Physician Business Ideas: Five Levers of Physician Profitability

As explained in my last blog, one of the main purposes of this blog is offer specific information to help physicians improve performance (quality of care and outcome), productivity (number of patients seen), and profitability (cash flow and bottom line).

To give physician readers a crisp summary of how increased profitability can be achieved, I conducted the following interview with John McDaniel’s, president and chief executive officer of Peak Performance Physicians, a 21 year old practice management firm in New Orleans with physician clients throughout the United States.

Here is John’s advice, as crystallized into “five levers of profitability.”

The first lever deals with reimbursement systems. Under that umbrella is coding: 80% of doctors still under code. They need to compare their coding against national established benchmarks. Also they need to look at the competitiveness of their fee schedule and their managed care contracts. Coding, competitiveness of fee schedule, and contracts with managed care, the three C’s if you will, are all reimbursement systems that need to be tended to.

The second lever deals with billing and collection. It is about how to improve cash flow. The first place we look is at over-the-counter collections. How much are they collecting at the front window? If you’re a primary care doctors, 20% to 25% of your income will come from the front office in terms of co-payments, deductibles, outstanding balances, and any non-covered services. If you’re a specialist, 12% to 15% of your income will come from over-the-counter collections. In addition, we ask: how efficient is the practice in the initial billing of claims, their rebilling of claims, and how they managed denials and rejections – how quickly can they turn those claims around and rebill them.

The third lever is accounts receivable management. For most doctors, it is their biggest asset. It exceeds the equity they have in their homes. It exceeds the equity they have in their pension plans. Basically in most practices, it is not that most accounts receivables are mismanaged; they are unmanaged. There are strategies for patient balance accounts and for collecting insurance accounts that are over 60 days old.

The fourth lever is operations improvement. This includes everything within the four walls of the practice from staffing, to scheduling, to what type of ancillary services they could offer. These services may be a convenience to the patient as well as a revenue producer. We also look at the compliance processes to make sure they’re complying with coding, OSHA, CLIA, HIPPA and so forth.

The fifth lever is practice growth. What are the doctors doing to increase his or her number of patients? If they are a primary care doctor, they only have to do two things: one, take care of their patients, and two, recall them on an annual basis. In my travels across the United States, I have yet to meet a practice who sends out notices that says it’s time for your annual visit. Your vet does it. Your dentist does it. Your optometrist does it. But not your doctor. Why not? First of all, it’s good medical care. Second, it generates business. If you’re a specialist, your primary care customer is the referring physician. Are you tracking the number of referrals you’re getting? Are they increasing or decreasing, and if so, why? I advise doctors to do simple zip code studies, where are your patients coming from. And are those the areas you want your patients to come from.

To contact John McDaniel, call 800-279-0614, or email him at info@peakphys.com.

Dr. Richard Reece is author of Obama, Doctors, and Health Reform (IUniverse, 2009) and Innovation-Driven Health Care (Jones and Bartlett, 2007) Both book are available at www.iuniverse, amazon.com, barnesandnoble.com and other book websites . Dr. Reece blogs at medinnovationblog. blogspot.com.