Practice efficiency in academic orthopaedics
A case study on improving work processes
By Ronald J. Faulbaum, MBA, CMPE
The June 2003 Bulletin included a discussion of work process improvement for enhancing practice efficiency in academic orthopaedic practices. The article described the first step in this process (assessment), along with the use of benchmarking to identify areas of possible performance shortfall. The process of investigating these performance gaps and developing strategies to close them becomes the driver for work process improvement.
This article focuses on the design and implementation of work process improvement strategies using a case study from our practice. The lessons learned from this effort could be useful in implementing other work process improvements in both academic and private practice settings.
The faculty practice plan of the medical school used a common billing system and central billing office (CBO). The costs of the CBO operation, including information systems, were allocated back to each department.
For many years, our department used the CBO to process and collect all fee-for-service insurance. The department had responsibility for “front-end” functions, such as patient registration, clinic reception, charge capture, coding and medical record documentation. The CBO was responsible for “back-end” functions including claims processing, collections, payment posting and claim appeals.
This arrangement was acceptable until a performance-based physician compensation plan that placed significant emphasis on clinical productivity and individual financial results was implemented in our department (1997-1998).
As we had hoped, the performance-based compensation plan led to an increase in clinical volume from existing faculty. In addition, a number of new clinical faculty were recruited. The combined result was a significant increase in fee-for-service charge volume, which quickly outpaced collections. Physicians grew increasingly frustrated with the lack of financial results, given their productivity gains.
Fortunately, a number of departments were putting similar pressure on the faculty practice plan. So, in early 1999, departments were given four options:
1) remain with the CBO, 2) assume responsibility for filing claim appeals, 3) assume responsibility for all front- and back-end functions, or 4) outsource these functions to an external vendor.
After some consideration, the orthopaedic department chose to assume responsibility for both front- and back-end functions, and began work on a business plan with the assistance of outside consultants (Karen Zupko & Associates).
As part of this work process improvement, we began to benchmark key metrics to determine the current performance gaps and to set measurable targets for improvement. By setting these targets, we could better define post-implementation goals and measures of success. These goals then became the key drivers in designing the new billing and collection process.
Identifying performance gaps
During the planning process, we noted three metrics where the department had a significant performance gap between our results and the results achieved by both academic and private practice orthopaedic groups, based on comparison data from the MGMA Academic Production Survey and the MGMA Cost Survey for Private Orthopedic Practices.
The first performance gap noted was the difference in the amount of contractual write-offs per departmental physician versus those of academic and private practice physicians, as shown in the chart (Charges and Write-offs Per Physician). A comparison of gross charges and write-offs per physician showed the difference more likely came from collections than charge levels. This implied that the gap was due to either inferior managed care contract rates or an under-performing collections process.
The second performance gap was in accounts receivables (AR). The average days in AR were higher for our department than for private practices, indicating that it took longer to resolve claims.
Finally, we noted a performance gap in the effective collection rate. The effective collection rate is calculated as net collections divided by the difference between gross charges and contractual write-offs. This rate measures how well the practice collects on revenue to which it is entitled, after adjusting for managed care contractual discounts. Our department’s rate was lower than the rate for private practices.
Designing a new process
With these performance gaps in mind, our new billing and collection process was designed to meet specific performance goals and features, as shown in the accompanying table (Table 1).
Our billing and newly acquired collections staff was organized and trained under a single department manager to improve accountability. In keeping with the spirit of the physician incentive compensation plan, a team bonus plan was implemented for billing and collections staff. The bonus is a team goal as measured by net cash collection improvements over the prior year and includes staff eligibility criteria based on meeting quality assurance and productivity standards. These individual criteria prevent poor performers from enjoying the team “reward” earned by the better performing staff.
The new process went live in January 2000 and a post-audit of results in 2002 is shown in Table 2. Note that it took more than a year before significant measurable progress was made.
The lessons learned from this case study may be applicable to other work process improvement initiatives. Here are some lessons that can work for you:
• Benchmarking is useful for identifying goal direction, but it is only one step in implementing a process improvement.
• Process improvement goals need to be simple, easily understood and measurable.
• Allow enough transition time for staff retraining, policy development, and system redesign and testing.
• Do not underestimate the importance of continuous communication between physicians and staff, and the need to educate both on a regular and ongoing basis.
• Be sure to incorporate staff quality assurance and productivity measures as part of the redesign program.
• Incentives can work!
One other important note is that improving practice efficiency is a continuous process that requires physician participation and leadership as well as a willingness to implement change in the practice.
Ronald J. Faulbaum, MBA, CMPE, is executive director for business affairs at the Washington University School of Medicine Department of Orthopaedic Surgery in St. Louis, and a consultant to the Academic Business and Practice Management Committee. He can be reached at: firstname.lastname@example.org
Table 1: Designing a billing and collection process
Table 2: Results of implementing the new process