This is the second in a series of posts about physician retirement planning that I created as part of a presentation that I am giving to fellows in training at...
It is hard to make a huge salary with a purely outpatient medical practice, in fact, it is hard to just break even without support from a hospital or some other institution. American medical financing is structured in order to preferentially reward physicians who do procedures, who have high-volume inpatient practices, or who are subsidized by a hospital. But there are some tangible things that the outpatient physician can do to improve the operational efficiency of an outpatient medical practice to optimize revenue and improve income.
Why you can’t make a living off of wRVUs alone.
First, you have to understand the current medium of exchange in physician financing, the RVU (relative value unit). Every service and procedure in medicine is assigned a number of RVUs based on the average time it takes to perform that service or procedure, along with the complexity and degree of training required to do it. Each total RVU is composed of 3 subcomponents: the work RVU (that represents physician effort), the expense RVU (that represents the typical overhead expense to provide that service or procedure), and the malpractice RVU (that represents the average expense to cover the malpractice premium to perform that service or procedure). Medicare pays physician based on the number of RVUs that they bill – currently about $36 per RVU. Medicaid typically pays less – around $22 per RVU and commercial insurers pay more (around $40 – $60 per RVU, depending on individual physician contracts with specific commercial insurance companies). Uninsured patients typically pay little to nothing per RVU. We often focus on the work RVU (wRVU) as a measure of physician productivity. Therefore, in an outpatient medical practice with an average overhead expense, the amount of money that the physician takes home should equate to the number of wRVUs that he or she generates per year times the average revenue per RVU generated by Medicare, Medicaid, and all of the various commercial insurance companies that cover the patients in that medical practice.
So, in theory, if you generate 1,000 wRVUs and you get paid an average of $36/wRVU, then your income should be $36,000. But reality doesn’t work that way. The 2017 Medscape salary survey indicates that the average pulmonologist makes $310,000 per year. If you add to that 25% benefits, then you need $388,000 to cover a year’s worth of salary and benefits. To generate this much money, you’d need to generate 10,764 wRVUs per year. However, the average pulmonary/critical care physician only generates 5,768 wRVUs per year. The MGMA does a deeper analysis of compensation per wRVU and found that the average pulmonary/critical care physician brings in $58 per wRVU.
So, how do you improve your compensation per wRVU?
The simplest way to get to the $58/wRVU number is to restrict your practice by not taking uninsured patients and Medicaid patients and putting a limit on the number of Medicare patients that you see in order to load up on the higher paying commercially insured patients. There are a lot of physicians who do just this. But most physicians can’t or won’t limit their practices to patients with commercial insurance. However, there are some things that the physician can do to improve their average compensation per wRVU:
- Negotiate a higher compensation per wRVU. If you are a solo practitioner, you have zero negotiating power with commercial insurance companies but if you are in a large group practice or affiliated with a hospital with a lot of financial clout, then you can negotiate for higher rates then the “standard fee schedule” that the insurance company offers. Also, if you are affiliated with a hospital, then you can often negotiate a higher payment per wRVU from the hospital with the assumption that the hospital will make enough in downstream revenue from your patients that they can afford to subsidize your practice.
- Buy your own testing equipment. If you have sufficient procedural volume to justify purchasing an EKG machine, a point-of-care lab testing machine, or a spirometer, then you can add to your overall revenue. As an example, if you purchase a spirometer for $1,500 and you get paid $34/test (Medicare rate), then you need to do 44 tests to cover your initial costs and every test over that is profit.
- Negotiate coverage of hospital activities. Hospitals are required to have a physician available for things like cardiac rehabilitation, anticoagulation clinics, and hyperbaric oxygen treatments. Most of the time, these require very little physician work except on the rare occasions that a patient has a medical problem while participating in these programs. So, negotiate for an hourly coverage fee – you can still be seeing patients in the office at the same time as long as the office is in the same building as the hospital-based program.
- Reduce your clinic expenses by improving your operational efficiency.
Improving operational efficiency in the outpatient clinic
Medicare doesn’t pay you by the wRVU, it pays you by the total RVU. So, if you can reduce the amount of money that you have to spend on overhead expense, you increase the amount of money that goes to the physician’s salary. Lets take a hypothetical service with a total RVU of 2.22. Of that total RVU, there is 1.00 wRVU, 1.00 peRVU (practice expense RVU), and 0.22 mRVU (malpractice RVU). At $36/RVU Medicare rates, the assumption is that you will need $36 to cover the overhead expense of providing that service and there will be $36 toward the physician salary for that service. But, if you can reduce your expense to $18 for that service, then you will have $54 to go toward the physician’s salary, thus converting $36/wRVU into $54/wRVU.
Optimizing clinic efficiency can reduce the overhead expense for the medical services you provide. Most of the overhead expenses that a medical practice has on any given day that the practice is open are fixed expenses: the cost of rent, the cost of the nurses and registration staff, and the cost of your billing staff. If the physician had to do everything on their own (registration, scheduling, checkout, billing, answering the telephone, vital signs, etc.), then the physician would probably only be able to see a very small number of patients per day. Strategically, the physician should just do the components of medical practice that only a physician can uniquely do and the practice should employ other people to do the more routine things. By hiring office staff and nursing staff, you can improve the number of patients seen per day, up to a point. The trick is to hire just enough staff to match the physician’s peak productivity – too few staff, and the physician either has to do non-physician tasks (reducing productivity) or cut back the number of patients seen and too many staff, and the physician can’t generate enough work to keep all of the staff busy. According to the MGMA, the average number of staff in a physician-owned medical practice is 1.24 business operations support staff, 1.48 front office support staff, 1.82 clinical support staff, and 0.78 ancillary support staff per physician in a multi specialty practice. In a hospital-based clinic, the numbers of staff per physician are generally lower. It is a lot like the Starling curve that defines cardiac output and preload.
As an example, lets take a look at what happens if you change from scheduling return visits at 20 minutes per visit to scheduling them at 15 minutes per visit. Lets assume that you bill all of your return visits as level III returns and get paid Medicare rates of $36 per RVU. And lets say that your overhead expense for your practice is $272,000 per year. By simply dropping from 20 minutes per visit to 15 minutes per visit, you can double the physician income:
- 3 patients/hour increases 33% to 4 patients/hour
- 24 patients/day increases 33% to 32 patients/day
- Net revenue $408,000 increases 33% to $544,000
- Physician income $136,000 increases 100% to $272,000
This is because if the overhead expense is fixed, everything that the physician generates above the overhead expense is profit to the physician. In reality, overhead is made of of both fixed and variable expenses, particularly if things like billing are outsourced where billing expenses are usually charge based on the volume of bills rather than a fixed annual amount. Nevertheless, you can see that small changes to clinic visit times can have a huge impact on physician salary revenue.
Other things that can reduce expenses and improve clinic efficiency:
- Don’t hire an registered nurse to do a medical assistant’s job. RNs are expensive and MAs salaries are lower. Make sure that you are not over loading the clinic staff with people who are over qualified for typical duties. You don’t need an RN to do vital signs and schedule tests.
- Work the staff at the top of their license. This is an extension of #1 above. The physician should delegate those tasks such as maintaining the past medical history and calling in prescriptions rather than trying to do everything him/herself.
- Avoid canceling clinics. Even though the physician and the patients aren’t there, the office staff are still there and you still have to pay rent. In large practices or hospital practices, rather than having all of the staff sit around idle, a different physician should be seeing patients if the normally scheduled physician is on vacation.
- Convert phone calls into paid office visits. On a typical Monday, I’ll have around 15 – 20 patient phone calls and email message via our electronic medical record. I prescribe a lot of medications over the phone and give out a lot of advice over the phone. And all of it is free since phone calls and emails are not reimbursable. By saving 15 – 30 minutes at the end of each day for sick call visits, you can convert a lot of that free medical care that you provide into paid medical care that you provide.
- Use the entire office hour time. I know some physicians who don’t start seeing patients until 9:00 even though the office staff start at 7:30. That is a lot of idle time. Ideally, the physician should be present and seeing patients during the entire time that the clinic is open and then reserve meetings, phone calls, etc. to a time of day that you are not paying your office staff to be present.
- Spend 15 minutes prepping for the day’s patients. By scanning the patients’ charts you can identify things for your office staff to do in order to improve the efficiency of the clinic visit, whether that is locating test results that aren’t in the chart or pre-ordering an office EKG or spirometry that you know that you are going to need. The goal is to have the patient spend only the amount of time needed for the office visit in an exam room and to avoid having the patient waiting in the exam room while the physician or nurse tracks down the results of the CT scan that the patient is there to discuss with the physician.
- Do a pre-clinic huddle with the clinic staff. This follows from #6 above. If the staff know what to expect with the patients scheduled for that day, they can prepare and optimize flow.
- Double book strategically. As a rule, I don’t like to double book – if both patients show up, then both of them only get half of the time that they deserve or I end up putting the rest of the day’s schedule behind. However, if you can anticipate which patients are less likely to show up, then double booking those patients can average out to a normal schedule in the long run. In my practice, new patients referred from the emergency department or referred as hospital follow-ups frequently don’t show. Also, return patients with a history of not showing in the past are likely to not show in the future. Demographically, in many practices, uninsured patients and Medicaid patients are more likely to not show.
- Schedule patients strategically. In every medical practice, there are some patients that you know are going to take longer than others. For example, in my practice, a pulmonary nodule follow up or an annual asthma check up take less time than a return visit for a patient with multiple medical problems who is close to entering hospice. Also, there are some patients that always seem to need more time – maybe because they have lower health literacy, because they require a translator, or because they just need to talk more. Schedule these patients at the end of the day.
- Organize patient flow efficiently. You need to really look at the patient movement through the clinic: where the physician charting area is located, where the nursing charting area is located, where registration and check out are located. Often, patient flow is determined more by where the rooms were located when you first rented your office space – by making small adaptations, you can often greatly improve efficient flow.
- Make your electronic medical record work for you. I’ve posted a lot about EMRs but the reality is that I like our EMR. But it is easy to not take advantages of the efficiencies that it can bring to the table. Getting refresher training can improve your utilization of note templates, increase your use of smart phrases, reduce your number of mouse clicks per encounter, and improve how you navigate between different EMR windows.
- Don’t forget reimbursable services that you probably already perform. Remember that smoking cessation counseling is an add-on billable service to the regular office visit service. Also, if you prescribe inhalers for asthma or COPD, inhaler technique training is a billable service (but it should be done by the office staff, not the physician).
- Get the right number of exam rooms per physician. Once again, there is the equivalent of the Starling curve for exam rooms – you can increase productivity up to a point but beyond that, productivity does not increase with increasing number of exam rooms (but your square foot rental expense does continue to increase). The right number of rooms varies by medical specialty and by individual physician. A cardiologist may only need 2 exam rooms whereas a dermatologist may need 4.
Even with peak efficiency, it is hard to get a physician in an office practice up to the $50 – $60 per wRVU that it takes to cover the physician’s salary so physicians are increasingly becoming hospital-employed in order to get access to hospital subsidies that would not be available in a physician-owned practice due to Stark laws and anti-kickback laws. As the medical director of a hospital, my responsibility is to ensure that the hospital-associated outpatient medical practices continue to use the tenets of practice efficiency to prevent the hospital from running a deficit and going out of business.
February 24, 2018