Three Ways to Improve Your Physician Practice Revenue

Focus on these neglected areas: staffing, business overhead, and payer contracts.


Physician groups must look for every opportunity to strengthen financial performance. While optimizing revenue cycle performance is an essential part of this process, equally important is identifying ways to improve three other critical, but often overlooked, aspects of the practice: staffing, business overhead, and payer contracts.

Gains made in the areas of staffing, overhead, and payer reimbursements can contribute to more effective recruitment and retention as well as boost financial performance in the long run.

Solving the Staffing Puzzle

Physician compensation and benefits represent by far the biggest portion of cash outflow for any physician practice, be it hospital or office-based. Physician staffing levels should be assessed to balance demand for services and the financial expectations of physicians.

Achieving optimum staffing is a continual challenge, given the ebb and flow of demand, differences in individual physician productivity, overall compensation expense, economic conditions, and uncertainties about future reimbursement rates. It is important that groups quantify these variables.

Benchmarking the Practice

Engage in a systematic assessment of existing group staffing patterns, productivity, and future needs.

The process begins by determining whether staffing levels are adequate for demands. One way to do this is to calculate the current annual workload per physician in work Relative Value Units (wRVUs).

Generating these values allows for roughly equivalent productivity comparisons between physicians and provides an opportunity to benchmark your practice against information available in the industry as a whole and against similar groups locally, regionally, and nationwide.

Total wRVUs should also be projected for the next several years based on anticipated hospital demand and/or the likelihood of new competition.

Determining Compensation

Physician salaries, benefits, and physician expenses collectively should represent about 85 percent of practice revenues for hospital-based practices and some specialties (the numbers can differ greatly for primary care and high-patient-contact specialty practices).

Physician-specific expenses that are included in compensation and benefits typically include items such as insurance (malpractice, health, dental, vision, disability, and life), retirement plan contributions, dues, licenses, continuing medical education (CME) costs, and payroll tax expense.

Understanding the Physician Mix

Determine whether your partner or partners may be considering a part-time schedule, leaving or retiring, and if so, in what time frame. Physician expectations regarding time off, call coverage, and income also must be factored into the equation.

Your group may conclude that using locum tenens physicians or part-time physicians to help meet temporary demand spikes may be the most costeffective path.

Squeezing Overhead

If practice overhead excluding physician compensation and benefits expense is well in excess of 15 percent for hospital-based practices, key cost components may be too high. Practice overhead is considered to be any cost that does not directly contribute to compensation or benefits.

Non-physician salaries and benefits frequently represent the majority of business overhead, particularly if the practice has in-house billing staff. And the costs can add up once annual raises and health insurance premiums are taken into account.

Your group should, therefore, take a hard look at whether it is economically prudent to maintain billing operations in-house. You may instead want to consider partnering with a qualified billing vendor.

Physician salaries, benefits, and physician expenses collectively should represent about 85% of practice revenues for hospitalbased practices and some specialties (the numbers can differ greatly for primary care and high-patient-contact specialty practices).

Reviewing Payer Contracts

When it comes to payer contracts, physician groups often neglect these agreements after the initial deal with the payer has been signed. The result can be lost revenue due to a failure to keep pace with reimbursement terms negotiated by physician peers in the market.

Groups also must be proactive and alert when it comes to contract amendments that indicate intent to lower the fee schedule due to a desire to “streamline” or “improve competition.” The challenge is that the practice may be given as little as 30-45 days to respond, with failure to respond interpreted as acceptance.

Contract renegotiations require similar consideration. Some commercial payers will paint uncertainty around the economy to justify negligible increases in their reimbursement rates or to delay any increases for an additional year.

Failing to continually manage payer contracts can have a serious impact on your group.

Monitoring productivity versus existing staffing and working to maintain accurate projections of future demand can help your group make sound hiring decisions. Tracking overhead so that overall costs remain within a pre-defined range helps you focus on opportunities for savings. And revisiting payer contracts can provide your practice with the information needed to negotiate from a position of strength at contract-renewal time.

Payer Contract Renegotiation Tips

  1. Make sure you have copies of your contracts; then read them. If documents cannot be located, contact the payer physician representative for copies.
  2. Determine how each payer agreement is structured. Is the payer contract with the group or with each individual physician? Know who has the authority to renegotiate, and how that process should unfold. Groups also should check any existing hospital agreements to determine whether managed care participation with all hospital payers is mandatory.
  3. Examine your payment vouchers and audit your explanation of benefits (EOB) documents routinely. Verify that you’re being paid correctly, by reviewing your top five to 10 payers for payment inconsistencies.
  4. Pay attention to filing timeframes. If you don’t file within the payer’s timeframe, your claims could be denied, meaning you could be forced to write off an account balance instead of collecting it.
  5. Keep the hospital administration informed. Hospital-based practices should request the hospital’s assistance in resolving questions about payer policies.
  6. Don’t be afraid to negotiate aggressively. Many payers start with a “no negotiation” stance and practices frequently give up, thinking it is less painful not pursuing the issue. But the longer the current situation continues, the more difficult it can be to untangle, correct, and obtain better rates. You need to advocate for your group, educating payers with solid market data.
  7. Be reasonable and realistic in negotiations. Groups that are willing to work with payers and accept a step-up in rates, or other compromise, over a period of time tend to benefit more in the long term.
  8. Recognize when reimbursement is tied to the Medicare schedule. Analyze the Medicare schedules for your practice and for common procedures. Then negotiate with your payers to base reimbursements on the most favorable schedule – even if it is not the most commonly used one.
  9. Verify termination deadlines and pay attention to them. Contract termination can seem like a drastic step when a contract is unfavorable and negotiations have stalled. But it is sometimes the only appropriate course of action, particularly if a payer refuses further communication.
  10. Be prepared for a complex process. Evaluating and renegotiating contracts can be a difficult and time-consuming process. Therefore, you should closely consider whether the business office has the time and/or expertise to perform these responsibilities effectively. If the answer is no, discuss with your legal counsel the possibility of bringing in an outside consultant to manage the process. This approach could save the practice time and aggravation, and also potentially improve revenues for the group.
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