Supply and Demand in Medical Care

Posted on December 19, 2007 by Dr. David Edward Marcinko MBA MEd CMP™

The Imperfect Competitive Medical Marketplace

By Dr. David Edward Marcinko; MBA, CMP™

By Hope Rachel Hetico; RN, MHA, CMP™biz-book1 

The issue is not how to fill or reuse empty beds. In this changing environment, hospitals and health systems must focus on streamlining and simplifying operational processes, facilitating case management, promoting the least costly setting for care delivery, and optimizing resource sharing among departments. When hospitals have addressed these issues, then solutions to the “bed problem” will be obvious.

-Cynthia Hayward, 1996

How and why the current healthcare imbroglio happened is very complex, but here is a brief synopsis of current supply-demand inequalities.

A Definition of Medical Care 

Medical care is defined as the finite examination and treatment of patients, for monetary compensation. Among other reasons, changes in patient demand may occur as a result of the absence or presence of health insurance plans or the encouragement of additional treatments by profit maximizing providers. 

Health Economics 101 

Changes in supply occur as a result of physician shortages or surpluses and a host of other factors. Until recently, a glut of physicians has caused them to become “price takers,” selling a homogenous service.

How else could aggregate HMO fee schedules drop to some percentage below prevailing Medicare or Medicaid rates in some instances? Or, how else could otherwise qualified physicians be de-selected from managed healthcare plans because of large (successful equates with expensive) practices? 

The Supply-Demand Curve 

A graphical representation of this economic relationship produces the classic downward sloping demand curve and the upward sloping supply curve. At some point in time however, the treatment plan is completed, the patient is satisfied, and additional services are not needed. This is known as market equilibrium.  

When an industry becomes more competitive – either by too much supply or too little demand – market equilibrium fees tend to become elastic while patient volume becomes very sensitive to even small changes in price. This may be where we have arrived, right now relative to medical price elasticity. 

Medical Price Elasticity 

In a managed care environment, every covered service has a low price ceiling and every “non-covered” service has its own price elasticity.   

Traditionally, medical services were inelastic to price changes and considered a growth industry since a fee increase would also increase revenues.  Now, the marketplace has become resistant to pricing pressure by physician oversupply and managed care.  

Generally, a pricing coefficient greater than one is considered elastic, while a coefficient less than one is inelastic.

Interestingly, exact unity prevails when elasticity of supply is exactly equal to one.  

In the golden days of medicine, the price elasticity of medical care was greater than 1, now it is about .35 and diminishing 

Meaning to Doctors 

Financially, all this means that many doctors are “taking what they’re given (by HMOs, CMS, etc), because they’re working for a living”.   

Younger doctors under 40 are especially inclined to work for less since they have had little exposure to fee-for-service compensation. Older doctors are retiring. Middle-Agers are frustrated. 

Additionally, physicians have an increasingly smaller share of the medical marketplace because of so-called medical care extenders, such as PAs and nurse practitioner’s.

Some health plans have even done away with many true allied healthcare professionals, such as RN’s or CRNAs, in favor of trained, not educated, and less costly technicians.  

Conclusion

Join Our Mailing List

Despite the financial impact of managed care on doctors, patients may also be hurt physically as the economic cost of medical re-intervention is often much more than the cost of the proposed initial professional care.  

For example, a study by Deloitte & Touche a few years ago, reported employee satisfaction was decreasing about 10 percent per year, as healthcare coverage represented a fiscal and economic time bomb on corporate books. 

How would you comment on the above in light of the IOM on medical errors and mistakes, findings a few years back?

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Product Details

 Product DetailsProduct DetailsProduct Details

Filed under: Health Economics, Health Insurance, Healthcare Finance, Managed Care, Practice Management | Tagged: , , , , , , , , , | 10 Comments »

Medical Accounts Receivable and Collections

Posted on December 17, 2007 by Dr. David Edward Marcinko MBA MEd CMP™

Join Our Mailing List

Working Hard for the A.R. Money

[By Staff Writers]  

Just as location is a critical element in locating a medical practice, collecting your ARs is an important critical element in maintaining the financial health of your medical practice. Your practice is not a bank and an effective billing system should be complemented by an efficient collection system.  

Policy Setting 

A policy that is too conservative may results in poor collection rates while an aggressive policy may be counterproductive and increase liability.  Have collectors call early and often. Waiting only encourages patients to pay late.

Use the 80/20 rule and concentrate on your biggest accounts first.  Get non-performing receivables off the books. Accounts over about 120 day should be turned over to third party agents. Out-sourcing to collection agencies vary significantly in terms of quality and results.  Most charge from 30 to 50% of what they collect.

Collection Agency Selection Criteria 

According to John Broderick, an executive staffing consultant from New York, the following should be considered when selecting a collection agency or using in-house personnel: 

  • Assertiveness and Analytical Skills: Collectors should be able to break a billing problem into component parts and aggressively pursue each part without being unduly tactless.
  • Creativeness and Curiosity: Collectors should keep abreast of new computer and software technology and pursue innovative philosophies related to the billing process.
  • Empathy and Communicativeness: Collectors should be able to communicate with both patients and doctors, yet still be able to put themselves in others’ shoes to view problems from each perspective.
  • Perspective and Stability:  Collectors should be able to see the patients entire economic picture and maintain an emotionally objective and neutral attitude toward the collection process.
  • Integrity and Tenacity: Collectors should have steadfast attitude and still earn the trust of clients, relative and the doctor employer. Collections should be in immediately since waiting 
  • Salary: An entry level full time office billing collector should be familiar with all States laws regarding the collection process and be paid in the mid 20-Ks per annum.  If not, after some time he or she may take their experience and training to another office for considerably more compensation.

Claims Court 

Remember, small claims court is the last avenue for payment. Often a decision has to be made whether to forgive or “write off” a patient’s balance if indemnity insurance coverage is maintained and this decision is best made on an individual basis.  

Unfortunately, malpractice claims have resulted by pursing past due accounts too aggressively.  This is especially true with surgical patients and it is best to pursue payment diplomatically, gently and often forgivingly.

Assessment

You could be losing money if your practice is still using a traditional checking account for its daily cash activities.

One way to make your cash work more effectively is to open a cash management account with a brokerage firm. This will ensure that your practice’s money is earning a much higher rate of interest. 

Channel Surfing the ME-P

Have you visited our other topic channels? Established to facilitate idea exchange and link our community together, the value of these topics is dependent upon your input. Please take a minute to visit. And, to prevent that annoying spam, we ask that you register. It is fast, free and secure.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Product DetailsProduct Details

Filed under: Practice Management | 1 Comment »

The Equity Advantaged Medical Practice

Posted on December 15, 2007 by Dr. David Edward Marcinko MBA MEd CMP™

Building Medical Practice Value

By Dr. David Edward Marciniko MBA

In the competitive environment an equity-advantaged medical practice is not likely going to come from adding more HMO / ACO patients as a business strategy, or shifting your target market. You do it by making your practice worth buying to someone else.

In other words, a brand identity is the hallmark of increased practice value in the future. But, just what determines practice equity since there is no magic rule of thumb?  

Creating Practice Value 

The following helpful general suggestions are offered by valuation specialist Mark Tibergien CPA, formerly of the accounting firm Moss-Adams LLP, and have been modified below for medical practitioners regardless of degree or specialty designation:

· Maintain good financial records including all consolidated accounting statements for the last three years. Learn what was budgeted, what was spent, and what was at variance. 

· Monitor key specialty financial ratios, such as profitability ratios, creditor ratios and long-term debt management ratios. Continually mine the data for useful information and then implement changes on your own behalf.

· Be profitable and think long term by retaining capital and generating a business return. 

· Eliminate unnecessary practice expenses or non-recurring costs and eliminate any special perks of business ownership.

· Have a buy-sell agreement since it spells out the manner in which a physician can buy into the practice and how the practice will buy out an owner. Typically, buy-sell agreements also cover such topics as appraisal and valuation methods, accounts receivable equalization, excess earnings (profits) distribution, buy in/out time span, interest rate ranges, goodwill rates, tax deductibility of buyout payments and a host of other issues import to the involved principals. Have it reviewed once every one to two years.

· Pay yourself a usual, customary and reasonable salary for your specialty. Otherwise practice [business] goodwill value may be built-up, or depleted. 

· Practice using the correct business form for you. This may be as either as a sole proprietor, general partnership, S corporation, professional corporation, C corporation or limited liability corporation/partnership.

· Build a transferable patient base because if you create systems that revolve around either a few managed care contracts, or even yourself, it is difficult to transfer the business to someone else. Also, if you project yourself as the medical guru for your area, patients will have a hard time accepting a new doctor or organization. By focusing on something larger than yourself, such as group practice, you will begin to develop a business that others can operate easily.

· Use proper management information systems like EMRs without spending too much on your information technology gadgetry. You do not necessarily need to become an early adopter of the newest or untested information technology systems, but do become an adopter of mature products. 

· Have a covenant not to compete, which is an agreement whereby one party commits himself to not practicing for a period of time, within a geographical area, or with members of a defined population. According to healthcare law expert Frederick Wm. LaCava; Ph.D, JD, arguments can arise because of two sets of circumstances: [1] sale of a practice, or [2] as a term of an employment agreement. The law treats the two types quite differently, favoring agreements as part of the sale of a practice, and entertaining challenges to covenants in employment contracts. 

· Understand that practice [business] goodwill is the value attributed to ongoing business name recognition, location, telephone numbers, logos and all those things which would make a potential patient come to one doctor’s office rather than another’s. The IRS recognizes it as an economic as well as a value-added benefit. 

· Unlike practice [business] goodwill, personal goodwill is attributed to a specific doctor; it has little to no value since it “goes to the grave” with its attributor.

· Maintain services, responsiveness and consistency with your patients and referring doctors. This is critical because if you do not build strong relationships with these local players, premium value just isn’t there. A new doctor will not be able to rely on those established relationships going forward.

· Maintain compliance with all appropriate agencies [HIPAA, OSHA, EMTALA, EEOC, etc].

· Identify the right buyer and make sure the buyer has the necessary capital and you are not taking all of the risks in the transaction. You may or may not want to share financial risk with the buyer and you also may want a good personality match, since your life blood probably went into building the practice and you should want it to flourish going forward. 

Assessment 

Develop a forward thinking business and appraisal plan, since all doctors should plan to sell their practices at some point in the future. By understanding how practices are valued, you can create tremendous value for yourself.

Conclusion 

Contemporary physicians have a huge opportunity to build equity value into their medical practice. Whether or not this is becomes a reality – by focusing on creating maximum value – you can still design and modify your practice to enhance its value and achieve everything dreamed about when it was first begun, many years ago.

***

Product DetailsProduct Details

Filed under: Practice Management | Tagged: | Leave a comment »

Managed Care Cost Reduction Strategies

Posted on December 15, 2007 by Dr. David Edward Marcinko MBA MEd CMP™
Join Our Mailing List
A Methodology Review

By Staff Writers

There are many methods that payers use to control healthcare costs – from the perspective of the practicing physician – as some are reviewed below:

Cost Control Types:

Utilization Review [UR] refers to all the ways a managed care organization or HMO attempts to assure contracted physicians use available resources in the most cost-effective ways, either through prospective, concurrent or retrospective means.

Pre-Certification [PC] is a form of prospective review, while discharge planning and case management are a form of on-site and remote case management, respectively.

All are examined in light of medical guidelines and medical standards.  

Guidelines are interventions or treatments where the outcome of therapy is considered certain, or occurs more than 80 percent of the time. Guidelines are used for the more mundane, ordinary or usual medical problems.  

Standards are interventions or treatments where the outcome of care is considered uncertain, and a favorable outcome occurs less than 20 percent of the time.

Concurrent Case Management [CCM] was specifically developed as a response to soaring medical costs since it is been estimated that one percent of the American population is responsible for 30 percent of all medical costs, and five percent is responsible for half of all costs. Some claim that case managers save between $3-7 for every dollar spent and can reduce an HMO plan’s overall costs, by one to four percent.  

Retrospective Utilization Review [RUR] consists of peer and patterns review to purge physician outliers from the system through a form of economic credentialing.

Claims Review [CR] scrutinizes medical claims for improprieties, overcharges, surcharges or mistakes. For example, individual instances of the following medical services and billing practices are not “prima facie” evidence of over utilization. Reviewed in a larger context however, they may be indicative of an abusive pattern or trend that has developed or may be evolving, like these: 

  • Bill Fragmentation: Concurrent billing for services on separate forms, or at different times, or for services considered an integral portion of the primary service or procedure (“split fee billing”).
  • Claimant Billing: Claimant payment for services normally disallowed, reduced or denied.
  • Common Referral: Excessive patient referral among similar providers, for unnecessary diagnostic tests.
  • Cross Billing: Bill submissions to different payers which would normally be reduced.
  • Double Billing: Duplicate bill submission to enhance payment.
  • Missed Modifiers: Excluding code modifiers to upgrade payment.
  • Non-Disclosure: Referral in the face of financial interest.
  • Non-Rendered Services: Billing for services not rendered or required at the level required.
  • Over-Billing: Exorbitant billing beyond UCR to third party payers.
  • Over-Itemization: Claims submission for services normally considered an integral part of the primary service (“fragmentation” or “unbundling”).
  • Over-Prescribing: Prescription of services in excess of those not considered medically necessary.
  • Over-Utilization: Performance of medically unnecessary services.
  • Substandard Care: Care or services not meeting acceptable or professional national standards.
  • Unnecessary Follow-up: Prolonged care without medical need.
  • Upcoding: Billing for services at a level greater than provided.

When faced with the above, further physician review and/or discussion with the provider/plan may be required for the amelioration of any disputes.  

What has been your experience with the dispute resolution process – friend or foe?

Product DetailsProduct DetailsProduct Details

Filed under: Practice Management | Tagged: | 2 Comments »

Practice Revenues Slow

Posted on December 12, 2007 by Dr. David Edward Marcinko MBA MEd CMP™

Rising Practice Operating Costs Implicated

Staff Writers

 

The Medical Group Management Association (MGMA) recently reported that operating costs rose faster than revenue in many medical group practices in 2006. 

 

OB/GYN groups, for example, experienced a 2.3 percent bump in median total medical revenue per full- time-equivalent (FTE) physician, but their median total operating cost per FTE physician rose 7.1 percent.  

 

Multi-specialty practices did about the same – a 7.4 percent cost increase outpaced a 1.8 percent rise in revenue. Several specialty practices watched their revenues decline or flatten.  

 

Cardiology practices posted a 0.7 percent decrease in median total medical revenue and a 3 percent increase in total operating cost, while family practice fared about the same with a 0.65 percent decline in revenue and a 2.1 percent bump in cost.

 

General surgery groups reported a decline in revenue of nearly 2.9 percent and a 1.2 percent increase in cost.

How has your medical specialty and/or clinic or healthcare entity been affected?

For related info: The Business of Medical Practice [Advanced Profit Maximization Techniques for Savvy Doctors]
http://www.springerpub.com/prod.aspx?prod_id=23759 

Filed under: Practice Management | 1 Comment »

Reducing Medicare Payment Denials and Reductions

Posted on December 7, 2007 by Dr. David Edward Marcinko MBA MEd CMP™

Start with Diagnosis Coding Documentation Guidelines

By Patricia A Trites; MPA, CHBC, CPC, CHCC, CHCO, CMP™(Hon) 

[CEO: Healthcare Compliance Resources, Inc]

A 2003 audit of Medicare claims by the Office of the Inspector General (OIG) found that Medicare fee-for-service payments that did not comply with all of the Medicare laws and regulation was $13.3 billion in fiscal years 2001 and 2002. 

Improper payments in 2002 occurred mostly in three areas: medically unnecessary services (57.1 percent), documentation deficiencies (28.6 percent) and miscoding (14.3 percent).

And so, how do you prevent or reduce denials or reduction of payment when claims are adjudicated as “not medically necessary”?  

Begin by following the diagnosis coding documentation guidelines, which are: 

  • Code to the ultimate specificity. There is a significant difference between 716.90, Arthritis, Type and Site Not Otherwise Specified, and 716.39, Menopausal Arthritis, Multiple Sites-Joints.
  • Use Additional Codes and Underlying Disease Codes. Many conditions require, by medical-record coding rules, that you use two ICD-9 codes and that these codes are put in the appropriate order. For example, 533.30 Peptic Ulcer-Acute and Without Obstruction, and 041.86, Due to Helicobacter Pylori Infection.
  • Use multiple codes to fully describe the encounter. This includes coding any additional co-morbidities and/or signs and symptoms that affect the patient’s current encounter.
  • Choose the appropriate principals diagnosis and properly sequence secondary codes. List first the ICD-9-CM code for the diagnosis, condition, problem, or other reason for encounter/visit shown in the medical record to be chiefly responsible for the services provided. Then list additional codes that describe any co-existing conditions or symptoms.
  • Avoid using .8 and .9 “catch-all” codes. In the ICD-9 system, descriptions and digits are provided for times when a physician lack information about a patient’s exact condition or diagnosis. The codes commonly end in .8 or .9 and are commonly referred to as catch-all codes. Under Medicare coding guidelines, these codes should be used only when the specific information required to code correctly is unknown or unattainable. 

Do you use a professional coder in your healthcare entity; or do you do-it-yourself?

Get our Widget: Get this widget!

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

For more information: http://www.mgma.com/store.aspx?i=519&kc=ECN

Product Details

Filed under: Health Law & Policy, Practice Management, Quality Initiatives | Tagged: | 2 Comments »

« Previous Page