Fine Tune Your Financial Practice

October 4, 2005

Small changes in the way physicians run their practice can have a major impact on the bottom line. Three simple steps, controlling overhead costs, increasing collections, and billing for all services, can make a difference in your patients' clinical outcomes as well as your own financial health.

Small changes in the way physicians run their practice can have a major impact on the bottom line. Three simple steps, controlling overhead costs, increasing collections, and billing for all services, can make a difference in your patients' clinical outcomes as well as your own financial health.

"What we do clinically is based on the economics of a practice," said George Xakellis, Jr., M.D., associate professor in the University of California Davis family practice residency program. "If the practice is not financially healthy, it limits your clinical and professional activities."

Running a medical practice is no different from running any other professional service, he continued. Physicians should benchmark their practice, compare their costs, revenues, and operations to other practices. AAFP makes it easy.

The 2003 AAFP Family Physician Practice Profile found that the typical family practitioner earned $142,000 working 51 hours weekly for 47 weeks each year. The average physician saw 4,794 patients annually or 102 each week, 89 in the office, 10 on hospital visits, and 3 on nursing home visits.

AAFP's Future of Family Medicine Task Force 6 report, released at the Scientific Assembly, provided similar numbers. Physician compensation was $167,457, $142,338 in salary plus benefits of $25,119. The average practitioner worked 47 weeks yearly seeing 112 patients per week, 5,264 per year. Average revenue was $77 per patient or $1,703 per day.

Physicians who beat the benchmark are already in good financial shape, Dr. Xakellis said. Those who fall below the average have to get themselves in better financial shape if they want to survive.

That's where his three-step plan comes in. The first step to improving profitability is to reduce expenses. That means looking at expenses for the last two years to identify the top costs.

For most practices, the leading cost categories are non-physician staff, occupancy costs such as rent and utilities, and supplies.

"You have to understand your costs completely," Dr. Xakellis said. "You have to ask yourself if every expenditure is absolutely necessary. You have to compare each one to benchmarks. Then you have to start cutting."

One of the most effective ways to reduce personnel costs is to use technology and training to help staff perform more sophisticated tasks. Cross training keeps the workflow flowing even if a key employee is out. The right incentives more than pay for themselves in increased productivity.

On the general expense side, check telephone bills for inappropriate calls. Is all that outgoing mail really necessary? When was the last time you compared vendor prices for medical supplies and other items?

Occupancy costs can be controlled by maximizing use of space and watching utility use. Information technology, including electronic health records, can reduce space needs or let you convert filing space to more productive use.

The next step is to increase revenue. For starters, boost collections. The leading causes of uncollected claims are bills never received (15.2%), insurance set up incorrectly by provider (15.2%), no follow-up on claim denials (12.9%), inaccurate information from patient (12.8%), and incorrect payer processing (11.6%). Simply following up on denials and resending bills that disappeared during transmission or processing could cut unpaid claims by nearly 30%.

The third step is to boost billings. Office visits account for 60% of revenue in most practices. More accurate coding that boosts the percentage of 99214 claims compared to 99213s can make an appreciable difference in total revenue without changing the practice itself. Adding office procedures or lab work can also boost revenue, Dr. Xakellis noted.