Carefully evaluate economic impact if considering NPPs

May 10, 2013

Employing others involves risk, time, and effort for which you deserve to be compensated. You can employ more physicians, but most practice owners need to critically evaluate the financial impact of hiring non-physician practitioners, simply because of the reduced labor cost.

If you are hiring, do your homework when it comes to examining labor costs. The fact is, most physicians do not give much thought to the financial upside to leveraging labor. But remember that you can’t do more than one day’s work per day yourself. The only way to render more care beyond your personal labor is to expand the reimbursed labor force in your practice.

Employing others  involves risk, time, and effort for which you deserve to be compensated. You can employ more physicians, but most practice owners need to critically evaluate the financial impact of hiring non-physician practitioners (NPPs), simply because of the reduced labor cost.

According to the National Society of Certified Healthcare Business Consultants (NSCHBC),  the median annual income of non-owner primary care physicians (PCPs) is approximately $200,000. Median compensation for NPPs in primary care, however, is less than half that. But because NPPs’  productivity tends to be more than half that of  PCPs, and their reimbursement ranges between 85% and 100% of physicians (depending on whether the service the PCP provides is “incident-to”) the situation provides opportunities to profit on their employment.

Employing NPPs will increase your practice’s variable costs, such as supplies and compensation, but not your fixed costs, such as rent, furnishings, and instrumentation. Therefore,  the ratio of fixed costs per each employee goes down,  increasing the margin of profit on each employee.

Calculate any additional costs incurred by hiring an NPP, then add those costs to the NPP’s compensation to determine a break-even point.

Pre-tax profit on a full-time NPP generally doesn’t occur until his or her annual collections exceed about $225,000. A poll of members of NSCHBC consultants found profits typically in the $10,000 to $40,000 range per NPP and as high as $140,000 for a top-notch NPP in a group office with broad ancillary services. Many practice owners choose to share profits with NPPs, typically in the form of a productivity bonus.

One of the most important factors in profiting from NPPs is  making sure that they are coding appropriately, because the majority of providers at every level  tend to under-code for their services. Both you and your NPPs should become good enough at coding that you could stand up before a group of peers and teach it. Without that level of skill, you lose money that is rightfully yours.

NPPs require more clinical supervision than employed physicians, which is another reason you need to profit from their labors. Consider, though, that reducing your own patient schedule by 30 minutes per day to supervise an NPP can allow for 7 to 8 extra clinical billable hours per day, per NPP. This is  the definition of the beneficial leverage of labor.

Of course, patients often want to see the physician, not the NPP, so it is important to train your patients to accept them. I’ve found that the best approach is to tell patients that you work as a team, and that the scheduler will set their appointment based on the patient’s clinical needs that day. Tell them in person, post the message in the waiting room, include it in your brochure, and post it on your practice’s Web site.

Remember, hiring employees and profiting from their labor are key elements of operating a successful business. Doing so will help you provide your patients with the quality of medical care they expect.

The author is a medical practice management consultant in Santa Rosa, California, and a Medical Economics editorial consultant. Send your practice management questions to medec@advanstar.com.

 

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