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Article
Four Ways to Strengthen your Practice
Summary
The health care environment continues to be chaotic at best and the constant threats – both internal and external – can make staying independent as a practice difficult. Fortunately, there are certain key areas that your group can control or try to control which is the basis of this article. "Four Ways to Strengthen your Practice" discusses key areas that provider groups can focus on to enhance to ensure long-term stability and success for independent practices.
By: Rob Saunders, senior consultant
The health care environment continues to be chaotic at best, and the constant threats — both internal and external — can make staying independent as a practice difficult. Fortunately, there are certain key areas that your group can control, or try to control, which is the basis of this article.
Payer Negotiations
The implementation of the No Surprises Act (NSA) has significantly reduced the leverage medical groups have against payers during rate negotiations. However, usually (but not always) payers are still willing to offer some type of increases albeit somewhat nominal, ranging from 1-2.5% year over year for say a new term of 3 years. Also, it’s important to clarify with a payer upfront what their proposed initial term will resemble (e.g., 3 years) in the event they offer a rate that will be applicable during the entire initial term.
In preparation for any payer negotiations, it’s vital to ensure your group has copies of the payer’s base agreement plus any amendments and the current fee schedule(s). It’s alarming that practices often don’t have these copies or fee schedules. Without knowing the fee schedule(s), it’s impossible to determine if your practice is being paid accurately. Consultants with Optum often uncover underpayments (sometimes significant, going back years) but that’s only possible when the fee schedules are available. Further, most payer agreements limit how far back they are willing to reprocess these underpaid claims (either by way of a reprocessing project or a settlement). Often, however, payers will waive this contractual limitation.
Recently, our consultants uncovered some significant underpayments for an anesthesia entity. One major payer didn’t load the new higher rates as part of a multiyear agreement with step increases. Another payer didn’t load the carve-out rates (carve-out rates are those outside of the normal terms of reimbursement for all other codes) related to obstetric anesthesia retroactively for 2 years. Also, an emergency medicine group failed to address an amendment from a major commercial payer received a few years ago that lowered its overall fee schedule..
One misperception is that these payers are well-oiled machines who automatically load the correct terms of reimbursement upon each renewal date. They’re not. Payer-created issues could cause your group to have revenues delayed or foregone altogether while significant payer problems could eventually destabilize a group financially.
The payer-contracting process continues to be aggravating. In most instances, payers will ignore your initial inquiry and prolong the negotiations in the hopes your group will give up or lose interest. Promises of “I’ll have a proposal to you by the end of next week” are always broken.
It is counterproductive to be too aggressive in your payer negotiations. The idea of let’s ask for a 10% increase and agree to 5% doesn’t work in this environment. In most instances, payers will shut down negotiations when groups are too aggressive. Recently, Optum learned of a large anesthesia group that was advised by some ill-informed consultant that their rates were significantly below market. The group then hired a law firm, incurred tens of thousands of legal fees and completely struck out. Fortunately, the group then turned to Optum. They’re working with one of our consultants who is having excellent results.
Service Site Expansion
Depending on one facility agreement for survival typically doesn’t provide a group with long-term stability. Take for example, an anesthesia group in the Midwest whose certified registered nurse anesthetists (CRNAs) kept demanding significant increases in their compensation. At some point, the hospital (their only service location) was unwilling to offer any increased level of financial support resulting in the group dissolving its corporation. Another example is an emergency medicine group whose hospital was bought by another health system, which had its own emergency medicine group. This group also had to dissolve. Also, a large anesthesia group recently lost its only hospital contract with the residual ambulatory surgery centers unable to support the remaining group members. This group was also forced to dissolve.
Just as one wouldn’t have all financial investments with one stock or fund, why would a group risk its entire future on one service site or even one health system? It is highly advisable to spread out the risks as it relates to your group’s service locations. Further, as more volumes migrate to outpatient settings (e.g., ambulatory surgery centers, imaging centers, freestanding emergency departments), it would be prudent to follow the volumes by attempting to secure agreements with these facilities, assuming these changes are financially prudent for the group. Additional benefits of having multiple service agreements include:
Leverage: Having multiple service agreements provides your group with added leverage over these facilities. Specifically, increased service demands such as 24/7 contemporaneous imaging interpretations or staffing an additional late room for anesthesia coverage can be challenged. Conversely, practices can feel more emboldened in approaching their facilities with requests such as an increased (or new) stipend provided the requests are reasonable.
Size: Having multiple service sites also allows a group to grow. Theoretically, having more providers allows more providers to take part in the call schedule. It also allows the group more flexibility in the event they consider further expansion as they can possibly flex the current staff temporarily to meet the service requirements of the new service site until recruiting is completed. Additionally, larger groups generating more revenue have more negotiating power over their vendors including their billing and revenue cycle management (RCM) company. Historically, larger groups may have had more leverage over payers in rate negotiations but it’s probable that that advantage has all but evaporated given the NSA.
Strategy: Successful growth-oriented groups proactively contact facilities in their region as to whether they’d be interested in entertaining a proposal. One of our billing and RCM radiology clients is about to assume a new facility contract due to its proactive inquiry. These actions may be especially fruitful in specialties with national and/or regional shortages including radiology and anesthesia. Specifically related to radiology, in certain markets, regional/national radiology groups are proactively terminating their facility agreements due to staffing challenges, instead focusing on their more profitable sites.
In sum, practices cannot rely on relationships with hospital administration and other members of the medical staff for survival. When health systems/hospitals change ownership, hospital staff may also be replaced, often resulting in group practices being replaced too.
Financial Support
Numerous factors including shortages of certain specialty providers, poor payer mixes and the financial dire straits of some of the major medical staffing companies have emboldened groups to request increased levels of financial support (or their first request for financial support) from their various facilities. For example, radiology groups are increasingly securing stipends for interventional radiology coverage, stipends for deteriorating payer mixes, night coverage, etc.
Another example is anesthesia groups requesting some level of financial support from their ambulatory surgery center (ASC) sites. Typically, groups have been reluctant to do so, but shortages of anesthesiologists in certain markets, continued escalation of CRNA compensation combined with the low levels of reimbursement from governmental payers for anesthesia services has prompted these groups to request stipend support (often in the form of a revenue guarantee) to at least cover the groups costs including any overhead related to that site (e.g., billing fees). These types of revenue guarantees are especially important with new ASCs as actual volumes usually fall short of initial projections. By merely covering your costs at an ASC, an anesthesia group is merely functioning as a staffing company so a profit margin should be considered while developing a financial proposal.
Contents of Financial Support Request
- In general, the contents of a group’s request for financial support should include the following key components: Summary of coverage requirements
- Number of required full-time providers to fulfill coverage requirements
- Market-based compensation and benefits (often derived from one of the three major compensation surveys)
- Any premiums the practice has to pay its own providers to cover certain shifts/services
- A demonstration that the group has continually attempted to renegotiate their payer agreements as the facility may be unwilling to support poor payer-contracting performance
- Overhead (mainly billing but any other site-related administrative expenses)
When performing subsidy evaluations mainly for hospital-based groups, Optum consultants are often bemused by the levels of administrative expenses incurred by these mostly midsized groups, especially when these groups are outsourcing their billing requirements. These groups will often have a very well-paid CEO, a CFO and other support staff. The problem with these often-excessive expenses is that they dilute the compensation levels paid to the group owners and reducing these expenses could mitigate the requested level of financial support. Additionally, the facility should not be expected to fully financially support excessive administrative costs.
The other drawbacks to having your own C-suite is perhaps the lack of visibility into industry trends. Optum consultants have worked with some group executives who seem to claim they have expertise in subsidy evaluations but really don’t based on our interactions. As referenced above, a large anesthesia group lost its only hospital agreement, forcing the group to dissolve the corporation. One must imagine this change was due to the group’s unreasonable demands related to their subsidy discussions and/or perhaps they didn’t bother formulating a fact-based report.
Another drawback to being reliant on C-suite administrators is their potential lack of stability. The departure of a group’s CEO for example could be disruptive until the group either replaces this position or perhaps engages a consultant with extensive experience in that specialty at likely a fraction of the cost. Optum works with a multitude of physician practices where Optum is the group’s C-suite.
Changing Employment Options
Due to the COVID-19 pandemic and/or a changing work force, the days of group members staying in one position their entire career have diminished. For example, group members may be unwilling to work as many weekends or nights or take as much call, and those groups who are perhaps not in tune with these changing work environments could soon end up in a death spiral. The death spiral in this context is when key members leave the group, remaining members are therefore required to work more and burn out and leave. Pretty soon, the group waves the white flag and dissolves, sells the practice or becomes employees of either a hospital or a regional/national staffing group.
Alternatively, groups may want to consider adjusting their hiring process, their work requirements and group composition. For example:
- Accelerate hiring, especially for certain specialties with significant shortages.
- Decrease the years that new hires are eligible to become shareholders.
- Allow new hires to participate in group meetings/ decision-making.
- If applicable, allow group members to work at home part of the time.
- Developing part-time options especially for group members considering retirement.
- Within reason, offer flexible schedules and paid time off.
While theoretically, some of the above points are sensible, shifts still must be covered, calls have to be taken and weekends need coverage. So, it’s a balancing act between offering more flexibility but still meeting the service requirements of the facility. Do we hire another person that will dilute our incomes but perhaps ease some of the strain on existing members? The point is that at times, groups don’t learn of a group member’s dissatisfaction until it’s too late. Any well-structured group will constantly seek feedback from group members and make the necessary adjustments if possible.
Finally, groups should consider using midlevel providers. For example, there has been an increase in the growth of diagnostic imaging billing by NPs and PAs across the country. Certainly, pathologist assistants can be considered, CRNAs for anesthesia and midlevel providers for emergency medicine. But if these providers replace physicians and don’t take calls, will the remaining physicians now be responsible for assuming more calls?
Strengthen your practice
The current health care environment can be overwhelming, and the complexity of the business side of group practices has never been higher. However, there are areas your group can control or attempt to control including negotiating your payer rates, adding sites to your services strategy, considering submitting financial support requests and changing your employment options. Patience and grace will help in your negotiations. Spreading out the risk will position you well for long-term stability. Consider profit margins when crafting a financial request. Become less reliant on C-Suite administrators and adjust your hiring process. Be flexible and consider hiring midlevel providers. By taking some control in these areas, groups can strengthen their foundation as independent practices.
