applied to upward adjustments to make total upward and downward adjustments equal /- 4% /- 5% /- 7% 2022 = +/- 9% 8 APM APMs give us new ways to pay health care providers for the care they give Medicare beneficiaries. For example: From , pay some participating health care providers a lumpsum incentive payment. Increased transparency of physician-focused payment models. Starting in 2026, offers some participating health care providers higher annual payments. Accountable Care Organizations (ACOs), Patient Centered Medical Homes, and bundled payment models are some examples of APMs. Value-Based-Programs/MACRA-MIPS-and-APMs/MACRA-MIPS-and-APMs.html 9 3

4 Careful when discussing costs Global = payer costs Vs. Practice = daily costs of operation How do you manage these issues? Clinically involve your physicians 10 How much does it cost? See a patient, routine visit? Maintain that patient Bring on a new patient? Hire a new employee? Fix a denial? Send a statement? 11 Knee Surgery 2012 Charge Payment % total GR % Anesthesia $5, $3, % 59.3% Orthopedic surgeon $5, $2, % 41.5% PA Assistant Hospital $56, $19, % 34.2% PT $3, $2, % 69.6% Pharmacy $1, $1, % 100.0% DME $1, $ % 17.0% Primary care $ $ % 44.9% X ray $46.00 $ % 75.0% Lab $ $ % 74.9% Total $74, $29, % 39.0% 4

5 Hip Surgery 2013 Charge Payment % total GR % Anesthesia $6, $3, % 56.0% Orthopedic surgeon $9, $1, % 19.7% PA Assistant $9, $ % 3.1% Hospital $44, $28, % 64.3% PT $00.00 $ % 0.0% Pharmacy $ $ % 84.2% DME $58.00 $ % 31.9% Primary care $ $ % 39.0% X ray $ $ % 42.5% Lab $ $ % 58.7% Total $70, $34, % 49.6% Alternative Methods of Payment Fee for Service (FFS) FFS + Shared Savings Episode Payment Partial Comprehensive Care Payment + P4P Comprehensive Care (Global Payment) Capitation Fee for Service current system Productivity rules the day, paid for what you do at Medicare or negotiated rates Benefits: No change in current thought process Risks: Authorization/approval Cost, time involved Alternative care plan directed to you 5

6 Capitation the way it was/is PMPM If 100% cap, maximum dollars known Carve out possibilities Work to reduce costs or Increase patient numbers Episode Bundled Global Payment Identifies time period + Include all services Physicians Patients Consultants RAPER Hospital Lab Radiology Emergency Department Observation, Home Health, SNF, etc. Patient Types and Delivery Options Diagnosis and Treatment Specific Treatment Chronic Care Wellness/prevention 6

7 Different Payment Systems Solve Different Cost/Quality Problems High Amount/ Variation Of Cost Per Episode Low Episode payments Examples: Hip fracture Labor & delivery Fee for service Examples: Simple injuries Immunizations Strep throat Low Comprehensive care pay + Episode payment Examples: Heart disease Back pain Comprehensive care pay Examples: COPD CHF High Size/Variation in Frequency of Episodes Per Condition Quick Look 6 Doc ENT Days in AR 137 Aged Accounts Receivable >120 days $1,932, Gross Collection Ratio 57.45% Net Collection Ratio % Total Refunds $259, Total patient balances sent to CA $50, Salaries of staff including OT $2,470, Salaries of employed physician $151, Total of all salaries $2,621, # FTE's including employed physician 689 Overtime Hours 4,203 Overtime salaries for entire practice $104, Overtime salaries - nursing only $47, Drugs&Supplies-Doc Directs/Clinic/Audio $197, Drugs & Supplies Expenses Allergy Only $192, Drugs & Supplies Expenses Total $390, Overhead Expense Ratio for Practice 59.59% Physician No show rate 2.30% 20 2,500 patients 6,250 visits per year 10,188 Total RVU per MGMA data 5,780 wrvu per MGMA data 50% Medicare 4 visits per year 50% other 1.5 visits per year Assumptions 240 work days, 8 hour day = 1,920 office hours per year Schedule patient visits 6.5 hours per day Twenty six patients seen per day Four patients seen per hour One new patient per work day Twenty five established patients per day Established patients scheduled for 15 min visits New patients scheduled for 30 min 21 visits 7

8 How to calculate cost Total expenses for period of time divided by number of patients seen during that same time period, e.g., one year. $365,761/6,250 = $ Costs Fixed costs Costs that tend to remain constant regardless of changes in the volume of business Variable costs Costs that tend to vary in total as business activity varies Direct costs Costs that are directly related to services provided Indirect costs Costs that are necessary but do not relate directly to services provided 23 Financial Statement Overall Practice Activity % Income Per Visit Annual Cost Category $579, % $ All Sources Income Expenses Bank charge $ 1, % $ 0.16 V/I Billing service $ 16, % $ 2.62 V/I Contributions $ % $ 0.03 V/I Depreciation $ 8, % $ 1.35 F Dues & Sub $ 2, % $ 0.46 V/I Ins - Bus & Mal $ 12, % $ 1.98 F Ins - Employee $ 16, % $ 2.60 V/D Lab/outside dx $ 30, % $ 4.89 V/D Legal & Acct $ 6, % $ 0.98 V/I Marketing $ 9, % $ 1.45 V/I Med supplies $ 33, % $ 5.38 V/D Ofc exp $ 17, % $ 2.87 V/I Payroll $136, % $ V/D Payroll tax $ 10, % $ 1.69 V/D Rent $ 55, % $ 8.88 F Rep & Maint $ 1, % $ 0.18 V/I Taxes $ 1, % $ 0.21 V/I Telephone $ 6, % $ 1.01 F Training $ % $ 0.01 V/D Total $365, % $ Net income $214, % $

9 Overall Practice Activity Annual % Income Per Visit Cost Category All Sources Income $579, % $ FVDI Fixed Indirect Direct Expenses Bank charge $ 1, % $ 0.16 V/I $ 1,011 Billing service $ 16, % $ 2.62 V/I $16,368 Contributions $ % $ 0.03 V/I $ 183 Depreciation $ 8, % $ 1.35 F $ 8,410 Dues & Sub $ 2, % $ 0.46 V/I $ 2,893 Ins - Bus & Mal $ 12, % $ 1.98 F $12,400 Ins - Employee $ 16, % $ 2.60 V/D $ 16,255 Lab/outside dx $ 30, % $ 4.89 V/D $ 30,548 Legal & Acct $ 6, % $ 0.98 V/I $ 6,131 Marketing $ 9, % $ 1.45 V/I $ 9,055 Med supplies $ 33, % $ 5.38 V/D $ 33,618 Ofc exp $ 17, % $ 2.87 V/I $17,912 Payroll $136, % $ V/D $136,094 Payroll tax $ 10, % $ 1.69 V/D $ 10,581 Rent $ 55, % $ 8.88 F $55,491 Rep & $ 1, % $ 0.18 V/I Maint $ 1,123 Taxes $ 1, % $ 0.21 V/I $ 1,337 Telephone $ 6, % $ 1.01 F $ 6,299 Training $ % $ 0.01 V/D $ 53 Total $365, % $ $82,600 $56,013 $227, Net income $214, % $ % 15.3% 62.1% 25 Costs Graph C O S T Fixed costs $283,161 Variable Costs $82,600 Visits 26 Financial Statement Overall Practice Activity Annual % Income Per Visit $579,794 All Sources Income 100.0% $ Overhead Expenses Bank charge $ 1, % $ 0.16 Billing service $ 16, % $ 2.62 Contributions $ % $ 0.03 Depreciation $ 8, % $ 1.35 Dues & Sub $ 2, % $ 0.46 Ins - Bus & Mal $ 12, % $ 1.98 Ins - Employee $ 16, % $ 2.60 Lab/outside dx $ 30, % $ 4.89 Legal & Acct $ 6, % $ 0.98 Marketing $ 9, % $ 1.45 Med supplies $ 33, % $ 5.38 Ofc exp $ 17, % $ 2.87 Payroll $136, % $ Payroll tax $ 10, % $ 1.69 Rent $ 55, % $ 8.88 Rep & Maint $ 1, % $ 0.18 Taxes $ 1, % $ 0.21 Telephone $ 6, % $ 1.01 Training $ % $ 0.01 Total $365, % $ Net income $214, % $

10 Bottom Line Financial statement Salaries V/D/I Occupancy costs - F Malpractice - F Supplies - V Telephone - F Phone Marketing All other Percentages 20%+ 6-8% 3-12% 1-8% 2-5% 1% 2% to total 50% (or greater) 28 Overhead Defined as the cost to run a business Is the doctor overhead? A cost? Overhead is your cost of doing business In your practice is it too much? Is it just right? Measure by determining if you are getting the most out of your cost, the most from your staffing, etc. 29 Overhead Watch overtime (V) Employee Staff well, hold people accountable (V) 20+% Benefits cost-sharing, capped plans (V) Telecommunications cost consolidate, eliminate (F/V) Malpractice don t be over-insured, attend training (F) Supplies review systems, protocols (V) Shopping online (V) Your own printing and desktop publishing (V) Space utilization are you in the right location (F) 30 10

11 Background look Item $$$ Total cost $ 365,761 Total revenue $ 579,794 Cost per visit (6,250) $ Cost per hour (1,920 hours) $ Average cost per patient in an hour $ Revenue per hour $ Cost per RVU $ Cost per wrvu $ Cost per visit $58.52 Total Cost Per visit $ 365,761 6,250 Staff cost $ 136,094 $ Facility cost $ 56,614 $ 8.68 Supply cost $ 51,530 $ 7.90 Depreciation $ 8,410 $ 1.29 Communication $ 6,299 $ 0.97 Physician $ 214,033 $ Cost per RVU and wrvu $35.90/w $63.28 Total Cost Per RVU Per wrvu $ 365,761 10,188 5,780 Staff cost $ 136,094 $ 8.44 $ Facility cost $ 56,614 $ 3.52 $ 6.20 Supply cost $ 51,530 $ 3.20 $ 5.63 Depreciation $ 8,410 $ 0.54 $ 0.95 Communication $ 6,299 $ 0.39 $ 0.70 Physician $ 214,033 $ $

12 Cost per hour $ Total Cost Per Hour $ 365,761 1,920 Staff cost $ 136,094 $ Facility cost $ 56,614 $ Supply cost $ 51,530 $ Depreciation $ 8,410 $ 4.38 Communication $ 6,299 $ 3.28 Physician* $ 214,033 $ *Could include all hours worked and divide into total income (bottom line) to determine the cost 34 Cost per visit/hour $47.63 Total Cost Per visit/hour $ 365,761 Staff cost $ 136,094 $ Facility cost $ 56,614 $ 4.45 Supply cost $ 51,530 $ 4.04 Depreciation $ 8,410 $ 0.68 Communication $ 6,299 $ 0.50 Physician $ 214,033 $ Cost per hour Established Patients 25 seen per day in 6 hours = 4.2 per hour $ New Pt 1 seen per day $ TBABC Time Based Activity Based Cost Allocating overhead to where and when it is used Activity Cycle time for each activity Cost for each activity hours, minutes 36 12

13 Patient Cycle Time Input Each step has a series of tasks and takes a certain amount of time! Rooming Phys Enter Visit Exit Minutes cumulative time Postvisit action What are the Gaps in between? Outcome (Not just the process; is the patient satisfied?) Patient arrives Patient roomed Physician performs assessment and plan Post-visit work performed 37 Takt Time Time available Services performed Includes: Prep In Room Documentation Eight hour day patients to be seen Minutes per patient minute break 30 Time Available 450 Minutes per patient 18.0 Six hour day 360 Minutes per patient Break Even Analysis Break even Revenue per visit $ Total expenses $ 365, Expenses per day $ 1, Need to see to BE

14 Tests and procedures in the office Identify costs associated with audiology and allergy departments Staff, supplies = variable Equipment and space = fixed If possible, identify based on top 5 10 procedures done Consider using RVU and apply all overhead to these processes as an option Questions: Return on investment = meeting expectations? 40 Hospital activity Carve out MA and most other clinic support Retain billing costs Key factor is time associated with visits Consider the use of RVU Questions: Is the time to walk/drive back and forth factored in and does this service bring value to the practice? Real question of cost benefit related to time, remember $ is the total cost per hour (slide 21) Is this a marketing effort or a direct financial return? 41 Managed Care Negotiation Cost to See a Patient $ $ - Medicare Allowance Managed Care Allowance $74.16* $109.29* What is your percentage of profit per visit? = ~26% * Houston 2016 rates 42 14

15 Benchmark Evaluate your practice in terms of best practice leading to improving some aspect of performance, function, financial or process improvement Methodology Identify problem areas Identify how you did it before (how others do it) Identify leading edge practices Implement new and improved business practices 43 Two key principles 1. If you don t measure it, you can t change it Description Comparison Context 2. If you don t value it, you won t change it Benefit 44 Dashboard Benefits of using digital dashboards include: Visual presentation of performance measures Ability to identify and correct negative trends Measure efficiencies/inefficiencies Ability to generate detailed reports showing new trends Ability to make more informed decisions based on collected business intelligence Align strategies and organizational goals Save time over running multiple reports Use in sequence Practice wide Department Location Doctor 45 15

16 Finance Dashboard - $$ Charge, Pay, Adj DAR Gr Coll % Aging C A P E R P Income Statement 4 key protocols Rev per office Rev per doctor 46 Four categories of quality costs 1. Prevention incurred to prevent defects Training 2. Appraisal incurred for monitoring and inspection Quality control and audits 3. Internal failure incurred when a defect is found before service provided Re-work 4. External failure incurred for providing service to customer Warranty, loss of goodwill, other talking, choosing a competitor, law suits Culture of Transition Use symbols which can help remind you of a change in the way things are done or in an attitude. Toyota uses a rope (called Andon Cord) to stop the assembly line when something is wrong. Do a daily or weekly huddle, again open communication, but use this time to review what happened yesterday and what may be the bottle necks for the day ahead. Instead of donuts, try fruit for your morning snack! Share positive stories, successful events with patients Recognize each other with a friendly greeting in the morning, thank each other for a job well done, find ways to reinforce the behavior that you want and expect. Talk and think positive, it is easier to draw on strengths rather than remove barriers 48 16

17 Scenarios Scenario 1 Scenario 2 Scenario 3 Basic Office Visit four times a year Patient has complications Payments are global Scenario 1 FFS Uncomplicated Physician Only Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Total $73.00 $73.00 $73.00 $73.00 $ Costs Office $53.63 $53.63 $53.63 $53.63 $ Income $19.37 $19.37 $19.37 $19.37 $77.48 Margin 36.1% Scenario 2- FFS Complicated Physician Only Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Total $73.00 $73.00 $73.00 $73.00 $ Costs Office $53.63 $53.63 $53.63 $53.63 $ Income $19.37 $19.37 $19.37 $19.37 $77.48 Margin 36.1% Hospital (4 days) $ $ $ (* 2) $38.23 $38.23 $ $71.03 $71.03 $ Four day stay $ $ $ Total Revenue $ $ $1, Cost 8 days $ Emergency $60.05 $60.05 $60.05 $60.05 $ Cost 4 visits $ Total Revenue ($ $1, ) $1, Total costs ($ $ ) $ Income $ Margin 44.6% 17

18 Scenario 3 Global Payment No FFS Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Total Total scenario 1 $ Total scenario 2 $ 1, Global Payment $ $ $ $ $ Conclusion Episodic, bundled or capitation will be part of our future Know what your COSTS are Know the components of each cost category Prepare for the future NOW Control the right costs Seek to improve operations Patient first, profit will follow Contact Information Owen J. Dahl odahl@owendahlconsulting.com To order a book Use promo code dahl-client 54 18