Perspective is everything: Look beyond reported losses

Fi n a n c i a l M a n a g e m e n t

DATA MINE Extracting wisdom from the numbers

Perspective is everything: Look beyond reported losses T

o better understand why some hospitalowned medical groups operate with financial deficits (total expenses exceeding practice revenue), you must dig beneath the surface of the data and gather more than financial records. The MGMA Cost Survey report provides a comprehensive picture of the financial performance, payer mix, revenue cycle and revenue for these medical groups. You can simply compare revenue for hospitalowned and physician-owned medical groups, or you can widen your scope to gain an appreciation for the ongoing value medical groups bring to the table — from the benefits of referrals to ancillary services and more. This becomes increasingly important after a purchase has taken place if the health system questions the financial performance of its acquisition. The graph on page 18 compares how median total medical revenue per fulltime-equivalent (FTE) physician is 66 percent lower in hospital-owned multispecialty groups compared with similar physician-owned practices, and how hospital-owned medical groups have lower median total operating costs than physician-owned medical groups. We see similar compensation and benefit expenses for hospital- and physician-owned practices, and we can attribute the slightly lower total physician compensation and benefit cost in hospital-owned groups to the higher percentage of primary care physicians in hospital-owned practices (58 percent) than in physician-owned medical groups (51 percent). The graph also shows the financial bottom line, with hospital-owned multispecialty groups reporting a median overall loss per FTE physician of $174,430. There are myriad reasons why there is a difference in financial performance for hospital- and physician-owned practices, and some of the most obvious are shown

©2012 MGMA-ACMPE. All rights reserved.

in the chart. You see substantial differences in productivity, payer mix, revenue cycle and clinical activity in hospital- and physician-owned multispecialty groups, all of which impact financial performance. (See chart on page 19.) Our data show that provider productivity, as measured by median physician work resource-based relative value scale (RBRVS) RVUs per FTE physician, is 16 percent less in hospital-owned medical groups. Some of the difference can be attributed to a greater percentage of primary care doctors in these groups and different financial incentives in hospital-owned practices, which have more physicians who earn salaries and fewer who are paid on production incentives. The Cost Survey data show that hospitalowned medical groups have a combination of insurance payers similar to their parent organizations, not the payer mix reported by physician-owned practices. Comparing the columns, you see that hospital-owned multispecialty groups have 5 percent less

By David N. Gans, MSHA, FACMPE, senior Fellow, Industry Affairs, MGMA-ACMPE, [email protected]

ACMPE Fellow

The physician enterprise brings ongoing value to an integrated system, which extends far beyond financial performance. Medicare, 10 percent less commercial insurance, 39 percent more Medicaid and much more charity care than physicianowned medical groups. The combined effect of these differences is that hospitalowned practices generate less revenue from the same work than physician-owned groups due to differences in the levels of payment from different payers. Lower payment levels are exacerbated by a difference in the revenue cycle. see DATA MINE, page 18

mgma.com • mgma.com/store, item 8512 and 8513

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from page 17

Data Mine

Hospital-owned groups reported a median adjusted collection rate of 96.7 percent compared to 98 percent in physicianowned groups. There are valid reasons why this occurs, but the bottom line is that hospital-owned practices collect less revenue for the same charges. The largest difference in revenue comes from clinical activity. Physicians in hospitalowned medical groups have 20 percent more medical procedure gross charges performed outside the practice, which reflects the fact that their physicians practice in hospital ambulatory care clinics and use provider-based billing. This means the hospital bills separate facility fees — and the practice bills a lower professional service fee amount — for these services. By billing both facility fees and professional service fees, hospital systems receive more payment than physician-owned groups receive for the same service, but the medical group only reports the professional service amount. A common change made when hospitals purchase private medical groups is to minimize ancillary services performed in

doctor’s offices and to transfer these services to other entities in the hospital system. There are good reasons for this strategy — centralizing laboratory and radiology services enable integrated systems to gain economies of scale, which can lower costs and improve quality. However, the lower volume of ancillary services has a substantial impact on a medical group’s revenue. Median laboratory procedure gross charges per FTE physician are $104,218 less in hospital-owned multispecialty groups, and median radiology procedure gross charges per FTE physician are $89,612 less. The sum of these values multiplied by the gross collection percentage is almost $100,000 less in ancillary services from physician-owned multispecialty groups than from hospital-owned groups. Hospital-owned multispecialty groups report much lower nonprocedural gross charges related to infused drugs, durable medical equipment and similar services than physician-owned practices. Other parts of the hospital system provide these services, and the revenue associated with the

Median total medical revenue and expenses per FTE* physician for physician- and hospital-owned multispecialty groups $894,258 Hospital-owned multispecialty groups Physician-owned multispecialty groups

$538,803

$528,182

$389,240 $331,828 $301,799

Median net profit or loss (excluding financial support) per FTE physician

$33,117 $31,907

Median total medical revenue per FTE physician

Median total operating cost per FTE physician

Median total nonphysician provider compensation and benefit cost per FTE physician

$4,179 Median total physician compensation and benefit cost per FTE physician

-$174,430

* full-time-equivalent Source: MGMA Cost Survey for Multispecialty Practices: 2012 Report Based on 2011 Data p a g e 1 8 • MGMA Connexion • November/December 2012


products is reported in other parts of the integrated system, not in the physician group. It’s deceptive to look only at the financial statements and assume that is the whole story. The accounting reports are just the beginning of a rich tale. Looking at practice performance in other areas

gives you a better perspective of the root causes behind operational losses reported by hospital-owned medical groups. The physician enterprise brings ongoing value to an integrated system, which extends far beyond the reported financial performance.

MGMA Cost Survey: 2012 Report Based on 2011 Data Hospital-owned multispecialty groups

Physician-owned multispecialty groups

6,252

7,250

Median medical procedure inside the practice gross charges per FTE physician

$561,941

$674,835

Median medical procedure outside the practice gross charges per FTE physician

$83,732

$66,712

Median surgical procedure inside the practice gross charges per FTE physician

$53,389

$78,324

Median surgical procedure outside the practice gross charges per FTE physician

$75,038

$134,234

Median laboratory procedure gross charges per FTE physician

$37,268

$141,486

Median radiology procedure gross charges per FTE physician

$24,300

$113,912

Median nonprocedural gross charges per FTE physician

$15,370

$100,267

Adjusted FFS*** collection %

96.66%

98.02%

Gross FFS collection %

51.57%

55.70%

Medicare

30.1%

31.6%

Medicaid

12.2%

7.4%

Commercial insurance

50.6%

55.5%

0.8%

0.9%

Productivity Median physician work RBRVS* RVUs per FTE** physician Clinical Activity

Collections

Payer Mix

Workers’ compensation Charity care and professional courtesy

1.3%

0.3%

Self-pay

4.1%

3.2%

Other government payers

0.9%

1.0%

Hear more from Dave Gans at the Financial Management and Payer Contracting Conference in Phoenix, Feb. 24-26, 2013. Visit mgma.com/ fmpc2013.

Data Mine correction: The legend for the graph “Compensation and collections for orthopedic surgery physicians by practice owner” that accompanies the Data Mine column in the October 2012 issue incorrectly reversed the color for orthopedic surgery compensation in hospitaland physician-owned practices. The correct line graph illustrates the compensation for orthopedic surgery physicians in hospital-owned practices exceeded that of orthopedic surgery physicians in physicianowned practices beginning in 2008.

* resource-based relative value scale ** full-time-equivalent *** fee for service


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