Six Tips for Survival in the Coming Years

1. Practice more efficiently.

"In the past, practices have been able to get away with some inefficiency. It was tolerable because the margins were enough to compensate for inefficiencies in practice," says Bob Elson, MD, MS, of iMcKesson Provider Solutions Group, an Internet-based technology company with headquarters in Minneapolis.

Now, reimbursement rates have dropped and the hassle factor for physicians has gone up. Not only is reimbursement less but physician practices also have to deal with more overhead and an increasingly complex array of payer rules.

Physicians should move back to the basic mentality of how to increase the efficiency of their practices, adds Randall Killian, MS, MBA, executive vice president of the National Association of Managed Care Physicians in Glen Allen, VA. "They have to reduce costs, increase customer service and patient satisfaction, and collect what is owed them," he says.

2. Look for alternative sources of income.

Some physician practices are earning money by dispensing products that are quasi health care-related, such as vitamins, grooming supplies, and other therapeutic aids, says John Knapp, JD, an attorney with Cozen and O’Connor in Philadelphia.

"Some doctors’ offices are doing this and doing it quite profitably," Knapp says. The trend is particularly strong in women’s health care as obstetricians and gynecologist dispense skin care products, vitamins, and other items that are not traditional medicine, he adds.

Knapp recommends that doctors look for revenue sources that are not reimbursed by insurance but that consumers are willing to pay for out of pocket, including cosmetic surgery or laser surgery.

"I am seeing physicians revisiting the concept of having their own products, whether it’s direct contracting or filing for an HMO license or setting up independent centers," says William J. DeMarco, president of DeMarco & Associates, Inc., a Rockford, IL health care consulting firm.

Physician-owned centers have done very well, he adds. For instance, if employers say the cost of imaging in the local hospitals is soaring, consider joining with your fellow physicians and creating an independent imaging center. If you can’t get procedures scheduled when you want or have to wait for get lab tests, consider setting up an ambulatory surgery center.

3. Don’t be tempted to cut back on staff to save money.

"Doctors often shoot themselves in the foot when they see income going down and respond by reducing staffing. Those with higher staffs are doing better and collecting more of the money that is due them," says William F. Jessee, MD, president and chief executive officer the Medical Group Management Association (MGMA), based in Englewood, CO.

The MGMA’s annual survey shows that practices that are the most profitable and financially successful have more staff per physician than practices that are not doing as well, Jessee adds.

For instance, the MGMA survey shows that some practices are failing to collect 15% of their accounts receivables, money that is legitimately due them. The solution could be hiring another staff person who is not highly paid but is persistent and can keep trying to collect from the managed care plans.

The extra money collected could more than offset the cost of an additional employee, Jessee points out.

Jessee suggests you benchmark your practice against other practices to see how you are doing. If your collections are less than average, look at what you may be doing wrong.

4. Prepare a long-term budget.

If your practice is like many, you don’t really plan ahead for future expenditures. Maybe you haven’t had to in the past because your cost of supplies and personnel remained fairly stable.

However, in today’s high-tech climate, things have changed and you’ll need to plan ahead to keep your practice financially viable.

In the near future, you’ll have to implement the Office of the Inspector General’s compliance guidelines, follow regulations mandated by the Health Insurance Portability and Accountability Act (HIPAA), and get ready for the new ICD-10 codes. All of these will require major investment of money and staff time.

"Physicians look at their long-term needs and plan for them. If items such as replacing the computer system, upgrading their technology and training new staff on coding, compliance, and other issues are in the budget, it’s a lot easier to manage," DeMarco says.

5. Retain some money at the end of the year.

DeMarco recommends saving some of your end-of-the-year cash to re-invest in your practice. "I advise my physician clients not to take all the money out at the end of the year. The accountants will invariably disagree and say the tax man will get some but if you reinvest in your practice, you can minimize the tax impact," DeMarco says.

Keep enough cash on hand at all times to handle emergencies so you can keep borrowing to a minimum," DeMarco suggests. "Businesses can get under water quickly if they borrow for this equipment, then turn around and borrow for that equipment, thinking it will be paid off at some point," he adds.

6. Take advantage of economies of scale by joining other practices for some services.

If you’re not interested in merging with other practices, you can still benefit by joining with other groups to create a central company to provide strategic services such as billing, administrative services, and compliance activities, DeMarco says. Under a "confederation" arrangement, individual practices keep their autonomy but share administrative staff and services, and their costs, he adds.

A physician-owned company can buy practice software, hire a compliance officer, handle billing functions, and take over managed care negotiating and purchasing for its member practices. "There are rules. All the practices have to bill the same way, and develop business policies the same way. We’re not talking about merging assets. They will each remain separate corporations but they will join together for billing, managed care negotiations, purchasing, and other functions," De Marco says.

For instance, having a compliance office as suggested under the OIG compliance guidelines may be prohibitive for a small practice. But if you join together with nine other practices, you can hire someone to handle compliance activities for all 10 groups, he adds.