By: William Sester, RN, MSN, CPC
In the most recent publishing of the Birmingham Medical News, there was an article entitled: Where Have All the Practice Administrators Gone?
An interesting follow up question would be: Why are all the practice administrators leaving?
I am a former private physician practice administrator. After working in the trenches for 14 years, four months ago I was offered a unique opportunity to work for TekLinks, my former IT support vendor, as their Director of Healthcare Solutions. By hiring me TekLinks demonstrated a commitment to the healthcare market, which was strengthened even further by their recent acquisition of Claris Networks, a Tennessee-based IT company with a significant healthcare customer base. Now I serve as a “focus group of one” inside TekLinks, supporting my fellow practice administrators internally and serving as a value-added resource to our healthcare clients externally. My position allows me to use my extensive healthcare experience to bridge a knowledge gap, to explain the inner workings of a private physician practice, and expose my new colleagues to a business model that seems almost ridiculously unfair to them in the wake of the Affordable Care Act.
No one would ever bring a knife to a gun battle. Yet, that is what most physician practice administrators are doing each and every day. Managing a private physician medical group is unlike any other business model. It is not a fair fight. Let me explain using just one example – expenses.
Expenses go up every year in a medical practice. Employee salaries, health insurance premiums, malpractice coverage, specialty drugs necessary for office based procedures, and sometimes rent … just to name a few. In most business models, as costs rise, managers must manage their expenses better, increase business efficiencies, get creative with their expenditures, and when all else fails, they at least have the option to pass those necessary cost increases on to the consumer. In private physician practice management, that consumer would be the health insurance companies and the patients.
Let’s imagine you pass a fruit stand every day on your way into work. This farmer has some of the best local peaches around. He sells them for $3.00/basket and they are delicious. What if a bad run of dry weather causes him to use more water for his peach trees, fertilizer or pesticide costs go up, or perhaps gasoline hits $4.50/gallon? This local farmer is in a pinch and has to make the decision to cut his expenses where he can and become more efficient in what he does to offset his rising costs. But after exhausting his options, he has no choice but to increase the price of his basket of peaches to $3.50/basket to offset his rising costs. Now, as you drive into work and make your weekly stop to pick up your fresh peaches, you have a consumer decision to make. Are you willing to pay $3.50 for this same basket of peaches you just paid $3.00 for last week? Some patrons will, and some will not. Some may pay it this time but come back every other week, instead of every week as they used to. That is a risk the local farmer was willing to take because he HAD to find a way to maintain his business’s profitability in the midst of rising costs. And the only way to do that was to pass the necessary additional costs on to the consumer.
Private physician practice management is much different. Employee health benefits are a top ten annual expenditure. Every year health insurance companies meet with the practice administrator to discuss the annual renewal of the practice’s health insurance benefit. Every administrator hates this time of the year. Why? They know what is coming - another increase. Health insurance premiums in Alabama have increased over 100% in the last 15 years. That means if it cost $250/month to provide an employee health insurance 15 years ago, it would now cost $500/month for the same health plan, assuming you could purchase the same health plan (you cannot). Most physician practices did what they were forced to do: they evaluated the plan offerings, analyzed several competitors’ health insurance plans, and ultimately selected a plan that had less coverage for its employees. Typically, the lesser coverage plan came at the same or even at a slightly higher cost. In short, the practice was paying over twice the premium for less health insurance benefits. Did the employees feel the difference in the change to those health benefits? Of course they did. They were most likely asked to start paying a portion of their less-rich health benefit, something that was previously a benefit provided 100% by the physician practice. So now a loyal physician’s nurse that has been with the company for fifteen years brings less money home to her family because her company needed her to start paying part of her health insurance benefit.
In the above example, a top ten annual practice expenditure is analyzed and demonstrates the real world impact of decisions practice administrators have to make each and every day. In a ten-doctor practice, it is not uncommon to see health and dental benefits cost nearly $40,000/month. Yes - per month.
What is not mentioned in the above scenario is the increased health benefit cost making its way back to the consumer. Why? It cannot. Most private physician practices have a contract in place that binds them to a particular fee schedule set by the insurance company. Medicare’s fee schedule changes every year. A practice’s only decision to make each year for Medicare is: will we continue to see Medicare patients at this year’s new payment rates? For commercial insurance carriers in Alabama, the rates in their entirety typically do not change year after year. Certain fees will be adjusted annually as the payer sees fit to do so, based on a number of metrics they analyze. Most healthcare consultants would jump in right here and tell you to negotiate your payment rates with your payers. In Alabama, depending on the type of physician practice you manage, it is not uncommon to have the extreme majority of your contracted payers be two insurance companies, both of which do not allow you to negotiate your contracts. So each year there is a decision to make: will we continue to see these two types of payers? The answer is almost always “yes” because you cannot afford not to.
So how do you operate a privately owned small business where major expenses rise every year, you cannot push the rising costs onto the consumer, and the majority of the fixed fee schedules you operate from are non-negotiable, rarely go up, and seem to always go down? You get creative. You find new ways to cut costs each year while remaining competitive. Every business competes for exceptional employees, so you have to make sure the benefit package you are offering your employees is competitive in nature. Aside from any remaining savings you can find, you must implement and maintain effective revenue cycle management processes to collect all monies both the payers AND the patients owe your practice. Try to find more efficiencies to increase the amount of work your physicians and staff do each and every day, and determine if you can add any new service line to your practice that stays within the scope of your group/specialty.
Shareholder physicians (the business owners) no longer have an expectation of making more money year after year. They’re hoping to make the same amount of money they did last year and accept the fact that they will most likely work harder to earn the same paycheck. What employee stays with an organization that demands more work out of them each and every year, but tells the employee you may make less this year than you did last year as a result of your extra efforts? As this cycle continues, the next article written will probably be entitled, “Where Have All the Private Physician Practices Gone?” And perhaps another shortly afterward will read, “Where Have All the Experienced Physicians Gone?”
In fairness to the insurance companies, they have started sweetening the pot for some physician specialties. Everyone is in pursuit of value-based care. This is simply the highest quality of care at the lowest possible price. Value = quality divided by total cost. As insurance companies begin to seek the best answer to value-based medicine, they are finding ways to incentivize the better performing physicians and physician groups. This is a positive step in the right direction, but brings on a whole host of private physician practice administrator nightmares as these results are data driven, and most practices do not have data analysts on staff.
Until the private physician practice administrator has the option to push their rising expenditures on to the consumer, I think you will continue to see an increase in the departure of the seasoned administrators, private physician practices, and veteran physicians. They will retire or begin to pursue other business opportunities that operate in a fair business model. Who knows, they may start selling peaches curbside.
William Sester, RN, MSN, CPC
Director of Healthcare Solutions wsester@teklinks.com
d:205.443.6997 c:205.994.5561
www.teklinks.com/health-services-group
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