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 The U.S. healthcare system is in the midst of changes that will affect how doctors are paid and how physicians relate to hospitals and insurance companies. Some of the changes are the result of the insurance coverage changes initiated through the provisions of the Patient Protection and Affordable Care Act, while others are due to market forces unrelated to the federal legislation. Regardless of what is prompting the evolution of the U.S. healthcare system, physicians need to assess their strategies to respond to a new system where everything is in short supply except the number of patients.
Some physicians may believe they can elect to wait and see how the health system evolves before they commit scarce resources to purchase new technologies, hire new staff or establish new programs. Unfortunately, doing nothing could put a practice in peril. In a rapidly changing system, an organization needs to evolve at a faster rate than its environment if it is to survive.
Know Your Revenue
Fortunately, medical leaders have options that can position the organizations for success. The strategies are not complex and do not necessitate capital expenditure. To be ready for whatever the future will bring, a practice needs a strategy that will enable it to know:
- its revenue and costs;
- what it costs patients and insurers; and
- its quality.
To remain in business, a practice needs to measure and track its revenue, expenses and operating margin for the practice as a whole an on a per procedure basis. While this task may appear daunting, it can be accomplished with just a few metrics.
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Total medical revenue per full-time-equivalent (FTE) physician and total medical revenue per total resource based relative value unit (RVU) informs leadership the gross income and the revenue attributed to producing the standard measure of professional service output.
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Total operating cost per FTE physician and total operating cost per total RVU allows the practice to understand overhead and when subtracted from total revenue to determine gross margin for the practice and each procedure (by simply using the RBR VS RVU weight in a standard costing approach
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Total medical revenue after operating and nonphysician provider cost per FTE physician and total medical revenue after operating and nonphysician provider cost per total RVU represent the net profit of the practice and the amount that a physician owned medical group has available to distribute as compensation and benefits to its shareholders.
With these few measures, a practice can evaluate its cost structure in the context of productivity and profit and use the information to study its cost structure and workflow to increase practice efficiency
Know Your Costs
In addition to knowing its own revenue, costs and profit margin, a practice needs to know what it costs patients and insurers. In the new environment, primary care providers will be evaluated on the number and type of referrals; specialists will be rated on the days of hospitalization by DRG for admitted patients; and all physicians will be measured on the cost of prescribed drugs and the frequency they use generic equivalents.
The new order will publically report the quality of care provided in the practice. To prepare for what others will eventually know anyway, a practice needs an internal system to collect and measure:
• Access - what are patient waiting times, time to the third next available appointment, etc.
• Process - does the practice measure the HbA1c level of all patients with a diagnosis of diabetes at least twice annually?
• Clinical outcomes - What is the percent of patients with whose HbA1c is in poor control?
• Patient experience - How do patients describe their satisfaction with the practice and its providers?
• Patient safety - What is the hand washing frequency?
• Preventive health measures - what is the influenza immunization rate?
These strategies will drive other decisions. The practice's financial and billing systems need to be up to the task of capturing the information that will be used to measure performance. As well, the practice will need to implement an electronic health record (EHR) and optimize its use to collect patient population data and implement chronic disease registries. The EHR and upgraded practice management system will let the practice track and report Patient Quality Reporting System (PQRS) metrics.
Be Able to Adapt
The most critical strategy may actually be the most difficult to implement: Leaders need to be flexible and able to respond to whatever the environment brings. Planning is important, but perhaps the most critical trait for future success will be the ability to adapt to whatever happens. Change will occur, and the practice that prepares for change will be positioned not only to survive, but to thrive in the new world of healthcare.
Charles Darwin in his evaluation of the natural world provides very practical advice for healthcare leaders: "It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change."
David N. Gans is Vice President of Innovation and Research, Practice Management Resources, Medical Group Management Association.
 MGMA is the premier membership association for professional administrators and leaders of medical group practices. Today, MGMA's 22,500 members lead 13,700 organizations nationwide in which some 275,000 physicians provide more than 40 percent of the healthcare services delivered in the U.S. Visit http://www.mgma.com/ for more information.
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