Discussion Outline. Evolution of Physician Practice Practice Operations. Questions and Other Topics. Evolution of Physician Practice

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1 Physician Practice Management Oklahoma Academy of Family Practice June 20, 2014 Presented by Steve Powell Vice President Delivery System Integration SSM Health Care of Oklahoma, Inc. Discussion Outline Evolution of Physician Practice Practice Operations Practice Finances Questions and Other Topics Evolution of Physician Practice Characteristic Past Present Future Practice Setting Solo Small Group Physician owned groups Employed Groups Ownership Independent/Family Business Corporations and Partnerships Hospital/Health Systems Automation Limited Practice Management Systems Fully automated EHR/EMR with Integration Health Plans FFS Commercial Local Negotiable Commercial consolidated Governmental increasing Less negotiable Predominantly governmental Possible single payor Cost/outcomes oriented reimbursement Practice Based Services Professional Professional Diagnostics ASCs Hospitals Professional Patient oriented Integrated Physicians Dedicated Strong work ethic Self sacrificial Independent Patient oriented More balanced Business oriented Time valued Patient oriented Threatened? Patients Adoring Trusting Confident Grateful Informed Challenging Suspicious? Service sensitive 1

2 Human Resources Culture Expectations Hiringi Supervision Evaluations Compensation/Profit Sharing Efficiency Telephone management Appointment scheduling Office space 2

3 Quality and Productivity Patient surveys HEDIS measures/star Ratings Outcomes Monitoring productivity Charges Collections Visits RVUs Strategic Development and Marketing Mission/vision statement Understanding growth sources Word of mouth referral Pi Primary care physicians ii Emergency rooms Specialists Health plans Goals Strategies Monitoring and measurement Computer Systems Practice management system Electronic health records Patient directed activities Registering Scheduling Results reporting 3

4 Exercise Setting Expectations Punctuality and reliability Answering the phone Returning phone calls Communication i with other staff Accommodating patients Resolving conflict Patient collections Dealing with patient complaints Budgeting Activity projections New services Revenue projections Discounts Operating expenses Fixed Variable Zero based budgeting 4

5 Billing and Collections In house or outsourced Patient demographics Insurance verification Benefits determination Time of service collections Documentation and coding Timely charge entry Aggressive and consistent follow up Collection agencies Early out programs Billing and Collections Processes 0 to 30 Days 30 to 60 Days 60 to 90 Days Collect/enter Demographics Explain payment policies Confirm benefits Obtain authorizations Code services Enter charges Submit claims Correct rejects Reprocess Process patient statements Initiate appeals Initiate appeals Insurance follow up Customer service calls Begin patient calls on balances Process patient statements Initiate appeals Escalate Insurance follow up Provider rep involvement Aggressive patient calls on balances Process patient statements Outsource failed arrangements Billing and Collections Processes 90 to 150 Days 150+ Days Escalate Insurance follow up Provider rep involvement Aggressive patient calls on balances Notify patients of potential for outsourcing Review outsource list Outsource failed arrangements Outsourcing of returned mail Outsourcing of refusal to pay Process patient statements Outsource past due accounts Consider termination of outsourced patients 5

6 Monitors and Benchmarks Days in Receivables Total accounts receivable divided by average daily charges Average performance 52 days Benchmark performance days Contractual Discount Insurance write-offs divided by gross charges Average performance 42% Benchmark performance 25-30% Net Collection Percentage Total collections divided by gross charges less insurance write-offs Average performance 97% Benchmark performance 100% Accounts over 90 days Total accounts receivable over 90 days old Average performance 28% Benchmark performance Less than 20% Operating Expenses Payroll Expenses 4.33 FTEs per Physician (down from 4.82 five years ago) 33% of Revenue (up from 30% five years ago) Supplies 9% of Revenue Reimbursement issues Inventory costs Occupancy Costs 7% of Revenue Malpractice Insurance 2% of Revenue Financial Statements Balance Sheet Snapshot of the overall financial health of the organization since inception Assets Cash Accounts receivable Supply inventory Property (net of depreciation) Equipment and furniture (net of depreciation) Liabilities Unpaid bills Salaries owed Taxes due Loans to be paid Equity the difference between assets liabilities (theoretical value after liquidation) 6

7 Financial Statements Income Statement or Profit & Loss Statement Monthly/annual statement of profitability relative to budget or prior period Revenue Expenses Profit PHYSICIAN PRACTICE, INC. BALANCE SHEET FISCAL YEAR ENDING 12/31/2010 Assets Current Assets Cash 3,500 Accounts Receivable 85,000 Less Uncollectable Accounts 12,000 Supply Inventory 45,000 Total Current Assets 145,500 Fixed Assets Building 900,000 Less Depreciation (60,000) Equipment and Furniture 75,000 Less Depreciation (21,430) Total Fixed Assets 893,570 Total Assets 1,039,070 Liabilities and Owner Equity Short Term Liabilities Accounts Payable 25,000 Salaries Payable 29,020 Current Portion of Long Term Debt 102,000 Taxes Payable 17,500 Total Short Term Liabilities 173,520 Long Term Liabilities Note Payable Building 765,000 Total Long Term Liabilities 765,000 Total Liabilities 938,520 Equity Owner Capital 135,000 Retained Earnings (34,450) Total Owner Equity 100,550 Total Liabilities and Equity 1,039,070 PHYSICIAN PRACTICE, INC. INCOME STATEMENT FISCAL YEAR ENDING 12/31/2010 Actual % of Rev Revenue Gross Charges $ 1,025,619 Health Plan Discounts $ 358,967 35% Net Revenue $ 666,652 Expenses Salaries - Physicians $ 185,000 28% Salaries - Non-physicians $ 188,072 28% Benefits - Physicians $ 35,639 5% Benefits - Non-Physicians $ 47,018 7% Med/Surg Supplies $ 33,333 5% Non Med/Surg Supplies $ 20,000 3% Purchased Services $ 26,000 4% Utilities $ 30,000 5% Insurance $ 10,000 2% Liability Insurance $ 15,000 2% Interest Expense $ 43,000 6% Property Taxes $ 7,500 1% Bad Debt $ 6,667 1% Depreciation $ 40,714 6% Total Expenses $ 687, % Net Income $ (21,289) -3% Practice Overhead $ 467,303 70% 7

8 Performance Ratios Overhead Percentage Non-physician expenses divided by net revenue Average Performance 74% Benchmark Performance 57% Profit Margin Net income divided by net revenue Average Performance 0 to 5% Benchmark Performance 0 to 5% Debt to Equity Ratio Total liabilities divided by owners equity Average Performance 50% Benchmark Performance 35% Current Ratio Current assets divided by current liabilities Average Performance 1.5:1 Benchmark Performance 2:1 Financial Exercise From PPI s Balance Sheet what would you conclude about the financial health of the practice? What weaknesses exist? What is PPI s Current Ratio? What is PPI s Debt to Equity ratio? What would you conclude about PPI s Accounts Receivable? What are the days in Accounts Receivable? What would you conclude about the supply inventory? From PPI s Income Statement what would you conclude about the performance of the practice? Are charges healthy? How does the discount rate compare to benchmarks? What expenses appear to be excessive? What is the overhead percentage? Are payroll expenses reasonable? What opportunities exist? Financial Exercise What strategies would you suggest to improve the health of PPI? Bonus Question How many years has this practice been in operation? 8

9 Questions and Other Topics Corporate Structure Employment Agreements Laws and Regulations Credentialing and Contracting 9