In a perfect world, running a successful and rewarding medical practice would be solely a function of providing excellent patient care. However, physician-owners, practice managers, and health executives must also ensure that the practice thrives financially. The recent spike in medical inflation has undoubtedly intensified the challenges. As of March 2022, the year-over-year rate of US inflation reached its highest in 40 years (8.5 percent). For medical practices, there are additional complexities. Payment structures of insurance carriers are often convoluted and unpredictable.
Fortunately, many organizations have instituted protocols to meet revenue needs. Furthermore, they still achieve the ultimate objectives of positive health outcomes and high patient satisfaction. This post drills down into the unique challenges of medical inflation and five ways to overcome them.
Medical Inflation - Explained
Medical inflation refers to advances in medical developments and increases in costs to provide those interventions. Although these advances help to save lives and make healthcare more effective, cost easily becomes a looming issue.
This strains the ability of medical practices to pay competitive wages. To make matters more difficult, wage demands have increased by 20 to 30 percent due to medical inflation. As far back as 2009, monetary physician compensation has lagged behind inflation. Thus, the cost of running a business increase while purchasing power decreases.
Healthcare inflation is driven by a number of factors:
- Pandemic-driven supply chain disturbances
- Labor shortages
- High energy prices
- The dilution of the dollar’s value
5 Strategies to Help Practices Thrive
Most, if not all nations, are grappling with healthcare inflation. Still, thought leaders and specialized consultants have developed meaningful solutions. Fortunately, such innovations increase profit margins while still allowing healthcare professionals to provide excellent patient-centered care.
1. Smart Outsourcing
Outsourcing not only decreases labor costs, but effectively delegates responsibilities to organizations with a specific niche expertise. These professionals have succeeded in streamlining required procedures and protocols for commercial insurance, as well as Medicare and Medicaid. For example, medical credentialing is often amenable to outsourcing. Except for large practices, a full-time employee is not required. Agencies that have good relationships with health plans speed up the process, resulting in faster on-boarding of providers. They can also anticipate and help to problem-solve credentialing issues if needed.
Outsourcing is utilized for many other administrative functions:
When searching for outsourcing options, it’s advisable to confirm that candidate agencies are well-versed in HIPAA privacy rules. Additionally, it’s beneficial to ask tough questions about how any changes in the regulations are incorporated into protocols.
2. Growing Telemedicine Opportunities
COVID-19 brought into crystal clarity, the value of telemedicine. In March of 2020, it quickly became a primary strategy in receiving care. Thankfully, emergency legislation at the beginning of the pandemic allowed for payment for telehealth solutions.
In addition to ease of billing and coding, other benefits have caused medical practices to enthusiastically embrace telemedicine:
- Improved access
- Convenience (for patients and providers)
- Increased efficiency.
Therefore, telemedicine offers numerous avenues for efficient patient care without sacrificing quality. HRI surveys indicated that 22 percent of clinicians plan to decrease their physical space as they deliver more virtual care. Thus, successful telemedicine practices may allow re-evaluation of real estate needs.
3. Analyze and Diversify Payer Sources
Nathaniel Arana, a nationally recognized healthcare business consultant, cautions that numerous unscrupulous payers reduce rates, often without notice. He advises taking the following steps to analyze how well payers are covering costs.
- Take the allowable rates and multiply them with each CPT code.
- Determine the total number of patient encounters. Divide this number by the total revenue received to get the revenue per patient.
- Compare this figure with the cost of providing care.
If costs outweigh revenue, it’s time to either re-negotiate or stop accepting selected payers.
4. Improve Revenue Cycle Management
Revenue Cycle Management is the process by which an organization tracks all patient service revenue. Tracking begins at the time of account creation, ending at the final payment.
Certain front-end functions play a key role in how quickly reimbursement is received.
- Scheduling the initial appointment
- Patient registration (including demographics)
- Verifying eligibility for payment
- Fulfilling requirements of authorizations/referrals
Claims submission is the next step in the process. All claims must contain all required information in order to prevent denials, which can slip into the “black box” of uncollected accounts receivables.
A crucial step is data analytics. It’s vital to evaluate RCM (Revenue Cycle Management) performance to inform improvement strategies and decision-making processes. Key performance indicators (KPI) provide valuable insight into clinical, financial, and operational health.
5. Periodically Review Business Services
When inflation is high, a fast way to cut costs is to assess various business services:
- Clinical/administrative supply vendors
- Internet service providers
- Email hosting providers
A monthly financial report provides an excellent snapshot of how business services impact overall revenue.
Summary and Key Takeaways
The COVID-19 pandemic and continued fallout will affect healthcare inflation and spending for years to come. Findings from HRI, and recommendations from multiple economic and healthcare consultants have compelled major changes regarding practice management. All decision-makers involved in the financial solvency of medical practice groups will benefit from taking the following actions:
- Partner with reliable outsourcing agencies. Explore opportunities for medical credentialing, billing, telemedicine, revenue cycle management.
- Regularly review payer compensation. Be prepared to sever ties if revenue falls short of expectations.
- Assist employees in embracing all forms of telemedicine. Provide training as needed to ensure success.
- Prepare monthly business expense reports on vendors, internet providers, and other contracts.