How to cut costs and maximize profits despite financial pressure
Today’s medical practices experience tremendous financial pressure independent of impending
healthcare reform. Many groups face significant reimbursement cuts by Medicare and
commercial payers from initiatives that began before the 2008 elections. In addition, the
current economic environment has forced many employers to adopt high-deductible health
plans (HDHPs), which motivate some patients to defer doctor appointments or skip them altogether. Medical practices find it more difficult to collect larger patient balances from those with HDHPs.
At the same time, you, as medical practice administrators, are asked to cut overhead and
manage costs like never before. But how do you identify where to cut? Applying traditional financial techniques to medical practice data and operational issues can help you manage practice costs and maximize profitability.
Use comparisons and financial indicators to analyze financial data. Current financial information
becomes more meaningful when compared with prior-period data, budgets, external benchmarks or data for different locations or providers. Many accounting packages have report writers that can generate such comparisons as part of the monthly accounting cycle.
Benchmarking, a process that combines various metrics with a search for best practices, is as an
excellent tool for identifying areas ripe for cost cutting or operational improvement. Compare
staffing ratios and overhead costs to MGMA Cost Survey medians for similar practices to
identify places where the group may shrink staff or make other reductions. Benchmarking your
group or providers against MGMA medians can reveal opportunities to increase revenue
through ancillary services or motivate physicians to increase productivity.
The budgeting process makes up an essential part of effective cost management. When
properly implemented, budgeting allows participation from department managers and
physician leaders and results in a budget that supports your group's short- and long-term
strategic goals.
Use realistic numbers when creating the budget; practice leaders must know the practice’s true
potential. Don't incorporate "slack" in budgets, making goals easy to achieve. Likewise,
unrealistic or unobtainable budgets fail to motivate managers to improve operations.
Finally, don't overlook internal controls as a way to improve the bottom line. Some groups
hesitate to implement internal controls when cutting costs. This could prove expensive. Recent
data from the Association of Certified Fraud Examiners 2008 Report to the Nation on
Occupational Fraud & Abuse reveals that the typical American organization loses an estimated 7
percent of its revenues to fraud committed by its employees and other insiders.1 Becoming
familiar with typical medical practice frauds and implementing appropriate cost-effective
internal controls can help improve the bottom line.
1. 2008 Report to the Nation on Occupational Fraud & Abuse. Association of Certified Fraud Executives.
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What the new Health Care Reform Legislation will mean to Physicians
1. Increased demand for physicians. With 32 million more Americans expected to enter
the health insurance market, demand should rise, especially for primary care
physicians, the Philadelphia Inquirer reported. This occurred when Massachusetts
passed its statewide universal health care in 2006. However, the expansion in
coverage will not happen for a few years, until 2014.
2. No permanent fee fix. The reform legislation does not permanently repeal the
Medicare sustainable growth rate formula, which is again set to trigger a 21.2 percent
pay cut for physicians at the end of the month. "It's really unclear what pathway the
House is considering to change the situation," Robert Bennett, a government affairs
representative for the Medical Group Management Association told HealthLeaders
this week. "Now we are looking toward the April deadline, and then Congress will
have a recess, and they are really running out of days.”
3. New independent panel setting reimbursement rates. The new Independent
Payment Advisory Board "could unilaterally reduce Medicare payments without any
public input," said James Goodyear, MD, president of the Pennsylvania Medical
Society in the Carlisle (Pa.) Sentinel. "The current IPAB framework could result in
misguided payment cuts that undermine access to care and destabilize healthcare
delivery," added AMA President J. James Rohack, MD, in a release.
4. More bureaucracy. "The health system reform bill creates more government
bureaucracy" and "installs mandates too numerous to list,” Dr. Goodyear told the
Sentinel. "We see no reduction in administrative burdens for physicians and no
reform in the way healthcare services are paid under the Medicare program," added
Joseph Reichman, MD, president of the Medical Society of New Jersey, in the
Philadelphia Business Journal.
5. No tort reform. "The legislation does not include any medical malpractice reforms
that would lower physician costs and prevent defensive medicine practices," Dr.
Reichman told the Philadelphia Business Journal. Without tort reform, physicians "are
forced to practice more defensive medicine than is necessary," the Pennsylvania
Association of Health Underwriters told the Philadelphia Business Journal. The AMA
and other organizations would like a cap on non-economic damages, but all the bill
offers is $50 million in grants to states to explore alternative means of resolving
medical liability claims.
6. Elimination of new physician-owned hospitals. The bill would prevent any new
physician-owned hospitals from opening after the end of the year and, except for a
very limited exception involving physician-owned hospitals with a high Medicaid
patient population, prevent existing hospitals from growing. The provisions "virtually
destroy many of the hospitals that are currently under development, and leave little
room for the future growth of the industry," said Molly Sandvig, executive director of
Physician Hospitals of America. "It shouldn’t make a difference who owns the
hospital,” Dr. Rohack told Medscape.
7. Heavy reliance on Medicaid. "The expansion of the Medicaid program, while
laudable, is problematic," Dr. Reichman told the Philadelphia Business Journal. "The
payments in New Jersey's Medicaid program are among the lowest in the country,
resulting in a majority of our physicians opting out of it altogether.”
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How does the stimulus package affect medical
group practices?
President Obama signed the American Recovery and Reinvestment Act of 2009 into law on
February 17. Popularly known as the stimulus package, it provides $787 billion in new spending
and tax cuts. Many provisions affect health care. Physicians, hospitals and others treating
Medicare and Medicaid patients will be eligible for billions of dollars in incentive payments to
adopt health information technology (HIT).
Details will have to be defined through federal regulation, but here's the bottom line for
physicians in medical group practices qualifying for the Medicare electronic health record (EHR)
incentive: each qualifying physician in your medical group can be reimbursed up to $44,000 for
adopting a certified EHR.
How will my practice receive the EHR stimulus funding?
The government has not finalized the timing and distribution method for the incentive
payments. As details of the program are released, MGMA will communicate them to members
through MGMA Washington Connexion and this FAQ service.
Can you explain what the additional $2 billion in funding will be used for?
The majority of the HIT funding in the legislation is reserved for incentive payments – $2 billion
will be available to the secretary of the Department of Health and Human Services (HHS) for
distribution through the Office of the National Coordinator for Health IT (ONCHIT). A portion of
this $2 billion will go to grant programs to help organizations offset purchase costs. The details
of those grant programs are not yet in place, but these funds could be used to assist primary
care practices, those delivering care in rural or high Medicaid environments or those seeking to
establish a patient-centered medical home model.
The government will also spend these funds on:
• Projects related to standards evaluation and development
• Infrastructure for health information exchange
• Grants to states to further EHR adoption
• Improving telemedicine delivery
• Establishment of regional health IT resource centers
What are the Medicaid EHR incentives in the stimulus package?
The stimulus package also includes incentives for Medicaid providers to adopt EHRs. This
incentive program differs considerably from the one developed for Medicare physicians. The
Medicaid incentive program reimburses providers to obtain the technology. The HHS secretary
will determine payment timing and application processes.
The government will calculate the average allowable costs for adopting, implementing,
upgrading and maintaining certified EHR systems. The maximum incentive amount is $25,000
the first year – providers are eligible for 85 percent ($21,500). The maximum payment for
ongoing costs not associated with the purchase or implementation of the EHR may not exceed
$10,000 per year; you cannot make the purchase over a period of five years. Providers will be
eligible for a maximum of 85 percent of the $10,000 – or $8,500 a year). The aggregate
allowable costs, after the 85 percent adjustment, may not exceed $63,750 in total payments.
Departing from the Medicare incentive model, Medicaid payments will not be reduced if a
provider does not adopt qualified EHR technology.
Who is eligible for Medicaid incentives?
Eligible professionals include:
- Non-hospital based professionals who have at least 30 percent patient volume
attributable to Medicaid patients. These include physicians, dentists, certified nurse
midwives, nurse practitioners and physician assistants (leading applicable clinics)
- Non-hospital based pediatricians who have at least 20 percent of their patient volume
attributable to Medicaid patients
- Providers practicing predominantly in a federally qualified health center or rural health
clinic that has at least 30 percent of patient volume attributable to individuals who:
o Receive Medicaid assistance
o Receive SCHIP assistance
o Receive uncompensated care by the provider or reduced charges on a sliding
scale based on their ability to pay
What is the states' role in the Medicaid incentive payment process?
States are authorized to make payments to Medicaid providers totaling no more than 85
percent of net average allowable costs for certified EHR technology. This incorporates support
services such as maintenance and training necessary for adopting and operating of the
technology. The Medicaid provider is responsible for paying the remaining 15 percent of the
net allowable cost. The government will also determine payments for eligible hospitals by the
same algorithm as the Medicare incentive.
Our practice meets the thresholds to qualify for both the Medicare and Medicaid EHR
incentives. Can we receive both?
No. The HHS secretary will ensure coordination of Medicare and Medicaid incentive payments
to providers to ensure no duplicate funding.
Does the stimulus package require my practice to have a certified EHR?
Yes, your EHR must be certified, but the government leaves the specifics as yet undetermined.
It is likely that the Certification Commission for Health Information Technology (CCHIT) will be
deemed the certifying body for the incentive program. When the CCHIT EHR certification began
in 2006, that certification was valid for three years. For 2007 and beyond, the certification is
only valid for two years; certification criteria have become more stringent each year. CCHIT
certified 89 products in 2006; 55 in 2007; and only 22 so far for 2008 criteria. Depending on EHR
criteria to be defined by HHS, you may unfortunately have a product that was previously
certified but does not qualify for the incentive.
What should I do?
If you are a current EHR user, discuss this issue with your vendor. Determine whether its
product will be certified or recertified and add a stipulation to your contract that the vendor
must meet the appropriate level of certification. If you are a prospective purchaser, put this
issue at the top of your list of questions. Stipulate appropriate certification in your negotiations.
If my practice meets the definition of meaningful EHR user now, can we receive incentive
payments immediately?
No, practices must wait until 2011 to apply for incentive payments. However, practices can earn
incentives from the Centers for Medicare & Medicaid Services now for using e-prescribing, as
well as bonuses under the Medicare Physician Quality Reporting Initiative.
I'm with a hospital system. What EHR incentives are in the stimulus package for us?
The base amount for hospitals is $2 million, with additional funding based on a complex
formula. Incentives start in 2011 and decline after 2013. There are no incentive payments for
hospitals adopting EHR after 2015. Payments will be made over four years. Certain acute-care
and children's hospitals are eligible for Medicaid incentives. Incentives vary by hospital based
on total discharges, Medicare population (Parts A and C) and level of charity care.
The relationship between medical practices and hospitals is one of the more difficult areas of
law. The government has yet to determine the specifics on if and how hospitals can assist
medical practices.
What about penalties for hospitals?
Starting in 2015, eligible hospitals that are not meaningful EHR users will face a "market basket"
reduction under Medicare:
• 33.33 percent for 2015
• 66.66 percent for 2016
• 100 percent for 2017 and each subsequent year
The HHS secretary may exempt eligible hospitals from payment penalties on a case-by-case
basis if the requirement would result in significant hardship (for example, rural area with
insufficient Internet access). The exemption cannot exceed five years.
Can hospitals use stimulus funding to donate EHRs to medical practices?
There is nothing in the legislation that prohibits a hospital from donating qualifying EHRs to
practices under the relaxation of the Stark and anti-kickback laws. Hospitals may also apply for
grants and/or loans that become available as the secretary of HHS allocates the $2 billion and
uses that money to further EHR adoption in community practices.
What are the key privacy provisions in the stimulus package?
The economic stimulus package made numerous changes to the Health Insurance Portability
and Accountability Act (HIPAA) privacy and security rules, affecting electronic (and in some
cases) paper records containing patient-identifiable health information (PHI). Practices are
required to:
-
Account for certain protected health information disclosures if the covered entity uses
EHR. Practices using an EHR are required to track all disclosures for treatment, payment
and health care operations. Patients would have the ability to request disclosures for up
to three previous year
-
Notify (within 60 days) each patient (or next of kin) whose PHI has been disclosed due to
a breach. Practices must notify patients by letter, and, if more than 500 patients are
involved, notify local media and HHS (for Web posting)
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Restrict disclosure of PHI to a health plan for purposes other than treatment, if
requested by a patient, who paid out-of-pocket in full for health care services or items
provided by a given provider
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Use de-identified patient data or disclose only the minimum data possible to carry out
administrative transactions
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Apply HIPAA requirements and penalties to business associates and others and apply
certain provisions (such as breach notification and business associate contracts) to
vendors of personal health records and health information exchanges
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Provide patients with a copy of their EHR record on a CD, Web site or other electronic
medium. Practices would be able to charge the labor cost involved in carrying out the
request
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Stop using identifiable patient data for some health care operations (to be determined)
Details of these new provisions will be determined through the federal regulatory process.
How will enforcement and penalties change?
State attorneys general will be handling enforcement, and civil penalties have increased
through four tiers, according to the severity of the violation:
-
Tier 1: Violation where the person did not (and by exercising reasonable diligence would
not have known) that he/she violated the provision. Penalties include $100 for each
violation, to a maximum of $25,000/year.
-
Tier 2: Violation due to reasonable cause and not willful neglect. Penalties include
$1,000 for each violation to a maximum of $100,000/year.
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Tier 3: Violation due to willful neglect and the issue is corrected. Penalties include
$10,000 for each violation to a maximum of $250,000/year.
-
Tier 4: Violation due to willful neglect and the issue is not corrected. Penalties include
$50,000 for each violation to a maximum of $1,500,000/year.
What are the deadlines for compliance?
-
Breach notification: The government will publish an interim final regulation no later
than July 2009. The regulation applies to breaches that are discovered on or after the date that is 30 days after the date of publication of the interim final regulation.
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Accounting for disclosures: For practices that have an EHR as of January 2009, the compliance date is Jan. 1, 2014. For practices that acquire an EHR after Jan. 1, 2009, the compliance date would be whichever is later: Jan. 1, 2011, or the date that the practice
acquired the EHR. The HHS secretary may set an effective date later than those above.
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Enforcement: The HHS secretary is to publish enforcement regulations no later than July 2010, with penalties to be imposed on or after Jan. 1, 2011.
Does the stimulus package allow whistleblowers to collect some of the enforcement
penalties?
Yes. The stimulus package stipulates that civil penalties collected should be used to fund the
Office for Civil Rights (the HIPAA privacy enforcement agency) and by January 2012, the HHS
secretary must establish a method by which individuals (whistleblowers) would receive a
percentage of the penalties collected.
What are the COBRA provisions in the stimulus package?
Eligible individuals pay only 35 percent of COBRA (Consolidated Omnibus Budget Reconciliation
Act) premium for health insurance coverage. Premium reduction applies to coverage beginning
on or after Feb. 17, 2009, and lasts for up to nine months, with income limits. Eligible
individuals include the employee or any member of the employee's family who:
-
Is eligible for COBRA continuation coverage between Sept. 1, 2008 and Dec. 31, 2009
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Elects COBRA
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Is eligible for COBRA as a result of the employee's involuntary termination between
Sept. 1, 2008 and Dec. 31, 2009
Individuals are not eligible if other group health coverage is available (such as a spouse's plan)
or the individual is eligible for Medicare. If the individual did not elect COBRA when it was first
offered, the new election period begins Feb. 17, 2009, and lasts 60 days.
What should I be doing?
As a provider:
-
Ask patients for insurance information when scheduling appointments
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Check patient insurance cards and information at every visit
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Question patients regarding employment status and changes in that status
As an employer:
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Notify terminated employees who meet definition of "assistance eligible employee" of
the new benefit
-
Check the Department of Labor model notices
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Keep records to receive your tax credit to cover 65 percent of COBRA cost
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