Physicians should rethink their revenue streams
And they should try to be realistic when estimating demand, Fabrizio says. “When you listen to vendors, the sky is always the limit and the best-case scenario is always presented,” he says.
Think critically about which patients would likely use the new service or product, whether payers are reimbursing at appropriate rates and whether all the partners in a practice are in agreement and enthusiastic about referring patients, he says.
Be willing to sell
Also, just offering a product or service doesn’t guarantee added patient volume.
“It often perplexes me that what sells well in one office won’t do well at [the practice] next door,” Borglum says. “It typically comes down to the salesmanship of the staff.”
Further reading: Here is the key to maintain a thriving practice
Physicians have to put time into building a service and training staff to communicate it to patients, says David Zetter, PHR, CHBC, principal of Zetter Healthcare, a consulting firm in Mechanicsburg, Pennsylvania.
Zetter and Borglum both say they have taken on new clients, only to hear stories of failed ancillary businesses when practices ignored the need to market the new service. Sometimes they even see unused equipment gathering dust in conference rooms because a partner who spearheaded an idea for a service left the practice before getting it up and running and the other partners weren’t committed to the idea. Sometimes partners get excited about a new service but are too distracted by daily practice demands to give it the required attention.
Time and money costs associated with ancillaries vary dramatically, Zetter says, not only among different services but within them. Two practices opening radiology suites, for example, will have different cost and revenue structures depending on factors such as whether they lease or buy equipment, whether the equipment is new or refurbished and how they charge for a radiologist’s time to read images, not to mention local labor costs involved in building out the suite around the equipment and transportation costs for the X-ray machine. Consider all the options when estimating costs and revenues, he suggests.
“You may find it’s more economical to bill payers just for the technical component,” or it may make economic sense to absorb the entire procedure, pay fees to the radiologist, and seek reimbursement for both the equipment and physician time, he says.
Run the numbers
Another common mistake, accepting a vendor’s revenue and return-on-investment projections, can be avoided by asking for details on the vendor’s underlying assumptions and then comparing the practice demographics used in those assumptions to the practice’s own patients, Zetter says. For leased or rented equipment, he also recommends asking vendors for actual invoices and how often they have increased prices in recent years.
Physicians should estimate what the patient demand will be for any given venture, then determine the current reimbursement rate for the service from each payer, he says. If Medicare accounts for 60% of the practice and two insurers account for the remaining 40% of patients, for example, the practice should calculate a weighted average reimbursement rate that mirrors this mix, Zetter says.
Practices finding it difficult to get a straight answer on reimbursement should insist payers provide the information, Zetter says. “Every payer’s fee schedule is proprietary, and even as a consultant, I have to sign non-disclosure agreements keeping me from using the data for other clients. But if you are under contract with them, they have to provide it,” he says.
Practices should also remember to factor in the costs of devoting physician and staff time to these efforts, experts say. The accompanying chart shows how to calculate physician and staff labor costs on a per-minute basis.
And physicians should consider the impact on the practice’s cash flow of any large ancillary equipment lease, Gans says. A vendor might present enticing returns that are based on the ability to depreciate the equipment, but the practice still has to make those monthly payments.