June 2002 Bulletin

Back to basics

Renew your focus on practice operations

By Michael J. McCaslin, CPA

Many medical practices have spent the last five to ten years focused on improving contracting capabilities, obtaining cost efficiencies, or seeking technological improvements. Unfortunately, while their resources were deployed in mergers, IPA and MSO activities, some orthopaedic practices became less concerned with certain fundamental elements of running the operational aspects of the practice.

However, with the shift in strategies away from mergers and related activities, now might be a good time to shift your focus back to the basics of practice operations. There are many benefits to revisiting such fundamentals as your billing and collections process, data management and reporting, as well as practice governance.

Billing and collections

The billing and collections process is the single most significant operational aspect of the medical practice as it touches nearly every element of the practice’s operations. To understand this from a macro point of view, the billing and collections process starts with payer contracts and out-of-network patients, the pre-appointment process, the actual appointment itself, the post-visit and charge entry process, the actual billing and collection process, and the reporting and analysis of results. Within this macro view for each area identified, there is a significant amount of detail with respect to processes and procedures that should be fully written and made available in the Policies and Procedures Manual for the practice.

An example of how the detail steps down from the macro level category can be seen when looking at the actual patient appointment. First, we assume the pre-appointment process has been followed, which includes making the appointment, ordering the X-ray or labs needed and any physician referral requirements. For the actual appointment, you start with the patient check-in function. The practice should have a set of written procedures for when a new patient checks in and a separate set of written procedures for when an established patient checks in. After check-in, the patient information gathering or verification takes place (demographics, insurance, etc.). The insurance card is copied and communication of the patient’s financial responsibility takes place. Any outstanding patient account balances are also reviewed at this time.

Please note the importance of the front desk functions and their impact on appropriate and efficient collections. The practice needs appointment access and efficiency, verification of insurance eligibility, benefits and authorization requirements, accurate data capture and verification of data captured, point of service collections and a great patient service mentality. This starts with the telephone, followed by the front desk functions.

After check-in the patient then visits with the physician and another key element of the billing and collection process takes place. This is the provision of care followed by the appropriate ICD-9-CM code, CPT-4 code, timely dictation, and medical chart documentation. Physicians are a significant and important part of the billing and collections process and success for the practice, so your involvement is key to successful reimbursement.

Reviewing the billing and collection process presents an ideal opportunity to evaluate the practice’s internal controls. It is important to note that internal controls not only protect the assets of the practice with respect to cash, but also in the orthopaedic practice, the controls should ensure that all patient visits are captured, all surgeries are captured, and all ancillary income opportunities are billed. Many practices think of internal controls related only to functions associated with cash, but patients are significant assets of the practice, and in too many practices, patients are lost in the system and services often go unbilled for those patients.

Data management and reporting

As technology continues to improve, so does a practice’s need to focus on managing and analyzing data. There may not be an industry that exists that has greater need for analyzing and reporting on productivity and financial management than the practice of medicine. Fortunately, there are many tools and techniques available to orthopaedic practices to fill those needs. The following is a list of core reports and analyses that your practice should consider developing if you don’t already have them in place:

The key to analyzing data is being able to compare the data to historical data and similar data from prior months, quarters, and years for the practice. There is no time like the present to begin analyzing and managing through better data.

Governance, stock purchase agreements, and employment agreements

With all of the changes in the health care industry and especially in orthopaedics with respect to ancillary services development, most practices should probably revisit their governance structures, stock purchases agreements, and employment agreements. These three items combined are the most important tools for managing the physician element of the practice. With respect to governance, questions to ask include:

  1. Do we have too many physicians involved in managing the practice and making decisions?
  2. Are we demanding too much from management without compensating them appropriately?
  3. Does our structure allow for an efficient decision-making process that does not require a meeting for every decision?
  4. Do we have unanimous voting provisions that are paralyzing our group?
  5. Have we empowered our executive team and administrative staff to have significant involvement in decision-making or total responsibility for decisions?

With respect to the Stock Purchase Agreement, most practices should review whether the formula for the purchase and sale of stock is still appropriate, based upon added sources of revenue over the last five to seven years. Each practice should also perform a computation of the buy-in and buy-out on an annual basis so as to prevent any surprises when the first retirement takes place.

You need to also determine whether the value in accordance with your agreement is still appropriate based upon changes in the practice. The current value may be too low or too high depending on the changes in the practice. Lastly, you want to make sure that the buy-in and buy-out is structured in the most tax advantageous way for the practice.

The Employment Agreement should be the document that contains the most significant economic elements for each physician. This should include not only some reference to the income distribution methodology in the group, but also to those economic elements due the physician upon death, disability, retirement, or termination, with and without cause. This is where the deferred compensation elements of the practice should be identified. The goal is to ensure that these are structured in the most advantageous tax benefit for the practice, and that all provisions are economically appropriate based upon the event causing termination.

Michael J. McCaslin, CPA, is director, Health Care Group Services at Somerset Financial Services Health Care Group in Indianapolis, Ind. He can be reached at (800) 469-7206 or mmccaslin@somr.com.

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