5 Winning financial strategies for medical practices

What’s the difference between a highly successful practice and one that just gets by? Oftentimes, it comes down to focusing on a handful of key financial details. Physicians who institute best practices bring in more revenue and profit than those who do not, and this can be the difference between being successful and being out of business.

According to the Medical Economics® 2021 Physician Report, only 11% of practice owners said they did better in 2020 than in 2019, while 46% said they were doing worse. The top reason listed was lost revenue and increased expenses due to COVID-19.

With patient volumes still below normal because of the pandemic, growing competition from urgent care centers and retail clinics and rising operating costs, experts say every dollar counts. Here are the five best financial strategies to boost a practice’s bottom line.

Benchmark performance

Practice leaders who want to succeed must track key performance indicators so they can identify opportunities for improvement, says Andrew Hajde, assistant director, association content, Medical Group Management Association. These indicators include physician productivity, accounts receivable, insurance claims, reimbursement, and denials. Other measurables might include compensation to staffing ratios, expense management, performance to budget, and patient satisfaction.

With that data, Hajde says practices can not only track their own performance over time, but also benchmark themselves against data from similar providers. (National data is available from MGMA and other sources.) “It gives them a bar to see if they’re doing well or if they have some opportunities for improvement in any of those areas,” Hajde says.

Practices need to take action to find the formula for success. “What are the other practices actually doing to get that patient engagement and quality rating and everything else?” asks Hajde. “I think that’s where it is critical to work with your peers across the country that are achieving those best practices via conferences, member communities with associations, and in researching, reading articles, podcasts or any way you can get in front of how people are achieving those things to bring to your practice.”

Naresh Rao, D.O., FAOASM, a private practice physician who is also the founder and CEO of MAX Sports Health Inc., says he and his private practice partners get a lot of useful information from talking to peers at conferences. He seeks out those who are also in private practice so they can compare strategies for tackling different challenges.

Analyze denials and accounts receivable

The most successful practices analyze their claims denials and take action to reduce them. “It’s really important to go and look at what denials are actually coming through from which payers, whether it is commercial payers or Medicare or Medicaid, and then look to see why they are happening,” says Hajde.

Likewise, look at your accounts receivable and analyze those that fall into different aging groups, such as 30 days and 60 days old and determine the cause. “Is it because you are not getting paid in a timely manner, or that a lot of claims are being denied?” asks Hajde. “Determine the causation and, going back through those based on high volume or high dollar amounts, go back to your physicians or front-office employees. Make sure they are entering the information correctly so that if you get it straight on the front end, you’re going to reduce those denials.”

In addition, practices need to make sure all claims are filed in a timely manner, and that all denials that are deemed inappropriate are appealed within the established deadlines from those payers. “Sometimes you only have 30 or 60 days, so make sure you are on top of that,” says Hajde. “Prevention of denials is key to being a high-performing practice.”

Rao says the billing department is the most important aspect of the business. “If you did a service, and you don’t get paid for it, your payment for your time is zero,” says Rao. “You need the ability to be savvy when it comes to charging what’s appropriate, but also to know that insurance companies may put up roadblocks, so you need to have a really, really good billing system to deal with that.”

Understand payer contracts & patient demands

Every contract has its own unique details about requirements for prior authorizations, medical necessity, timely filing and other details in addition to the reimbursement agreement. Hajde says it’s important practices understand the details to avoid denials and delays.

“The other thing that a lot of practices that are underperforming fail to do is they haven’t reviewed or renegotiated their payment rates, and in some cases, for many, many years,” says Hajde. “I’ve talked to some practices that haven’t renegotiated with an insurance payer for five or 10 years, and they are underperforming in terms of their payment rates.”

Also, verify payment compliance and do not assume the payer is always accurate. “Confirm the payment is actually for what your contracted rate is, because sometimes you are inadvertently underpaid,” says Hajde.

Another aspect to understand is what the reimbursement rates are for physician extenders and how they might be able to help—or hinder—the overall profit of a practice, says Ross Nelson, MD, health care strategy leader for consulting firm KPMG. Having all providers work at the top of their license is the best formula, but reimbursement has to be taken into account to determine who should provide each service.

Practices also need to understand the services patients want. “You should make sure that you have the whole complement of services to the best extent that you are able to offer so you can best serve them and not lose them if they have to go somewhere else for those services,” says Nelson. “Practices should have a good sense either anecdotally or qualitatively of what services are required by their patients and whether those are being outsourced or not. They need to figure out if there is sufficient demand, the level of competition and whether they have a right in their patient’s mind to deliver that service.”

Communicate expectations

Patient communication ties directly to a practice’s finances. Patients need to know what they’re going to be responsible for when they first come into the office, says Hajde. They should be informed what part of the payment they will be responsible for and if they can’t pay, how payments will be handled.

“Patients want to know what they owe, as soon as possible,” says Rick Gundling, FHFMA, senior vice president professional practice, Healthcare Financial Management Association. “Also, make sure that you’re able to talk through any payment plans or all other alternatives so that if a patient can’t pay, then they know what’s available.”

All payment policies and procedures need to be clearly communicated to staff as well. “Establishing with your staff how to work with patients is a great recipe for having good outcomes for collecting from patients and for people knowing exactly what they are going to be into upfront,” says Hajde. He recommends training staffers so they align with the best practices in the hospitality industry where service is paramount. The more communication a practice has, the more cooperation it will get from patients because they understand in advance what is going to happen and feel like they are getting exceptional service.

Gundling says to survey patients on how they wish to be contacted: text, phone, portal or app. Different patient populations have different expectations, but knowing their preferred communication type can help with billing- and care-related messages. Gundling says an online payment portal is vital because patients expect the convenience and it can speed up payment.

Remember that communication goes both ways. Post-pandemic, patients may have new expectations for practices. “The whole flow of patients’ needs to be looked at because people do not want to be sitting around in waiting rooms anymore,” says Gundling. “You could reconfigure your space, and you may not need a large waiting room, or you may need less leased space, which could save money. The other thing to look at is how are you going to use telehealth going forward as part of your practice and how do you coordinate that into your care process?”

If new services are being added, or a practice needs to boost visits, communicate with the existing patient panel first, says Rao. “We already have their information, they’ve already signed everything, so we just push out the ‘Hey, you are due for your physical’ notices. If you take care of a lot of diabetics, you may be able to point them to a webinar on diabetes, for example. Marketing to your existing patients is more powerful because they already know you.”

Create a positive culture

Management consultant Peter Drucker once said that culture eats strategy for breakfast. A practice can have the best strategy, but if the culture doesn’t align, retaining key employees will be difficult.

“You really need to demonstrate and have a high-quality mission, vision and values statement for your organization and commit to customer service training to really create a high morale and great patient experience,” says Hajde. “Patients really pick up on it and anyone who’s been in a medical practice or other health care facility, they can just tell when employees are dissatisfied, and it doesn’t lead to a great experience. It won’t make patients want to tell their friends and family to go to this practice or organization.”

When a practice starts tracking productivity and patient satisfaction levels, it might reveal some harsh truths about the existing staff. Some employees — including those who may have been with the practice for many years — may not be contributing as much as they should.

“Maybe the physicians were just looking the other way when the person was reading a book in the afternoon or whatever was happening, where they maybe weren’t doing what they should have been or could have been doing,” says Hajde. “I think it’s really important to kind of set expectations that apply to absolutely everyone, and that ties back into having that culture.”

Everyone should know the goals of the organization and the practice should work with them to make sure they are equipped to meet those expectations. Sometimes, people fail because they don’t understand how to do their job as well as they should, so it can truly be a training issue.

“In some cases, a process has been made so complex that they can’t possibly do it right,” says Hajde. “For example, if you look at the number of steps to check in a patient, there might be 75 steps. People are going to make a lot of mistakes. If you can apply some lean principles and get 75 down to 10, all of a sudden, the person making errors every single day can do those 10 things correctly. Sometimes the process is broken, not necessarily the individual.”

Employees become disengaged when they don’t really understand what their goals are, and they don’t understand how they are contributing to the success or the organization. Disengagement can also occur when there is a poor relationship with the supervisor.

Hajde says by making sure both employees and supervisors are properly trained, and everyone understands how they contribute to the organization, a positive culture can take root, boosting patient satisfaction and profits. “If you do those two things in parallel, it can really create a great culture for a practice,” he says.

Rao notes that employee retention is the biggest benefit of putting effort into creating a great culture. “The most costly thing you can do is to take a high performer and not have them feel valued,” he says.

Take action now

Even the best practices aren’t necessarily doing all of these things exceptionally well, so there’s always room for improvement. Focus on the areas with the biggest financial return first, such as productivity, accounts receivable or expenses, and benchmark those areas and track the budget for them. Once the habits of tracking and analyzing data on regular basis happen, it becomes part of the daily routine. Hajde says a practice of any size can accomplish this and it doesn’t necessarily require consultants or outside help.

For struggling practices, start by focusing on one or two items. “Benchmark those key performance indicators—that’s where you really want to begin,” he says.

Rao says successful practice leaders dedicate time to paying attention to the numbers. “You have to make sure you have a good pulse on what the finances are, because sooner or later, a crisis will come up, and that’s when you’ll realize you are in big trouble.”