How Does Your Practice Compare? A How-To Guide to Practice Benchmarking

September 1, 2006

Everyone is talking about the decline in reimbursements and the increase in overhead costs. While most practices are faltering, some are quite successful--that is, they are economically thriving. So what makes the difference?

Your paycheck has fallen steadily over the past few years. Everyone is talking about the decline in reimbursements and the increase in overhead costs. Although it is frustrating, it is not surprising. But before going back to work with a business-as-usual attitude, consider this: While most practices are faltering, some are quite successful--that is, they are economically thriving. So what makes the difference?

Medical practices that perform well, even in rough economic times, continually evaluate their operations. They ask: How are we doing? How do we compare with others? Are we using the best practices? What can we do better?

To get the answers, practices focus on benchmarking--the process of analyzing indicators of business performance--and apply the information toward improvements. Nearly all businesses do this to evaluate productivity, utilization, financial status, and level of quality compared with peers and competitors and to monitor operations over time. Benchmarks can be applied to gauge a medical practice's success and critically evaluate its shortcomings.

Benchmarking allows the user to detect existing problems as well as potential problems. Formal benchmarking often takes a structured approach, using reliable parameters against which a practice can be measured. The prospect of benchmarking may seem daunting at first, but it can be simplified with a stepwise approach.

Decide which process you wish to benchmark, and select the appropriate metric. It is important be clear about the process you want to analyze and the area of performance you hope to improve. The question that is most frequently asked of Nick A. Fabrizio, PhD, senior consultant for Medical Group Management Association (MGMA) in Englewood, Colorado, is: How many full-time equivalent (FTE) staff should I have per FTE provider in my practice? "If a practice is currently using 3.5 FTE staffers per provider for the front desk, but the MGMA median staffing ratio for the specialty is 2, it is often an indication that the staff is inefficient or that a systems issue is impacting the practice. The situation suggests that an operational assessment of the practice is warranted," Fabrizio advised.

MGMA provides detailed benchmarks, including breakdown of revenues, expenses, and provider productivity and compensation. Relevant practice data generally can be developed using the practice's management system software.

The AMA and the American Medical Group Association, as well as medical societies such as the American College of Physicians-American Society of Internal Medicine and the American College of Rheumatology, also can provide applicable benchmarking tools and information.

Conduct close evaluation of variances to detect existing problems. After collecting the data, use the information to determine your practice's strengths and weaknesses. Evaluate the variances and investigate their root causes. For example, higher-than-median staffing in one neurosurgical practice for which Fabrizio provided consulting services was traced to an antiquated practice management system that required the attention of an extra employee. Inefficient work flow, poor systems, or inept personnel can create additional expense.

"Practices tend to throw people at a problem when they don't have the right people on the job," said Fabrizio. When confronted with staffing in the medical records division of another practice that was 1.5 times the benchmark, Fabrizio found that an employee, who had redefined her role as manager, was not performing her assigned job. Rather than confronting the employee, the practice's administrator hired an additional employee to compensate for the other's lack of performance. This scenario is all too common, according to Fabrizio.

Compare your practice with "average" as well as "best" practices. To be successful in the current economic climate, it may not be enough to compare favorably with averages. You may want to make the comparison against top-performing practices in your specialty. Best-of-class benchmarking strives to improve business practices by reaching goals achieved by the most successful practices.

The MGMA report Performance and Practices of Successful Medical Groups quantifies the business practices of respondents to its Cost Survey for Single-Specialty Practices and analyzes differences between "better performers" and others. It shows that the most profitable medical practices use proven strategies to achieve success in a specific area. It is often advantageous to consult with other neurologists who have shown strong performance in the area you are seeking to improve.

Upstate Neurology Consultants was designated as a "Better Performing Practice" by the MGMA in the area of accounts receivable (AR) and collections in 2001 and 2003. William S. Henderson, the practice administrator, attributes Upstate Neurology Consultants' ranking to close tracking of payer performance.

"My goal has been to convert as many claim submissions as possible to electronic submissions and attain as low a rate of denials as possible," said Henderson. He compares the practice's AR with standard MGMA benchmarks as well as with practice data from month to month. He further breaks AR categories down by payer. "When we started to see a large number of denials for level 2 hospital consults from a particular insurer, we flagged that payer and soon discovered that the insurer was withholding payment for documentation,"said Henderson. He solved the problem by submitting paperwork along with the claims for 6 months, and the denials stopped. Henderson also drops payers with a high hassle factor and that are a drain on employee resources, and he keeps tabs on insurers who have disproportionately high percentages in the more-than-120-days collection bin.

Frequent delays in reimbursement from a payer may be an early sign of financial instability. This is a cause for immediate investigation; many practices have been taken by surprise by payer insolvency and suffered large losses as a result.

Include relevant staff in processes that will involve a change in work flow. Discuss various proposals with your staff, and develop an action plan. Set goals and adopt suitable policies and procedures for reaching goals. When Henderson recommended that the office update its practice management system and then move to an electronic health record (EHR) system, he sat down with all the neurologists and discussed the transition in detail. "Before we made the purchase, the neurologists agreed to invest the time in training and implementation and to even hold each other accountable for follow-through," he said. The product ultimately paid for itself within 12 months and has been saving the practice $60,000 in transcription fees annually. Integrating the practice management and EHR systems also has helped drive AR management down because everything is now submitted electronically and reporting functions have improved.

Conduct training needed to apply new technologies or services. Provide your staff with sufficient education and resources to implement the new processes. When Upstate Neurology Consultants hired a new doctor whose sole exposure to computers was limited to e-mail, Henderson in turn hired an on-site trainer to teach the new clinician how to use the program; the new doctor was brought up to speed within 30 days. Henderson also designated a tech-savvy neurologist as the physician champion for the EHR system so that those less comfortable with technology could benefit from his guidance. All of the doctors contributed to content for neurologic templates, which were then created by the practice's designated physician-expert to make the process faster and more efficient.

Identify barriers to change. Anticipate resistance and be prepared to meet challenges head-on. When Bruce Sigsbee, MD, chair of the American Academy of Neurology Audit Committee, took on the role of medical director for a 35-physician hospital-owned group, one of his initial goals was to maximize productivity. Because he anticipated that the physicians would resist the suggestion to see more patients, he restructured their compensation by designing incentive contracts. MGMA benchmarks for Northeast income levels and the associated work relative value units (RVUs) allowed him to create a formula by which the physicians receive additional remuneration for work RVUs above the base number. "The doctors more readily accepted the change. Now, if they work harder, they earn more," summed up Sigsbee.

One of the last things physicians want to do is spend time in evaluation and management (E&M) coding education classes, but neurologists who deviate from peers in their distributions of coding levels can be flagged as outliers and put their entire groups at risk for audit, particularly if their documentation fails to support the level of coding.

The Centers for Medicare and Medicaid Services provides data by specialty and by state, which are often purchased by organizations to assist physicians in applying benchmarks to their coding. "If you profile out, you need to ask why," advises Jennifer Bever, a consultant with KarenZupko & Associates. "If analysis of your documentation reveals over-coding, you are risking an audit; if it reveals under-coding, you are clearly missing out on justifiable income," she points out. Bever, who uses the E&M profile analyzer (Figure), says that when outlier physicians are given evidence of how they are skewing their groups' results and placing other members in jeopardy, they tend to be more willing to undergo coding education.

Evaluate your own practice over time. Trends analysis reports, such as those created by Henderson, may be applied to charges, revenues, gross and net collections, and adjustments. Wide increases or decreases in numbers may flesh out areas that require review. Monitoring monthly changes in AR may provide an early indication of brewing trouble. More in-depth review, such as an increase in charge adjustments, may indicate that aged accounts are not being pursued aggressively. If more accounts are aging into the more-than-120-days category, you need to explore the reason. Have there been delays in submitting bills? If so, find out why. Correcting the problem at the outset, rather than waiting several months for revenues to reflect a dip, may prevent large financial losses.

If a practice finds that their aged AR are rising or are higher than the norm, it may be personnel-related, according to Fabrizio. "If a staff member is uncomfortable addressing patients with overdue balances, the aged AR can rise rapidly," he warns. "Collection is an area that requires a specialized skill set; it needs a person who can send the message that patients have financial obligations and assist them in setting up payment plans."

Internal benchmarking also allows for detailed comparisons of different practice sites. If a striking variance in one location is found, investigate the cause. An analysis may reveal that a satellite office is a money-losing venture. Review the expenses and revenues of the off-site office. Consider the alternative use of equipment that may be underutilized.

When Henderson suspected that one of his satellite offices was a potential source of lost productivity, he asked neurologists frequenting that office to record the amount of time they spent traveling between offices and the 5 affiliated hospitals. This information helped him demonstrate that the time taken to travel between sites added up to reduced productivity and subsequent economic loss. "I calculated the revenue being forfeited and presented the data; although a few of the doctors were reluctant to abandon their ties to this community [served by the office], the numbers didn't lie," Henderson said.

Measure results and continuously evaluate progress. Evaluate the expenses and drawbacks as well as the resultant benefits and rewards. Monitor quality to make sure improvements in performance are maintained, and work toward continuous improvement.

Allen L. Gee, MD, PhD, managing partner at Frontier Neurosciences in Sheridan, Wyoming, uses sophisticated Web-based practice management software, athenahealth, which has been endorsed by many state medical associations. "The greatest benefit I have realized from the athenahealth revenue cycle management program is the immediately available, up-to-the-second reports and benchmarks," said Gee. The program, Live Benchmarks, includes charge entry lag and hold lag time for claims in need of correction before submission. His average office-charge entry lag time has declined from more than a day to less than 0.1 day.

He also has been able to tighten up his documentation lag for submissions requiring records such as workers' compensation claims. He finds that the most critical benchmark is the revenue realization rate-how long it takes to collect what is realistically expected. Monthly monitoring of this rate has identified delays in the collection process. "I have been able set alarms for claims that exceed expected days in AR, allowing my staff to follow up on these delayed claims sooner and ultimately improve collections," said Gee. Initially, he found that it took up to 6 months to achieve a greater than 95% revenue realization rate, but by applying continuous adjustments, the time is steadily decreasing.

ORLY AVITZUR, MD, MBA, is a practicing neurologist and a medical news commentator in Tarrytown, New York.