CA practices flounder; how sound is your group?
Key questions to ask yourself
Nearly one-fourth of California’s medical groups don’t meet the state’s financial solvency requirements, finds a recent report by the state’s Department of Managed Health Care.
"This demonstrates the grave instability in the for-profit HMO system that threatens to affect patients," said Daniel Zingale, director of the California Department of Managed Health Care. "Those in the hole are deep in the hole."
Some 25% of California’s groups have assets worth less than 70% of what they owe others, according to the agency. Also, 20% of groups have a negative net worth and little to no tangible assets.
In response, the state is considering actions ranging from publishing the names of troubled groups in the newspaper to forcing HMOs to drop contracts or stop enrolling members in practices with severe financial problems.
Just how financially sound is your practice? Here are some key questions to help you size up your practice:
- How busy are you? Seeing about 28 or more patients per physician each day is baseline for a full practice. If each physician sees fewer than 22 patients a day, you are probably looking at a cash flow problem, depending on the economics of the practice.
- Are you growing? Are you busy enough to justify adding a new physician? For a family practice, a general rule of thumb is that you need 2,000 lives or active charts to support each full-time physician (3,000 for a team composed of one family physician and one midlevel provider).
Patients added vs. patients lost
- Are you generating new patients? A four-physician group that adds an average of 20 new patients a month is probably growing fast enough to add another physician. Or, looking at it another way, if you are turning away 20 new appointments a month because your schedule is too full, you may be able to justify a new hire. Finally, are more of your established patients leaving for another practice than new patients being added?
- What is your percentage of revenue and patient visits from capitated systems? Does this mirror your local market mix? The more capitation you carry, the more efficient you’ll need to be when it comes to primary care, hospitalizations, and specialist referrals.
- Is the practice making the same or more from capitation than it would from providing the same care under a fee-for-service arrangement?
- If more than 15% to 20% of the practice revenue comes from a single HMO contract, what would happen if you lost that business?
The right physician compensation package will depend on the dynamics of your group. However, one rule of thumb is that after revenues from capitation exceed 30% to 40% of your practice, it no longer makes sense to reward physicians purely on a fee-for-service-based productivity formula. At this point, it is better to start looking at pay packages that reward increased utilization or other measurable factors like productivity as a percent of billings, quality, or patient satisfaction.
Generally, a thriving family practice generates over $300,000 in billings per full-time physician. A collection ratio of 80% or more from both fee for service and capitation is considered good.
Typical total overhead as a percent of revenues for an average family practice office is about 60%. Anything lower either means you are running a very efficient office or don’t have enough support staff, which may cost you in the long run in the form of overworked doctors and lost ancillary income.
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