The Loss to Physician Practices is Putting Significant Financial Pressure on Hospitals, Health Systems and Academic Medical Centers

The median loss on employed physician practices is $250,000 (American Medical Group Association - AMGA 2023). The loss to physician practices is putting significant financial pressure on hospitals, health systems and academic medical centers. Better-performing practices are focusing on five areas to improve financial performance.

• Compensation
• Payor Contracts
• Revenue Cycle Management
• Outsourcing non-core Functions
• Culture

Compensation

• Better-performing practices align compensation with production and practice performance.
• As providers are more productive, compensation increases.
• Consider production measured by charges or Relative Value Units (RVUs).
• Tie compensation to overall practice income, which includes both net collections and costs.
• Sharing financial improvement with physicians has been a highly effective strategy in improving financial performance.

Payor Contracts

• Perform annual review of payor contracts to ensure market rate compensation.
• It is important that practices update their charge master and allowable fees annually.

Revenue Cycle Management

• Ensuring all charges are accurately captured is key. 
• Perform regular audits to ensure charges are coded accurately.  
• Implement a solid time-of-service collection process utilizing automation. 
• Collect deductibles for office visits prior to the visit. Collect deductibles and co-pays prior to scheduling surgeries and elective procedures.
• Benchmark revenue cycle performance.
• Monitor revenue cycle management performance and compare to national benchmarks. While benchmarks vary by specialty, key metrics are:
  
  • Net Collection Ratio: 95%
  • Days in Receivable: 35 days
  • Time of Service Collections: 98%

Outsourcing

• Practices should consider outsourcing non-core functions such as revenue cycle management and credentialing.

Culture

• Culture drives performance. Practices where physicians feel valued and appreciated consistently do better financially.
• Develop an annual business plan for each provider which sets the practice goals and priorities.
• Physicians want a real voice in how the practice operates.  Have open communication to resolve issues.

If you want more insights on strategies to improve the financial performance of your employed physician practices, please go to  https://www.luminahp.com/medical-group-strategy or email jpeters@luminahp.com.