CASE STUDY: ASSESSMENT OF AN ACADEMIC FACULTY PRACTICE
By Daniel J. Hirsch

Recently, a major academic medical center requested an operational assessment of one of its orthopaedic surgery faculty practices. Those involved with the practice shared the sentiment that they often felt as if they were participating in a zero sum game. For the hospital executive, the disproportionate measure of time and attention (a.k.a. - headaches and aggravation) to the bottom line P & L was utterly frustrating. The finance personnel were often asked to wave their magic wands over the financials (which usually manifested itself in the form of those dreaded words "accrued revenue"). The practice administrator had more bosses then you can shake a stick at, with increasingly less resources. The physicians were perplexed at the many responsibilities and deliverables perpetually required of them. And let us not forget the staff, which, through all of this turmoil, was unsure of what their responsibilities were and to whom they actually reported.

While the emotions described above are common to faculty practices operating in the red, the subsequent outcomes were surprisingly positive. Following, you will find a case study that demonstrates how the assessment methodology we used uncovered major opportunities for improvement for this faculty practice. Many of these opportunities were subsequently realized in a practice improvement implementation.

Methodology

First, the assessment process was divided into three distinct tasks. The first task was to interview the physicians, administrators, supervisors, and a representative sampling of the practice staff. This served to give us insight into the practice culture, qualify the issues facing the physicians and the practice, and to find areas of consensus among the group’s members. Next, a detailed list of financial and operational data was obtained, organized and analyzed. In order to fully understand the trends of the practice, we collected data for the preceding three years. Finally, we benchmarked practice productivity indicators against national and regional standards, including MGMA and AMA sources.

Background

Each of the four physicians in this practice had similar specialties and qualifications, and had been with the practice for at least three years. Additionally, each physician had the following primary responsibilities to the practice:

1. Direct patient care (outpatient, surgery, and inpatient)
2. Teaching duties
3. Research

At this point, it is important to understand the physician compensation formula. Each physician was given a base salary. This salary consisted of an annual stipend for teaching responsibilities and a draw on expected net revenue. No remuneration was made for research responsibilities.

Finally, all physician billing was performed under the individual physician’s tax ID number, and all expenses were allocated to the individual physician. These expenses were deducted from the physicians’ net collections. Any remaining balance was split between the physician and the department (if a physician had a deficit for the year, the deficit would carry over to the following year). Practice staff was shared on an allocated basis only, and each physician had his or her own reception and billing personnel. Essentially, the practice behaved like four separate and distinct entities.

Findings

The assessment findings and the subsequent implementation opportunities fell into the following three categories:

1. Revenue/Productivity
2. Operational Issues
3. Expenses - Staffing and OTPS

Revenue/Productivity

As mentioned, the only physician activities that affected physician revenue on a productivity basis were those related to the delivery of direct patient care. Consequently, our productivity assessment targeted the following areas:

• Physician hours spent in direct patient care (office hours and surgery), by location
• Productivity of the physician during direct patient care hours, by location
• Length of waiting lists for patients to be seen (new and existing patients)

Patient Care Hours
First, we reviewed the number of hours each physician spent providing patient care (based on a representative six-month period). In order to accurately compare patient care activities to an industry benchmark, we deducted the time spent on teaching responsibilities from the industry standard. The findings indicated that three of the four physicians were putting in too few patient care hours, thereby limiting profitability (See Exhibit 1).

Exhibit 1. Benchmark Source: Physician Socioeconomic Statistics, AMA (discounted 4 hrs/wk for clinical activities)

The above graph illustrates that the four practice physicians combined worked 14 hours per week below the benchmark of their peers. Each additional physician hour spent in direct patient care per week, at the practice’s current rate of collections per hour, represented an additional $43,000 annualized. Assuming that current demand warranted an increase in hours, meeting the benchmarked hours per week spent in patient care would yield up to $600,000 to the practice annually.

Productivity

Next, we looked at physician productivity during patient care hours. To capture this data, the number of actual patient visits were taken from the scheduling system and compared with the number of hours scheduled. The following chart depicts the productivity of the physicians on a per hour basis.

Exhibit 2. Benchmark Source: Physician Socioeconomic Statistics, AMA (discounted 4 hrs/wk for clinical activities)

The above illustrates that two of the physicians were not seeing an adequate number of patients per hour, when compared with the industry benchmark for similar practices. We estimated the total value of bringing the two lagging physicians up to the industry standard of four patients per hour – an increment of one additional patient per hour – at up to $560,000 annually. This lack of productivity was particularly detrimental in light of the fact that it ultimately translated into fewer surgeries for the physicians.

Revenue By Location
As the physicians each practiced at two different locations, we reviewed revenues from both locations separately to determine if they each provided the same financial benefit. In order to arrive at this calculation, surgery revenues had to be attributed to where the patients were originally seen. We discovered that patients with a lower case mix were being seen at one of the practice sites. This translated into a combined $150,000 less in earnings per year. Assuming that enough demand existed to fill the physicians’ schedules at the higher-case mix location, this substantial revenue opportunity could be realized.

Volume Opportunities
As demonstrated above, the physicians were working too few office hours and were seeing too few patients per hour when compared with AMA and MGMA benchmarks. This begs the question of whether there were enough patients not only to fill the existing schedule, but an expanded schedule as well. To answer this question, we reviewed the patient volume of each individual physician.

Our findings indicated that if one of the two lower-producing physicians spent the AMA median number of hours in patient care activities at the median level of productivity (19 hours per week at 4 patients per hour), that one physician would be able to see the entire patient load of the two lower producers combined. Additionally, our analysis indicated that this same physician would still be able to accommodate wait-listed patients from the two higher-producing physicians. In other words, the practice only had the volume to warrant 3 physicians. By eliminating a physician FTE, the practice would be able to realize a decrease of $250,000 in expenses annually, with revenue remaining stable. This option, given current demand, was also more readily attainable than increasing revenue through enhancing productivity alone.

Operational Issues/Expenses

Having completed a review of the productivity and revenue areas, IHC then analyzed practice operations and expenses. The major operational problems facing the practice were an abnormally high accounts receivable and persistent physician complaints regarding the need for additional staff. These areas were subsequently quantified and compared with industry standards.

Accounts Receivable
A first glance at the A/R indicated that it was nearly $750,000 over the industry average. A more in depth review, however, brought to our attention that half of the group was performing at or above industry average. The performance of the other half was woeful. While the payer mix differed somewhat, this discrepancy could not account for the abysmal collection rate. Further research revealed that the two physicians with poor collections had undergone several staffing changes over the past two years. Rapid staff turnover had led to incomplete registrations, insufficient pre-certification and virtually no A/R follow up. Remember, the physicians had been operating as four distinct entities. To compound the problem, these two physicians did not have enough staffing to start with, as demonstrated by the following staffing analysis.

Staffing
For the purpose of this analysis, we examined the staffing levels of each physician independent of the entire group, since they were operating de facto as four separate groups. The findings indicated that two of the physicians were nearly three FTE’s above average, while the other two were staffed 2.75 less than what is generally recommended.

As the above chart illustrates, two of the physicians had physician-staffing ratios above industry norms, while the other two were below. Possibly, the answer was not to increase staffing but rather to centralize the billing functions. This provided a no-cost solution to a very significant problem. The increased efficiencies achieved through centralization might in fact allow for a small reduction in labor.

CONCLUSION

In summary, the assessment was able to verify that:

A. Physician productivity was below national standards, resulting in revenue opportunities of over $1,200,000.

B. Current potential demand was lower than physician manpower. Management needed to consider the implementation of an aggressive marketing plan to increase referrals.

C. Accounts receivable management was poor, in part due to staffing turnover and uneven staffing ratios. A reallocation of existing staffing resources, combined with improved policies and procedures, would significantly reduce A/R. Each 10% reduction of A/R was valued at $75,000.

D. If management chose not to pursue a marketing initiative, consideration should be given to reducing professional resources.

After careful evaluation of the above information, including demand statistics, such as current waiting lists and market share issues, the physicians and administrators agreed upon the following strategy:

• A marketing plan would be enacted; however, it would require a long-term strategy. Therefore, no additional revenue would be planned for within the next fiscal year.
• Physician resources would be reduced through the transfer of one professional FTE to another division or by not renewing an upcoming contract. This action resulted in savings of $250,000. Additionally, a concerted effort was made to shift the departing physician’s patient base to the remaining low producing physician. This allowed for overall revenues to remain constant.
• Areas of patient scheduling were dramatically improved to redistribute the wait list of the busier physicians to their less busy colleagues. This lead to an increase in collections of over $100,000, while incurring no additional expenses.
• Staffing would be reorganized and trained to improve A/R results. This action reduced A/R and improved cash by $150,000 over the course of the year.

By right-sizing the number of providers within the practice and improving scheduling and billing functions, the practice was able to improve profitability by approximately $600,000 in the short term.

Daniel J. Hirsch is a senior manager at Integrated HealthCare, LLC. For more information, call (203) 487-0880.

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