Four Simple Steps to Conduct an Assessment of Your Practice

A generation ago, healthcare providers could count on having a stable, financially rewarding career by achieving a few straightforward objectives:

• Complete clinical training and attain requisite licenses/certifications;

• Deliver excellent patient care;

• Document, code, and collect payment efficiently;

• Control overhead and operating expenses; and

• Build and grow strong referral and patient relationships.

In the 21st century, the world of medical practice is no longer quite so simple. Providers now are subject to merit-based reimbursement models designed to pay for performance. They must report their compliance with treatment protocols, their outcomes for episodes of care, costs of care, and their activities in coordinating care with other members of a patient’s care team. They must utilize electronic medical records in a “meaningful” way, all while complying with ICD-10 coding, new documentation requirements, and regulatory guidelines.

How can a practice leader establish a plan for success in light of all of these complex changes? Begin with a practice assessment. An assessment by the practice manager or consultant will help you evaluate your practice’s current strengths and deficiencies, then set priorities that will drive its future success.

Practice Assessment Step 1: Determine the Owner’s Long-Term Goals and Motivation

Investigate the practice owner’s strategic objectives and timeline. Is the provider at the beginning, plateau, or wind-down phase of his or her career? Regardless of the phase of the owner’s career, financial success is essential to maintaining a practice’s independence and sustainability, to growing the value of the enterprise, and to making it attractive and valuable to a prospective buyer at a strong multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization).

A practice must make money for the owner, even if he or she elects to see fewer patients personally. The talent, facility, referral base, and operations of the practice should be successful enough to run smoothly and profitably with or without the owner as a full-time provider. If the owner has not yet achieved that, the practice manager or consultant must put the practice on course to build its “enterprise value,” which can sustain and appreciate over time, and will be an asset that can be sold at an attractive future valuation.

The practice manager or consultant must consider strategies to develop referral relationships, improve operations, market the practice, grow revenues, and build cash flow over time. Growth can be achieved by adding midlevel providers, specialty equipment, or service lines to distinguish the practice from its competitors and diversify its sources of income.

Practice Assessment Step 2: Assess Practice Financials

How is the practice performing relative to its long-term objectives and relative to its peers? Pull the profit-and-loss statements and balance sheets for the last two or three years. Have practice profits and net assets grown, plateaued, or shrunk? What was the most significant category of that change? If the top line, or revenues, shrank, it is time to drill down to evaluate why.

Review patient volume and see whether fewer patients are visiting the practice than before. If so, are fewer calling to make appointments? Is the provider working fewer clinic days? Has a competing practice begun to lure away patients? Ask more questions of the front desk staff and even local sales reps to learn what your patients are saying, where they may be going, and why they are not continuing their care with this practice. Evaluate the causes of this negative trend by “mystery calling” former patients. Consider e-mail marketing to patients; get active on social media; and promote your practice’s unique services, specialties, or even extended hours on one day per week. Institute a patient recall program to get patients back in for annual visits. Your patients need to hear that you value their health and want to maintain their relationship with your practice.

The majority of outstanding insurance A/R should be 35 days or less.

Review insurance accounts receivable (A/R). If insurance A/R is increasing, take a closer look at the revenue cycle process. Confirm that patient demographics and insurance eligibility are confirmed with every visit. Be certain a certified coder (trained in ICD-10) is entering charges and confirming that the code(s) used have appropriate supporting documentation. Check that denials are worked and clean claims are resubmitted. Review electronic remittances and ensure that insurance payments are posted by a staff member other than the individual who entered the charge (to avoid inappropriate write-offs).

Review insurance aging. The majority of outstanding insurance A/R should be 35 days or less, according to Medical Group Management Association metrics. Payers such as Medicare typically process timely filed payments within 14 days, so the vast majority of outstanding payments should be less than one month. Table 1 shows metrics for the target aging distribution.

If the practice’s A/R differs significantly from those metrics, a coding and documentation audit may be necessary. There may be a substantial number of denials due to coding errors, modifiers may have been missing, prior authorizations may not have been obtained, or certain codes may now be bundled that previously were paid separately. Make notes from each explanation of benefits by payer and by codes to monitor common themes, and, if a change is identified, communicate that change to providers and coding staff to avoid future errors.

Review patient A/R. With the proliferation of health insurance exchange plans and high-deductible plans, every patient’s eligibility and benefits must be checked at each visit. If a high copay or deductible is due, collect it at check-in.

Update your patient financial responsibility form to authorize the practice to maintain a credit card on file (encrypted to protect patient’s account number) through your merchant service card processor, and obtain the patient’s permission to charge any remaining patient responsibility that may remain after insurance adjudication. For patients who do not grant such authorization, reach out to them via your secure, private patient portal, inform them that they have a balance due with the practice and permit them to pay online via credit card. If balances remain unpaid, send statements of increasing intensity every two weeks for four statement cycles, and thereafter follow your practice’s standard debt collection protocols.

Practice Assessment Step 3: Measure Provider Productivity

Estimate each provider’s current volume and productivity. Using a calendar spreadsheet, enter the initials of each provider scheduled to see patients in clinic each “AM” and “PM” for every day of the month. Count how many half-day clinic sessions each is available in the office each month. Review two or three months of past clinic schedules to calculate the average actual number of patients each provider has treated during each half-day session. You may observe very different levels of productivity among providers because some providers work more quickly than others. This may be due to the nature of the patients that they treat (e.g., one provider may see more older patients with more complex illnesses than other providers), their speed with documentation, or even their use of midlevel providers. This report card will highlight their relative productivity, and encourage a careful reflection on their relative pace, patient mix, and efficiency, and enable all providers to open a dialogue on how each of them can work smarter and be more productive.

Calculate the financial impact of a moderate improvement in productivity. Compute the average payment (based on Medicare rates for, say, a Level 3 established patient office visit), and calculate the “opportunity cost” of the less productive provider’s lower volume, so providers have a sense of how their productivity has impacted their bottom line. View the most productive provider’s monthly volume and compare it to the monthly volume of the least productive. Multiply this difference by the average reimbursement per visit to compute how much practice revenues could grow if the lower producer’s output increased to a volume closer to that of the top producer.

Although achieving a productivity improvement that equals that of the top producer is hardly ever achieved or sustained, this will open the dialogue for providers to exchange tips to speed patient turnover, work-ups, conversation with the patient, evaluations, computer data entry, and so on. Top producers may be excellent mentors to help lower producers learn to practice good medicine more efficiently and more profitably.

Practice Assessment Step 4: Assess the Talent and Morale of the Team

Labor is the single largest expense category at the practice, totaling between 25% and 30% of total revenue. Your human resources, however, often are not regarded as the “asset” that they should be. In a service business such as healthcare, your staff is your “front line,” and staff members can make the patient experience either wonderful or horrible, which could taint an otherwise outstanding provider encounter. Your people matter, and can make an average practice great, or can bring down patient satisfaction scores of an otherwise extraordinary episode of care.

As a critical part of your practice assessment, interview every member of the medical practice’s staff to learn about their personal backgrounds and qualifications for their job, the adequacy of the resources that they use every day on the job, the culture of the organization, and what they identify as opportunities for improvement. They may be unhappy and frustrated or very optimistic about the practice as a place to work and deliver quality care. It is valuable to ask those on the practice’s front line how they feel about the practice, because invariably their attitude shows through and is immediately transmitted to patients.

Evaluate team members’ skill sets and how well their role is matched with their own training and aptitudes. An employee who is not a “people person,” for example, is usually ill suited for the front desk or telephone clerk, and may be better suited for medical records, scheduling, or billing. If the culture of the organization is not conducive to learning, process improvement, or open communication among management and the staff, problems are not easily resolved, frustration builds, and poor customer service is the result.

Investment in your human assets almost always yields a positive return on investment.

Do the employees have suggestions or recommendations to improve patient flow, reduce wait times, raise patient satisfaction, and conserve expenses? They are often the best source of ideas, and many of their recommendations do not cost money or require major reorganization. They may be as simple as streamlining the patient registration process, shifting clinical tasks, or even relocating work spaces to another area to improve efficiency. Other suggestions would include enrolling staff in skill building classes or encouraging them to achieve certification in their area to “raise the bar” and invest in staff development. Investment in your human assets almost always yields a positive return on investment.

Conclusion

A practice assessment is an overall review of the practice’s effectiveness in delivering excellent patient care efficiently, professionally, and in a manner that permits sustained or improving profitability over time. The practice manager/consultant can use an assessment to drill down to evaluate the practice’s current deficiencies, and identify future opportunities to correct them and position the practice for future growth.

The steps to preparing a practice assessment are simple:

• Determine the long-term goal of the practice’s owner and his or her motivations.

• Thoroughly review the practice financials and understand the drivers of that performance.

• Measure provider productivity and develop strategies to improve it.

• Assess the talent and morale of the team of professionals working at the practice, and consider their input for ideas on process improvement and expense reduction.

With this foundation of information, the practice manager/consultant can get the practice on track and position it for both short- and long-term success!