Physiatry Practice Management Resources

When the same procedures is performed in a physician's office, reimbursement is provided only for the surgeon's professional services (including office expenses), and perhaps for some supplies used in the procedure. Under a universal reimbursement mechanism, the same amount would be paid for the service, regardless of where it is performed.

As the low-cost provider in the health care delivery system, physician group practices stand the chance of gaining substantially under a single rate reimbursement mechanism. If this regulation or change in reimbursement methodology comes about, the key to success for medical practices lies in their ability to understand control expenses.

Results from the American Medical Association's studies indicate that physicians are effectively controlling practice expenses. As reimbursement has decreased for many physician services because of the Medicare Resource-Based Relative Value Scale and cuts from private insurers, according to the AMA study, physicians have successfully reduced practice expenses.

Physician practices are characterized by a large portion of uncontrollable fixed costs such as rent or malpractice insurance, and few variable expenses such as medical supplies. That makes reducing expenses difficult. Until now the expense that has been wrung out of physician practices perhaps has been for discretionary items that may have been easy to eliminate. As additional reimbursement cuts—such as the new Medicare practice expense Relative Value Units (RVUs)—take effect, the next round of expense reductions may reflect much tougher decisions that affect core practice operations.

There are several approaches physicians and practice administrators can use to control expenses or to make the cuts that may be required in the near future. The simplest method of maintaining control over expenses is to develop a monthly expense budget and stick to it by comparing each month's actual expenses to the budgeted amounts. An expense budget should be viewed as a financial management tool that sets the ceiling for each line item. The amount set for each line item should be based upon an analysis of past expenses and a projection of future changes due to expanded activity levels or price increases.

The most common approach to budgets is to prepare one annually, with the assumption that each month's expenses are one twelfth of the target amount. A more powerful budget would be broken down into monthly amounts for each expense item with variations based upon assumptions about activity levels and seasonal variations in practice activities.

There are several important steps to making an expense budget work for your practice. One is to make sure that a specific time is set aside each month to review the previous month's actual expense against the budget and determine what corrective actions are necessary. A budget has very little value unless actual expenses are reviewed on a regular basis.

Expense Benchmarking

A more sophisticated approach to controlling expenses is to implement a benchmarking program based upon the RVUs. A benchmarking system based on RVUs has the advantage of being able to link administrative and overhead expenses directly to the volume and complexity of services provided in the practice. As the volume of services increases the benchmark expense will increase proportionately. Likewise, if the volume of services decreases, this mechanism will facilitate the identification of line items that are excessive, thus focusing increased attention on the control of expenditures.