Financial Best Practices – A Primer on Mid-level Providers and Ancillary Revenues

There are many financial challenges in owning and managing a medical practice.

Expenses continue to rise while revenues decrease, requiring everyone within your organization to work harder and more efficiently than ever to maintain satisfactory profit margins. Meanwhile, healthcare reform is a constantly moving target that is only continuing to evolve and take new shape in the new presidential administration. Additionally, many patients are having trouble adjusting to their payment responsibilities in a world of increasingly common high-deductible plans, which are now being offered with more regularity by area employers. All of which is likely having a negative impact on your bottom line.

Throughout this three-part series, we have focused on a wide variety of financial best practices for medical organizations. The first article reviewed proper collection procedures and related keys to success. The second focused on expense management and oversight. To the extent that your practice has maxed out collection efforts under your current infrastructure and expenses are being properly managed, the next method of increasing your bottom-line revenue is through the proper use of mid-level providers and implementation of ancillary revenue streams.

This final article will provide some insight into reviewing the feasibility of these new revenue sources, proper usage of mid-level providers, and keys to success with implementation of ancillary revenue streams.

Feasibility Analysis

Before a decision can be made to bring in mid-level providers or pursue new ancillary services, a feasibility analysis should be performed. In doing so, it must first be decided whether or not there is a strong enough need or demand for these services within your practice or geographic area. Second, it must be determined whether there is sufficient physical space and an appropriate infrastructure and, if not, whether it can be obtained with limited disruption to your operations.

Additionally, financing of the new venture should be reviewed, analyzed, and budgeted. While bringing in a mid-level provider should result in added revenues, there will be a lag between seeing the first patients and collection of revenues. There may also be added expenses relative to providing additional space, such as examination rooms, as well as additional office or medical staff. Payroll for the staff would need to be financed in some fashion before actual collection of revenue begins.

While the same concerns hold true for ancillary services, there is also the added potential cost of necessary equipment. While it may not always be the case, many ancillaries require the use of new, high-tech equipment, such as lasers or laboratory equipment. And it is not uncommon that this equipment can be expensive.

Mid-level Providers

Common examples of mid-level providers include nurse practitioners, physician assistants, physical therapists, and audiologists, among others. A practice may look to bring mid-level providers into the practice for numerous reasons. It might be that the current providers are stretched to their limits and are currently turning away patients, or the practice is looking to allow the physicians to have more availability to see more complicated patients. They also may be looking for help with taking calls or with their rounding responsibilities. In each instance, a mid-level provider, if utilized properly, may help reduce these burdens.

First and foremost, mid-level providers must be supervised and utilized in accordance with all applicable federal and state regulations. In Massachusetts, for example, the Department of Health and Human Services has resources on their site dedicated to certain areas, such as physician assistants and audiologists. Next, mid-level providers need to be kept busy and fully scheduled. They are income generators, and full utilization will have the greatest impact on the generation of new revenue. Using them for office work or scheduling, while convenient, may not be the most effective approach, as they are not generating revenue during this time and compensation per hour is significantly more expensive for these employees than for other administrative roles.

Finally, it is important that your mid-level practitioners are compensated properly. Many practices will set a collection target, which is often around two and a half to three times their level of compensation. To assist with setting these goals and targets, consider contacting your local state associations and/or the Medical Group Management Assoc., which can provide you with industry-wide data and benchmarks for analysis. In order to provide an incentive for improved outputs, many practices will implement a bonus plan for their mid-levels.

Some practices will share revenues similar to a physician-compensation plan, comparing collections to direct expenses and some share of overhead, while others will incentivize with a set percentage of collections over a pre-determined target. In either case, the chosen structure will depend on the nature and goals of the practice.

Ancillary Revenues

Adding ancillary services to your practice can often be a game changer in revenue generation. However, proper due diligence is required for it to be most successful. First, an analysis should be performed to determine if there is a need for the service. A poll of your patients or staff could be a good first step in determining what may be desired.

The best fit for these types of services are those that are most complementary to the practice. Examples of these include, but are not limited to, skin-care products within a dermatology practice, massage services offered by a chiropractor, or audiological services offered within an otorhinolaryngology practice. Here, the practice is looking to provide a form of ‘one-stop shop’ for their patients, relative to services that they would otherwise seek elsewhere.

Second, it is important to understand the full array of costs that will be incurred in the new venture. As mentioned earlier, many ancillary services will require the hiring of additional staff, adding to overhead, and, in some instances, purchasing additional pieces of equipment. Preparing a budget to actual analysis, as was discussed in the previous article, should be your starting point prior to moving ahead with any new services.

Finally, and potentially most vital, based on the implications, is having a detailed understanding of the regulatory environment as it relates to any new services provided. The Stark rules exist and must be adhered to. Often, there is a direct line between the practice and the offered ancillary services that runs right through the Stark rules and regulations. As a result, it is imperative that a healthcare attorney be consulted in all cases, so that no unintended violations of these or any other governing rules are created.

With the current economic pressures facing your medical practice, it is essential that you have considered whether or not you are taking full advantage of all potential revenue streams, including those that you may not currently be offering. The use of mid-level providers and introducing ancillary services should, at a minimum, be discussed by each successful medical practice. Combined with our earlier analysis of collection efforts and discussion of expense management, the goal of this series is that your practice will be able to implement a full set of comprehensive financial-management best practices.

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