Physician Practices Battle Rising Health Costs

It used to be that heavy capital investment would be what set a practice's ledger back. Today it's rising healthcare and malpractice expenses - the simple costs of doing business - that are making it difficult for practices to stay afloat.

While the average person might not realize it, you probably already knew that physician practices are feeing the crunch of rising healthcare costs just as much—in some cases, more—than everyone else. That’s because you’re living through it day after day. And so are your peers.

“[Rising health costs] are hitting our physician clients as hard as anybody,” explains Randy Biernat, CPA, director of Indianapolis-based Katz, Sapper & Miller. “They’re basically a professional services firm just like any other.”

Biernat’s firm is a member of the National CPA Healthcare Advisors Association, a nationwide network of CPA firms dedicated to serving the healthcare industry. As such, he’s seen first-hand how physicians are caught between a rock and a hard place.

“They’re fighting a two-front war with insurance companies. On one hand they want to renegotiate to get better rates, which they’re not getting, but at the same time, they have to turn around and pay on the other side.”

Everyone is feeling the pressure

Robert Russo, MD, FACR, is the principal of Russo and Associates Radiology. The firm runs six imaging centers in southern Connecticut, and between his father, himself and his son, they represent three generations of radiologists.

He explains that not only is radiology a very expensive practice from a capital investment standpoint, but simply keeping up with the cost of doing business—from employing 140 people to rising rates for healthcare and medical malpractice insurance—can take its toll.

On top of that, revenue has been steadily declining.

“In Connecticut statewide, we’ve seen a significant drop in the number of patients who are going to the doctor,” Russo explains. “We’re seeing volume drops back to the level of the primary care doctor, which is who we get our referrals from. So, when their business goes down, our business goes down.”

The firm brought in a business coach who conducted an in-depth analysis of the business, examining productivity by office, by technologist, and by piece of equipment. Changes resulted. Work hours were moved to a flexible schedule; one or two pieces of equipment were jettisoned; even the radiologist’s seating arrangement was altered so that x-rays could be read more proficiently.

“[The changes were] a big help,” Russo says. “I’d say over the last four years we’ve been able to save about 18 percent of our costs.”

The internal view

Biernet says that one of the greatest inefficiencies in a physician practice occurs if the practice handles its own billing in-house. “When things aren’t going well, money-wise, that’s the first place we look. Physicians are good at seeing patients, and they know how to hire good nurses, but billing is complicated. You really need someone good in your office to be efficient at that.”

Investing in the right billing people is something Biernet says will pay for itself. But if you can’t find the right person, or if you can have your billing done more cost-effectively by farming it out, you might want to consider that option. Russo says the latter arrangement has been a huge plus for his radiology group.

“Outsourcing certain parts of our business, like billing and payroll, definitely saved us money,” he explains. “We used to pay about 6.8 percent of our revenues to do our billing. Now we’ve outsourced it for about 3 percent. Those sorts of savings helped us survive.”

The radiology firm also began putting out RFPs for a wide range of products and services, from insurance coverage to medical supplies. “The shocking thing was, most of the vendors we were doing business with, when we told them we were going to go out with the RFP, the prices started falling all over the place.”

Rising premiums

On the insurance front, Biernet says that his physician clients are combating rising healthcare premiums in one of several ways. Many are moving toward implementing Healthcare Spending Accounts, which others are passing the rising cost on to employees. Some larger practices are taking a portion of the insurance and bringing it in-house—becoming self-insured.

Others are resorting to handing employees several hundred dollars each month, the equivalent of what the practice paid in healthcare premiums, and putting them on their own. “They’re telling their staff that they just can’t do it any more. So, we’re seeing one extreme to the other.”

Some practices are also doing some very common sense things, Biernet says. “If an employee’s spouse is otherwise employed and has access to a plan, then they’re not allowed on the practice’s plan. I work at a CPA firm and my wife works at a hospital. I don’t believe I’m allowed on her plan if I have access to one through my employer. A lot of practices are taking these steps.”