Physician Strategy News: May '08
Performance Measures for Physician Practices
Whether hospital employed or private practice, it is imperative that a practice's performance be measured and monitored on a monthly basis. Why? Measuring performance identifies areas for improvement, helps management focus its resources more effectively, cultivates informed decision making, and helps keep the physicians engaged in performance improvement.
Caveats
There are some important caveats when measuring performance:
- Each practice and specialty is unique, with its own culture and dynamics. There can be legitimate reasons for the practice to be above or below industry benchmarks.
- Benchmark with purpose and develop meaningful reports that add value to the practice, not just extra work.
- When presenting to physicians and other high level executives, summarize the information, presenting only relevant values and indices.
- Utilize the information to affect positive change in the practice. Communicate the data with the providers and employees of the group, asking for input and ideas on items that will affect performance.
Popular Sources for Data
While there are several sources of benchmarking data, the most popular are:
- American Medical Group Association (AMGA) Annual Compensation and Productivity Survey
- Medical Group Management Association (MGMA) surveys
Healthcare Strategy Group most commonly utilizes MGMA survey data, along with the practice's budgeted and historical data.
What should you measure and monitor?
We typically recommend clients monitor these productivity benchmarks, at a minimum:
- Gross and Adjusted Fee for Service (FFS) Collections
- Days in Accounts Receivable
- Accounts Receivable Aging by payor
- Gross Charges
- Ambulatory and Hospital Encounters, in total and per provider
- Surgical/Anesthesia Cases, in total and per provider
- Physician Total and Work Relative Value Units (RVUs)
- Number of new patients
- Operating Overhead as a % of Net Medical Revenue
- Revenue and expenses per encounter
While there is variability dependant upon specialty and regional location, the below table summarizes formulas and what we consider ideal ranges for the collections percentages and months in accounts receivable:
| Measure | Formula | Range Primary Care | Range Surgical Specialties |
| Gross FFS Collections % | =(Collections/Gross Charges)x100 | 65% to 70% | 38% to 48% |
| Months in Accounts Receivable | =((Total Accounts Receivable/((Gross Charges)x(1/12))) | 1.05 to 1.5 months | 1.23 to 1.6 months |
Aging of accounts receivable is more subjective, although MGMA and others provide benchmarks. We measure performance among the following age cohorts: Current, 31-60 days, 61-90 days, 91-120 days, and 121+ days. We prefer practice management systems to report these aging categories by date of service. The general rule is that most of accounts receivable should fall into the earlier categories. We generally expect 60% to 70% of accounts to fall into the "Current" category and 15% of accounts to fall in the "31-60" day's category. The longer accounts age, the more difficult they are to collect. The remaining performance benchmarks (Gross Charges, Encounters, Surgery Cases, and RVUs) have even greater variability by specialty.
It is also important monitor operating costs as a percentage of total medical revenue. Total medical revenue is generally defined as either total cash collections (if on a cash basis) or gross charges less adjustments plus other medical activity--capitation, revenue from the sale of medical goods, etc.–if on an accrual basis. Regardless of the accounting methodology, our motto is "Cash is king!" Because groups pay expenses with cash, our preference is to use actual cash collections for comparisons. While there are several expense categories available in surveys for comparison, we usually focus on the following: Total Support Staff Cost, Drug Supply, Medical and Surgical Supply, Administrative Supplies and Services, Building and Occupancy, Outside Professional Fees, Promotion and Marketing, Professional Liability Insurance, Total Operating Cost, Total Provider Cost (both non physician and physician), and Net Income or Loss. Figure 1 summarizes what we consider ideal ranges for operating costs as a percentage of total medical revenue.
| Category | Primary Care Specialties | Surgical Specialties |
| Total Support Staff Cost | 25% - 29% | 16% to 22% |
| Drug Supply | 1.8% - 12.31% | 1% - 5% |
| Medical and Surgical Supply | 1% - 2% | 1% - 3% |
| Administrative Supplies and Svcs | 1.5% - 2.5% | 1% - 2% |
| Building and Occupancy | 6% - 7% | 5% - 7% |
| Outside Professional Fees | 0.3% - 0.5% | 0.5% - 0.8% |
| Promotion and Marketing | 0.24% - 0.32% | 0.35% - 0.5% |
| Professional Liability Insurance | 1.73% - 2.14% | 2% - 6.5%** |
| Total Operating Cost | 55% - 65% | 45% - 55% |
| Total Provider Cost | 38%-40% | 45%-55% |
| Net Income/(Loss) | 0.5% - 1.5% | 0.98% - 1% |
* Pediatricians usually have higher drug costs due to immuinzations, antibiotics, etciotics, etc.
** Malpractice could be much higher for OB/GYN and other high risk specialties.
Many of the primary care ranges are higher than the surgical specialties. Primary care providers typically have higher total operating costs as a percentage of total medical revenue because cash collections are generally lower and fixed. Costs are not that different.
Case Study
Healthcare Strategy Group has been on retainer with a hospital employed physician group for several months. The group's provider complement includes several primary care physicians as well as registered nurse practitioners at multiple locations. Utilizing data provided from the group's practice management system, we compile detailed monthly management reports for review with each provider in the group. The detail from the monthly management reports are summarized into a group dashboard report so that management can view performance at a glance. Through monthly monitoring and regular meetings with providers and staff, productivity and performance at all levels have increased significantly.
Figure 2 below is a sample management summary report format:
Benchmarking productivity and cost measures for your medical group will enable management to become better stewards of its resources. Communicating findings with providers and staff and soliciting input for improvement will not only improve the bottom line, but will facilitate building the group's culture.
For more information on performance measures for physician practices, contact Steve Ratliff at 502.814.1187 or SRatliff@healthcarestrategygroup.com.
