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The Physiatric Office Practice
CLINICAL REHABILITATION AND PHYSIATRIC PRACTICE
THE PHYSIATRIC OFFICE PRACTICE Myron M. LaBan, MD, MMSc, FACP, and Joseph R. Meerschaert, MD
After 28 years of office practice and at a time when we are beginning to consider retirement-a process of passing from who's who to who's he-we have been asked to comment on physiatric office practice. In this article, we address issues of concern to practice. We obviously cannot do so without reference to our own personal experience. ~ n f o r t i nately, in today's rapidly changing practice environment, past experience, even if successful,may have little relevance to tomorrow's marketplace. It also is doubtful that a private practice that has prospered through three decades could do so without an interlinked past and present business plan crafted to ensure future survival. The stratagems adopted all have been modified by ethical, legal, and financial considerations as well as by professional and practice issues. An office practice never is independent of other professional obligations. In our circumstance, two of our offices, although financially and administratively independent of the hospital, are located in office buildings adjacent to the primary hospital and its satellite. A third office is maintained as an integrated component of a multispecialty neuromusculoskeletal group. In each of these relationships, the clinical and business decisions of the office practice invariably have been affected by the policies of the hospital or the associated medical group. To date, interdependence, rather than independence, of mission and goals between each of these entities has fostered a mutual sense of trust that benefits each of the partners. From the Department of Physical Medicine and Rehabilitation, William Beaumont Hospital, Royal Oak (MML), Troy (JRM); Wayne State University School of Medicine, Detroit (MML, JRM); Oakland University, Rochester (MML), Michigan; and Ohio State University College of Medicine, Columbus, Ohio (MML)
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THE "DO-IT-YOURSELF" PHYSlATRlST
Taking the plunge as one's own boss remains part of the American dream, even for physicians of modest entrepreneurial spirit. This often has had more to do with personality than economic good sense. Setting one's own agenda and creating a new business venture for both profit and personal satisfaction have been sufficient enticement even for those with otherwise low-risk tolerance. Four basic differences between entrepreneurs and employees can be identified. Risk tolerance-"nothing ventured nothing gained." Given a fair review, the upside outweighs the downside at any given moment in one's career. Need for group inter-reaction. Many individuals thrive on daily group inter-reaction, doing their best when exchanging ideas; fairing better in the environment of a corporation. Ego. For some, ego enhancement within the corporation, with its group recognition of accomplishment, is more important than having one's name on the door. Control. For the entrepreneurial personality, the relationship between effort and reward may be more identifiable and immediate. Outside considerations not directly related to effort can be reduced or otherwise controlled. ORGANIZATIONAL BUSINESS STRUCTURE
Over the years, physiatrists in private practice have been well served by participating in for-profit, shared-equity practice models in which they have had an ownership role. Until just recently, solo and group practices have flourished as small businesses in a cottage industry of health care.' In the past 5 years, however, there has been a dynamic shift to prepaid medical and managed care that has rapidly accelerated the trend to larger group practices.13Physicians are aggregating in these larger groups in response to an inherently more competitive business environment that has increased the complexity of all phases of practice management.4Health care has become big business even for the independent practitioner who experiences ever-growing demands for capital to support trained personnel, facilities, complex technologic equipment, and information systems." The continued ability to raise money to meet business costs is a rapidly increasing problem for practices not associated with a hospital or functioning as part of a large clinic or managed care organization. In the past, bank loans obtained at a predictable price could be passed on to a payer through cost-based charges. In today's business climate this no longer is possible. Although the cost of providing medical services continues to grow, reimbursement simultaneously continues to fall. Five years ago, an efficient practice could count on collecting 98% of their
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outstanding debt. Today, Medicare reimbursement is at 50% of billings and Blue Cross, workmen's compensation, and managed care, even without its 10% to 15% withhold, at best are collectable only to 70% of billings. Meanwhile, practice costs are escalating, with its requirements for highly trained personnel, increasingly sophisticated medical and business equipment, ever-higher rents, increasing taxes, and more expensive disposables. With each successive year, spanning the financial gulf between income and expense is proving to be more difficult. Bank bridge loans, usually assumed at the beginning of each fiscal year, are requiring longer periods to amortize as patient reimbursement continues to decline or is delayed excessively. How can the physiatrist hope to slow this erosion of net income in the face of a continuing rise in costs? With overhead expenses rapidly increasing from 30% to 60% of gross income, physiatrists are tightening their collective fiscal belts by reorganizing their practices to reduce overhead costs by: Addressing inadequacies in the management system Improving physician control Maximizing the use of technology Increasing patient volume Adapting to the requirements of managed care A Reduction in Overhead Costs
To a variable degree, practice costs are fixed by the location of the office as well as the competitive costs for staff. Electing to maintain office space on a hospital campus is an expensive choice that also eliminates the option of in-office therapy that would compete directly with hospital-sponsored therapy. It does improve the visibility of the practice by its proximity to the hospital, however. It also encourages referral from the emergency department by its immediate availability and provides access to the hospital's computer system, not as yet an option for off-campus physicians. The physical presence of a private office on campus also enables us to effectively provide a full day's administrative presence to both the hospital and the office as well as to the resident training program. Early on, we recognized that, if bigger is not necessarily better, it can foster administrative efficiencies by consolidating overhead costs. Five years ago, we expanded the size of our office by one third, anticipating the necessity of adding additional physiatrists to the practice. At that time, we were able to finance that growth out of revenues. In today's economy, this option may be less real is ti^.^ We also joined with a group of general orthopedics, hand and spinal surgeons, as well as a rheumatologist, neurologist, and neurosurgeon to form a freestanding neuromusculoskeletal group based in a separate office. The close working association
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among the physiatrist and the other involved specialists has increased visibility for physical medicine and rehabilitation and, as a consequence, improved the working relationship among the independent practices outside the nuclear group. Employees' salaries also have escalated with the necessities of hiring an educated, computer-literate staff. This is particularly true at the skilled positions (i.e., the intake and billing clerks). The rapidly proliferating number of insurance schemes, including those of managed care with their additional restrictive covenants, have made these two positions even more critical to the office's continuing efficiency. Unfortunately, in our community, we are in direct salary competition with the auto industry, whose salary schedule is comparatively high. When appropriate, part-time employees are used at the lessskilled positions to reduce benefit costs. Every employee also is crosstrained to enable them to do more than just their own job. This requires a continuing in-service educational program focusing on data input, phone etiquette, patient relations, and new office procedures, among other subjects. Simultaneously, previous inadequacies in the management system have been addressed successfully. Physician control has been improved through maximizing available computer technology and hiring an experienced and competent office manager.
Management Today's office manager has to be very talented and, as a consequence, also is very expensive. No longer can the daily operations of the office be entrusted to a valued employee who has worked his or her way up through the office ranks without the benefit of a formal education necessary to acquire the skills and knowledge sufficient to manage a large and busy office. The necessary prerequisites include, among others, a nonstop work ethic, intrapersonal skills tempered by an awareness of employment law, as well as an encyclopedic knowledge of computer operations sufficient to immediately resolve any or all problems that occur with the operation of the "black box." The manager also must be prepared to deal with the administrative demands of managed care, including office audits, fiscal transactions, and changing administrative guidelines, as well as marketing skills sufficient to maintain and increase the presence of the office within the evolving health system. On a daily basis, the ability to coordinate the activities of an in-house accountant with those of the practice's certified public accountant includes monitoring the accounts receivable, any major outstanding debts, and the operating bank balance. Above all, the manager must demonstrate a professional competence sufficient to provide employee leadership and to command respect from the medical staff. An individual with all of these skills is too valuable for any practice to lose. The compensation package, in addition to a competitive salary, may include a bonus-
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based incentive as well as other supplemental perks that may include a car. The art of practicing medicine may suffer fatally from a poorly Combining the ethics of professionalism administered medical pra~tice.~ with efficient business practices is both challenging and difficult but essential to survival in today's market. Quality assurance must be measured by pre-established performance standards, with accuracy remaining a key factor. Advancing technology, as provided by a state-ofthe-art computer system, substantially increases accuracy, speeds work, enhances efficiency, and provides improved internal control. Once in operation, however, computer systems must be monitored to ensure continuing peak operating efficiency. This can be ensured by an emergent service policy in the event that the system unpredictably "crashes," the ongoing replacement of obsolete equipment, and the continuing acquisition of program enhancements. Among the first signs that procedures and equipment are obsolete, inadequate, or unsuitable to the job are Increasing delays in processing insurance claims Accounts receivable grow as collections decline Billing schedules are delayed Routine paperwork becomes unwieldy Expenses continue to accelerate Multiple offices require timely transfer of information Decision-making information is not available immediately Filing space is at a premium Administrative and patient financial information is continuously unavailable The practice cannot communicate with others electronically. In today's marketplace, a practice cannot exist unless its information is accessible electronically by another computer. Those of us who practiced before the computer and have witnessed this era's evolution have come to recognize its potential to both facilitate creativity and regiment process. The computer definitely has not replaced paper, nor has it reduced personnel costs in the medical office environment. It has improved operating efficiency and management control, however. Additional benefits offered by computerization include an opportunity to participate in today's information revolution and an ability to travel on tomorrow's information highway. Innovative technology is pulling medical practices into the just-in-time business where only the "quick" can hope to survive. Health care, like other heretofore sheltered high-technology industries, has entered the previously unexplored waters of increased competition and technologic expectation, at the same time dealing with the demands for cost reduction and assured quality outcomes. An innovative response to this changing environment places a premium on skilled and knowledgeable professional leadership supported by a state-of-the-art computer and a
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"shared vision" for success between administration and a competent and dedicated office staff. Staff Support
Never has it been as important to have a competent, dedicated office staff as now is the case.7 Without staff support, the office cannot move forward as it responds to increasing paperwork and continuous change, imposed both by managed care and increasing patient expectations for service. Although all of us are frustrated by the increasing pace of change, progress still depends on accommodating to it gracefully. Accepting this challenge with at least a modicum of enthusiasm requires that alternative approaches be discussed with the staff and their mutual involvement and feedback be encouraged. Ultimately, flexibility and compromise have helped in identifying solutions satisfactory to all. As we have proceeded, the staff has come to understand and appreciate the need for cooperation and support, significantly increasing their ability to implement change successfully. Throughout, the staff has depended on management to provide the tools to implement change. New paper forms, copy machines, state-of-the-art computers and facsimile machines, as well as other mechanical devices, have eased the process of transition and have improved staff support dramatically. During this period, volume performance standards set for each employee were monitored to ensure that quality was never sacrificed. Managed care and health care reform have emphasized the need for "quality care," which starts with a commitment to excellence in performance, operations, and patient service. A continuing emphasis on quality instills staff pride and encourages teamwork. Errors induced by haste are potentially expensive and steal time from otherwise productive activities. The staff is encouraged to stay on top of the rapid changes in medical care by participating in conferences, attending workshops, viewing videos, and listening to audio tapes as well as attending scheduled office meetings with the clinical staff. The Medical Staff
Business as usual no longer is the norm.9 Instead, change now is routine, even if some of the clinical staff has not yet "gotten the word!" In the past 3 fiscal years, bonuses have decreased significantly as profit margins have narrowed. Now, with overhead increasing rapidly, salaried clinical staff heretofore sheltered from the relative vicissitudes of practice also are beginning to experience the realities of the new market. Anticipated annual pay raises and end-of-the-year bonuses no longer are routine. In some instances, dramatic pay cuts are a shocking reality as productivity-based salaries are impacted dramatically by shrinking revenues. Suddenly, in the real world, the work effort must be increased
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by one third just to stay even. Where additional patients are still available to a practice, the new routine is longer days, more flexible hours, and an extended week. Unfortunately, in this new climate, "bum out" must be acknowledged as a potential problem for each physiatrist, with its attendant impact on issues of quality care. New hires are facing stagnating or decreasing salaries with the promise of an eventual partnership less certain. Only the most optimistic can hope to predict the state of office practice 5 years hence. The partnership track always has been fraught with unpredictable hazards but, in the past, the rewards justified the risk. Today, the probationary period has been extended and there is growing concern as to what the buy-in eventually will purchase. Tomorrow's assets paid with today's dollars may be worth only half the current value when finally obtained. Meanwhile, there is a growing concern in busy practices as to how to continue to provide timely services without the necessity of recruiting new associates determined to pursue a partnership track. Partners, by necessity, are financial equals based on equivalent productivity. An equitable partnership status can be achieved only when the junior is able to demonstrate the potential for equal productivity. The recent changes in the health care market have made this process more difficult and less predictable. As a consequence, we have established three levels of association in our practice: (1) an associate who is salaried, (2) a nonfiscal partner who is salaried with an additional incentive-based bonus and who is involved in all nonfiscal management decisions, and (3) a full fiscal partner. As graduating residents enter practice, it has become increasingly more difficult to amortize the cost of their education. Previously acquired debt and new start-up personal expenses can be overwhelming, particularly with the uncertain future of office practice. Joining an established office practice still provides the security of an immediate salary with an opportunity to learn from the collective experience of the new association, however. Solo practice remains an option but in this day of managed care, falling patient reimbursement, escalating overhead, and decreased access to capital, except in special instances, it is not a realistic one. The neophyte solo physiatrist cannot expect to see a dime of income for at least 3 months. Thereafter, income will not exceed expenses until the accounts receivable are in excess of $100,000. Additional administrative games do not help in this regard (i.e., hospital staff privileges are required before an application to a managed care organization is accepted, a process that may exceed 6 months). PATIENT PARTICIPATION
There has been a dramatic increase in "paper" prerequisites to new patient registration as required by managed care and other third-party payers. To expedite this process in our practice, patients are mailed registration forms before the appointment. Separate "checklists" are
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made available to each patient based on the nature of the scheduled appointment, including one each for electrodiagnosis, auto accident or industrial injury, or as routine consultation. When applicable, pain maps also are provided. Each patient is given a brochure that provides an introduction to our practice and a discussion of medical and administrative procedures as well as a brief r6sum6 of the attending physiatrist. In the waiting room, more extensive curriculum vitae are available to the patients, with additional background reading and topical videotapes. Patients confused by the proliferating number of insurance programs and the restrictions of managed care are best served by offices prepared to patiently explain the insurance program's benefits as they apply to the required services. In this process, we always make a "pitch" for the inclusion of rehabilitation benefits. As one of our local haberdashers advertises, "the happy consumer is an informed consumer." Regarding managed care, our personal experience suggests that happiness for the informed patient is truly an ethereal concept, made less celestial by the newly perceived realities of rationed services. Patient marketing surveys are also available in the waiting room. We no longer assume that a scheduled return visit is a measure of satisfaction; instead, we ask for it. These surveys help to monitor staff performance but, as importantly, assist in avoiding potentially damaging negative feedback from referring physicians and managed care organizations. MANAGED CARE
Over one third of practicing physicians now are involved in group practices6 These physicians have improved their bargaining leverage with managed care organizations; increased their economies of scale; gained greater access to capital, allowing them to modernize their facilities; recruited more experienced staff; and developed sophisticated information systems. The average size of group practices increased from 6.3 physicians in 1969 to 11.5 in 1991.3The size of these groups is continuing to grow, reflecting a trend toward consolidation throughout the medical care industry. In 1992, in an effort to retain their patients, 65% of physicians joined managed care plans, which often required them to participate in group practices. Physicians participating in this trend are joining one of two groups: (1)the hospital-centered group (i.e., physician-hospital organization), in which the medical staff forms an independent practice association or (2) they sell their practice to large investor-owned groups, or selectively contract with one or several health maintenance organizations (HMOs). The evolution of managed care has been described as a four-stage process. Stage 1 is characterized by relatively few affiliations among physicians, hospitals, and employees. Managed care penetration is less
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than 10%. In stage 2, loose provider networks form, and weak hospital affiliations develop; aggressive HMOs and medical groups emerge. The managed care penetration ranges from 11%to 30%. In stage 3, hospital systems form and compete for primary care practices and managed care groups begin to consolidate. Market penetration now ranges from 31% to 50%. In stage 4, capitation gains ascendancy, purchasers contract with integrated groups or hospital/physician groups to provide integrated, comprehensive services. In our area, we are in a stage of transition between stage 1 and stage 2, with 20% of our patient population currently enrolled in HMOs but this trend definitely is growing. Seventyfive percent of physicians with whom we practice daily have managed care contracts. Michigan Medicaid also is moving rapidly toward universal enrollment and managed care, anticipating that the "managed costs" eventually will be lower. Even familiar products like those of the traditional Blue Cross/Blue Shield policy now have many elements of managed care built in (i.e., precertified admissions). The perceived advantages of managed care for the providers who are paying the everincreasing costs appear so compelling that many experts have predicted that there will be few health services outside of managed care in the .~ concerns associated with the growth of mannear f ~ t u r eContinuing aged care include those of a bottom-line financial expediency assuming precedence over good medical practice, the budget-driven prioritization (read rationing) of health care services, and the continuing issue of quality of life after the provision of acute care. Although the growth of managed care has been a great source of anxiety to our practice group, we have accepted the challenge of responding to the necessity of change. In this process, we are making a concerted effort to convert this transition into an opportunity for practice growth. Having already enlarged and re-engineered our office and improved management via the support of a dedicated and more sophisticated staff, we also have expanded office hours, thereby increasing patient volume with a correspondent improvement in operating margins. We have recognized that appointments delayed often are appointments lost. We have contracts with all the managed care organizations who also have a relationship with our primary hospital, as well as those having a significant market penetration in our service area. To date, none has demanded an exclusive contract and all pay competitive fees. Our office manager makes a continuing effort on a scheduled basis to communicate with the administrator of each managed care organization. So far, we have successfully withstood numerous facility and administrative reviews. Several members of our office medical staff serve as reviewers for various managed care organizations on physiatric issues of quality care. These contacts assist our office in maintaining a beneficial dialogue with these organizations. Meanwhile, we have established "centers of excellence" in highly specialized areas of physiatric care, including orthotics/prosthetics, electrodiagnosis, pediatric rehabilitation, and chronic pain management. We
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have marketed these programs to the managed care organizations as both cost-effective and quality-assured with appropriate documentation that illustrates we say what we do and do what we say! Managed care only recently has attempted to deal with the escalating costs of rehabilitative therapy services. The proliferation of physical therapist-owned treatment centers serving patients with generic prescriptions and self-generated treatment renewals is aggravating this situation. Our office has been asked to serve as a "gatekeeper" for HMOs, screening requested therapy by evaluating the patient and, as appropriate, prescribing therapy and monitoring renewals. Physician practice organizations also have requested quality reviews and appropriate practice guidelines for treatment. Within the hospital, we have chaired the committee charged with developing and implementing subacute rehabilitation from concept to reality. The hospital is building a 60-bed subacute facility in a new, large, skilled nursing facility to complement our present 26-bed acute rehabilitation unit. As a private practice over the years, we have avoided becoming involved with utilization review as a "no win" situation, not wishing to potentially alienate our referral sources. With the advent of managed care, however, our participation in the utilization review process, with its promulgation of clinical pathways and practice parameters, has become a major source of patient referral. The nurse practitioners charged with expediting discharge planning have come to rely on the physiatrist to assist in that process. At admission, physiatric services are prescribed immediately for each stroke, spinal cord, and fractured hip, sometimes with and sometimes without the attending physician's specific request. This process has been fully supported by the medical staff because they have come to recognize its value in expediting their patient management. Discharge planning has been facilitated by this early physiatric intervention with an informed opinion as to the expected level of function at discharge and recommendations as to appropriate postdischarge placement. Orthopedic consultation with physical medicine and rehabilitation has been facilitated by the addition of a combined satellite physical and occupational therapy unit immediately adjacent to the orthopedic bed unit. With transportation time no longer a factor in daily rehabilitation care, twice-a-day treatment now is routine and length of stay for fracture and arthroplasty patients has been reduced significantly. Although, as a private practice group, we remain both anxious and concerned about the continuing trend from fee-for-service reimbursement toward managed care, we remain confident that, where these contracts include a reimbursement formula that provides financial incentives for performance, physiatrists will be rewarded appropriately. Physiatrists, with their unique ability to coordinate multidisciplinary teams and in-depth clinical knowledge sufficient to diagnose and treat neuromusculoskeletal complaints of pain and weakness effectively and efficiently, will survive in this new world of managed care.
i
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References 1. Brodenheimer T, Grumback K: The reconfiguration of US medicine. JAMA 27455-90,
1995 2. Findlay S: Networks of care may serve as a model for health reform. Business Health 11:27-31, 1993 3. Freudenheim M: Physicians are selling practices to companies as changes loom. New York Times, September 1,1993, pp 1 , 8 4. Grumback K, Brodenheimer T: The organization of health care. JAMA 273:160-167, 1995 5. Harris N: Managed care is right course, employers say. Business Health 10:32-41,1992 6. Iglehart JK: The American health care system: Managed care. N Engl J Med 327:742747, 1992 7. MacPhail J: Downsizing an office practice to counter rising costs and reduced net income. Can Med Assoc J 151:849-852,1994 8. Orient JM: What private-practice doctors can do to contain costs. Post Grad Med 95:32-38, 1994 9. Ramsey CN: Revolution in real time. Arch Fam Med 1:139-148,1992 10. Relman AS: The Choices for Healthcare Reform. Camp Hill, Pennsylvania Blue Shield Institute, 1992 11. Relman AS: The health care industry: Where is it taking us? N Engl J Med 325:854859, 1991 12. Sellars D: Computerizing your medical office. Oradell, NJ, Medical Economic Books, 1989 13. Stevens S: Health plans seen favoring groups over solo doctors. Physicians Financial News 1:29, 1993
Address reprint requests t o Myron M. LaBan, MD, MMSc, FACP Department of Physical Medicine and Rehabilitation William Beaumont Hospital 3601 West 13 Mile Road Royal Oak, MI 480734769
THE PHYSIATRIC OFFICE PRACTICE Myron M. LaBan, MD, MMSc, FACP, and Joseph R. Meerschaert, MD
After 28 years of office practice and at a time when we are beginning to consider retirement-a process of passing from who's who to who's he-we have been asked to comment on physiatric office practice. In this article, we address issues of concern to practice. We obviously cannot do so without reference to our own personal experience. ~ n f o r t i nately, in today's rapidly changing practice environment, past experience, even if successful,may have little relevance to tomorrow's marketplace. It also is doubtful that a private practice that has prospered through three decades could do so without an interlinked past and present business plan crafted to ensure future survival. The stratagems adopted all have been modified by ethical, legal, and financial considerations as well as by professional and practice issues. An office practice never is independent of other professional obligations. In our circumstance, two of our offices, although financially and administratively independent of the hospital, are located in office buildings adjacent to the primary hospital and its satellite. A third office is maintained as an integrated component of a multispecialty neuromusculoskeletal group. In each of these relationships, the clinical and business decisions of the office practice invariably have been affected by the policies of the hospital or the associated medical group. To date, interdependence, rather than independence, of mission and goals between each of these entities has fostered a mutual sense of trust that benefits each of the partners. From the Department of Physical Medicine and Rehabilitation, William Beaumont Hospital, Royal Oak (MML), Troy (JRM); Wayne State University School of Medicine, Detroit (MML, JRM); Oakland University, Rochester (MML), Michigan; and Ohio State University College of Medicine, Columbus, Ohio (MML)
PHYSICAL MEDICINE AND REHABILITATION CLINICS OF NORTH AMERICA
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VOLUME 7 . NUMBER 1 FEBRUARY 1996
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THE "DO-IT-YOURSELF" PHYSlATRlST
Taking the plunge as one's own boss remains part of the American dream, even for physicians of modest entrepreneurial spirit. This often has had more to do with personality than economic good sense. Setting one's own agenda and creating a new business venture for both profit and personal satisfaction have been sufficient enticement even for those with otherwise low-risk tolerance. Four basic differences between entrepreneurs and employees can be identified. Risk tolerance-"nothing ventured nothing gained." Given a fair review, the upside outweighs the downside at any given moment in one's career. Need for group inter-reaction. Many individuals thrive on daily group inter-reaction, doing their best when exchanging ideas; fairing better in the environment of a corporation. Ego. For some, ego enhancement within the corporation, with its group recognition of accomplishment, is more important than having one's name on the door. Control. For the entrepreneurial personality, the relationship between effort and reward may be more identifiable and immediate. Outside considerations not directly related to effort can be reduced or otherwise controlled. ORGANIZATIONAL BUSINESS STRUCTURE
Over the years, physiatrists in private practice have been well served by participating in for-profit, shared-equity practice models in which they have had an ownership role. Until just recently, solo and group practices have flourished as small businesses in a cottage industry of health care.' In the past 5 years, however, there has been a dynamic shift to prepaid medical and managed care that has rapidly accelerated the trend to larger group practices.13Physicians are aggregating in these larger groups in response to an inherently more competitive business environment that has increased the complexity of all phases of practice management.4Health care has become big business even for the independent practitioner who experiences ever-growing demands for capital to support trained personnel, facilities, complex technologic equipment, and information systems." The continued ability to raise money to meet business costs is a rapidly increasing problem for practices not associated with a hospital or functioning as part of a large clinic or managed care organization. In the past, bank loans obtained at a predictable price could be passed on to a payer through cost-based charges. In today's business climate this no longer is possible. Although the cost of providing medical services continues to grow, reimbursement simultaneously continues to fall. Five years ago, an efficient practice could count on collecting 98% of their
THE PHYSIATRIC OFFICE PRACTICE
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outstanding debt. Today, Medicare reimbursement is at 50% of billings and Blue Cross, workmen's compensation, and managed care, even without its 10% to 15% withhold, at best are collectable only to 70% of billings. Meanwhile, practice costs are escalating, with its requirements for highly trained personnel, increasingly sophisticated medical and business equipment, ever-higher rents, increasing taxes, and more expensive disposables. With each successive year, spanning the financial gulf between income and expense is proving to be more difficult. Bank bridge loans, usually assumed at the beginning of each fiscal year, are requiring longer periods to amortize as patient reimbursement continues to decline or is delayed excessively. How can the physiatrist hope to slow this erosion of net income in the face of a continuing rise in costs? With overhead expenses rapidly increasing from 30% to 60% of gross income, physiatrists are tightening their collective fiscal belts by reorganizing their practices to reduce overhead costs by: Addressing inadequacies in the management system Improving physician control Maximizing the use of technology Increasing patient volume Adapting to the requirements of managed care A Reduction in Overhead Costs
To a variable degree, practice costs are fixed by the location of the office as well as the competitive costs for staff. Electing to maintain office space on a hospital campus is an expensive choice that also eliminates the option of in-office therapy that would compete directly with hospital-sponsored therapy. It does improve the visibility of the practice by its proximity to the hospital, however. It also encourages referral from the emergency department by its immediate availability and provides access to the hospital's computer system, not as yet an option for off-campus physicians. The physical presence of a private office on campus also enables us to effectively provide a full day's administrative presence to both the hospital and the office as well as to the resident training program. Early on, we recognized that, if bigger is not necessarily better, it can foster administrative efficiencies by consolidating overhead costs. Five years ago, we expanded the size of our office by one third, anticipating the necessity of adding additional physiatrists to the practice. At that time, we were able to finance that growth out of revenues. In today's economy, this option may be less real is ti^.^ We also joined with a group of general orthopedics, hand and spinal surgeons, as well as a rheumatologist, neurologist, and neurosurgeon to form a freestanding neuromusculoskeletal group based in a separate office. The close working association
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among the physiatrist and the other involved specialists has increased visibility for physical medicine and rehabilitation and, as a consequence, improved the working relationship among the independent practices outside the nuclear group. Employees' salaries also have escalated with the necessities of hiring an educated, computer-literate staff. This is particularly true at the skilled positions (i.e., the intake and billing clerks). The rapidly proliferating number of insurance schemes, including those of managed care with their additional restrictive covenants, have made these two positions even more critical to the office's continuing efficiency. Unfortunately, in our community, we are in direct salary competition with the auto industry, whose salary schedule is comparatively high. When appropriate, part-time employees are used at the lessskilled positions to reduce benefit costs. Every employee also is crosstrained to enable them to do more than just their own job. This requires a continuing in-service educational program focusing on data input, phone etiquette, patient relations, and new office procedures, among other subjects. Simultaneously, previous inadequacies in the management system have been addressed successfully. Physician control has been improved through maximizing available computer technology and hiring an experienced and competent office manager.
Management Today's office manager has to be very talented and, as a consequence, also is very expensive. No longer can the daily operations of the office be entrusted to a valued employee who has worked his or her way up through the office ranks without the benefit of a formal education necessary to acquire the skills and knowledge sufficient to manage a large and busy office. The necessary prerequisites include, among others, a nonstop work ethic, intrapersonal skills tempered by an awareness of employment law, as well as an encyclopedic knowledge of computer operations sufficient to immediately resolve any or all problems that occur with the operation of the "black box." The manager also must be prepared to deal with the administrative demands of managed care, including office audits, fiscal transactions, and changing administrative guidelines, as well as marketing skills sufficient to maintain and increase the presence of the office within the evolving health system. On a daily basis, the ability to coordinate the activities of an in-house accountant with those of the practice's certified public accountant includes monitoring the accounts receivable, any major outstanding debts, and the operating bank balance. Above all, the manager must demonstrate a professional competence sufficient to provide employee leadership and to command respect from the medical staff. An individual with all of these skills is too valuable for any practice to lose. The compensation package, in addition to a competitive salary, may include a bonus-
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based incentive as well as other supplemental perks that may include a car. The art of practicing medicine may suffer fatally from a poorly Combining the ethics of professionalism administered medical pra~tice.~ with efficient business practices is both challenging and difficult but essential to survival in today's market. Quality assurance must be measured by pre-established performance standards, with accuracy remaining a key factor. Advancing technology, as provided by a state-ofthe-art computer system, substantially increases accuracy, speeds work, enhances efficiency, and provides improved internal control. Once in operation, however, computer systems must be monitored to ensure continuing peak operating efficiency. This can be ensured by an emergent service policy in the event that the system unpredictably "crashes," the ongoing replacement of obsolete equipment, and the continuing acquisition of program enhancements. Among the first signs that procedures and equipment are obsolete, inadequate, or unsuitable to the job are Increasing delays in processing insurance claims Accounts receivable grow as collections decline Billing schedules are delayed Routine paperwork becomes unwieldy Expenses continue to accelerate Multiple offices require timely transfer of information Decision-making information is not available immediately Filing space is at a premium Administrative and patient financial information is continuously unavailable The practice cannot communicate with others electronically. In today's marketplace, a practice cannot exist unless its information is accessible electronically by another computer. Those of us who practiced before the computer and have witnessed this era's evolution have come to recognize its potential to both facilitate creativity and regiment process. The computer definitely has not replaced paper, nor has it reduced personnel costs in the medical office environment. It has improved operating efficiency and management control, however. Additional benefits offered by computerization include an opportunity to participate in today's information revolution and an ability to travel on tomorrow's information highway. Innovative technology is pulling medical practices into the just-in-time business where only the "quick" can hope to survive. Health care, like other heretofore sheltered high-technology industries, has entered the previously unexplored waters of increased competition and technologic expectation, at the same time dealing with the demands for cost reduction and assured quality outcomes. An innovative response to this changing environment places a premium on skilled and knowledgeable professional leadership supported by a state-of-the-art computer and a
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"shared vision" for success between administration and a competent and dedicated office staff. Staff Support
Never has it been as important to have a competent, dedicated office staff as now is the case.7 Without staff support, the office cannot move forward as it responds to increasing paperwork and continuous change, imposed both by managed care and increasing patient expectations for service. Although all of us are frustrated by the increasing pace of change, progress still depends on accommodating to it gracefully. Accepting this challenge with at least a modicum of enthusiasm requires that alternative approaches be discussed with the staff and their mutual involvement and feedback be encouraged. Ultimately, flexibility and compromise have helped in identifying solutions satisfactory to all. As we have proceeded, the staff has come to understand and appreciate the need for cooperation and support, significantly increasing their ability to implement change successfully. Throughout, the staff has depended on management to provide the tools to implement change. New paper forms, copy machines, state-of-the-art computers and facsimile machines, as well as other mechanical devices, have eased the process of transition and have improved staff support dramatically. During this period, volume performance standards set for each employee were monitored to ensure that quality was never sacrificed. Managed care and health care reform have emphasized the need for "quality care," which starts with a commitment to excellence in performance, operations, and patient service. A continuing emphasis on quality instills staff pride and encourages teamwork. Errors induced by haste are potentially expensive and steal time from otherwise productive activities. The staff is encouraged to stay on top of the rapid changes in medical care by participating in conferences, attending workshops, viewing videos, and listening to audio tapes as well as attending scheduled office meetings with the clinical staff. The Medical Staff
Business as usual no longer is the norm.9 Instead, change now is routine, even if some of the clinical staff has not yet "gotten the word!" In the past 3 fiscal years, bonuses have decreased significantly as profit margins have narrowed. Now, with overhead increasing rapidly, salaried clinical staff heretofore sheltered from the relative vicissitudes of practice also are beginning to experience the realities of the new market. Anticipated annual pay raises and end-of-the-year bonuses no longer are routine. In some instances, dramatic pay cuts are a shocking reality as productivity-based salaries are impacted dramatically by shrinking revenues. Suddenly, in the real world, the work effort must be increased
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by one third just to stay even. Where additional patients are still available to a practice, the new routine is longer days, more flexible hours, and an extended week. Unfortunately, in this new climate, "bum out" must be acknowledged as a potential problem for each physiatrist, with its attendant impact on issues of quality care. New hires are facing stagnating or decreasing salaries with the promise of an eventual partnership less certain. Only the most optimistic can hope to predict the state of office practice 5 years hence. The partnership track always has been fraught with unpredictable hazards but, in the past, the rewards justified the risk. Today, the probationary period has been extended and there is growing concern as to what the buy-in eventually will purchase. Tomorrow's assets paid with today's dollars may be worth only half the current value when finally obtained. Meanwhile, there is a growing concern in busy practices as to how to continue to provide timely services without the necessity of recruiting new associates determined to pursue a partnership track. Partners, by necessity, are financial equals based on equivalent productivity. An equitable partnership status can be achieved only when the junior is able to demonstrate the potential for equal productivity. The recent changes in the health care market have made this process more difficult and less predictable. As a consequence, we have established three levels of association in our practice: (1) an associate who is salaried, (2) a nonfiscal partner who is salaried with an additional incentive-based bonus and who is involved in all nonfiscal management decisions, and (3) a full fiscal partner. As graduating residents enter practice, it has become increasingly more difficult to amortize the cost of their education. Previously acquired debt and new start-up personal expenses can be overwhelming, particularly with the uncertain future of office practice. Joining an established office practice still provides the security of an immediate salary with an opportunity to learn from the collective experience of the new association, however. Solo practice remains an option but in this day of managed care, falling patient reimbursement, escalating overhead, and decreased access to capital, except in special instances, it is not a realistic one. The neophyte solo physiatrist cannot expect to see a dime of income for at least 3 months. Thereafter, income will not exceed expenses until the accounts receivable are in excess of $100,000. Additional administrative games do not help in this regard (i.e., hospital staff privileges are required before an application to a managed care organization is accepted, a process that may exceed 6 months). PATIENT PARTICIPATION
There has been a dramatic increase in "paper" prerequisites to new patient registration as required by managed care and other third-party payers. To expedite this process in our practice, patients are mailed registration forms before the appointment. Separate "checklists" are
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made available to each patient based on the nature of the scheduled appointment, including one each for electrodiagnosis, auto accident or industrial injury, or as routine consultation. When applicable, pain maps also are provided. Each patient is given a brochure that provides an introduction to our practice and a discussion of medical and administrative procedures as well as a brief r6sum6 of the attending physiatrist. In the waiting room, more extensive curriculum vitae are available to the patients, with additional background reading and topical videotapes. Patients confused by the proliferating number of insurance programs and the restrictions of managed care are best served by offices prepared to patiently explain the insurance program's benefits as they apply to the required services. In this process, we always make a "pitch" for the inclusion of rehabilitation benefits. As one of our local haberdashers advertises, "the happy consumer is an informed consumer." Regarding managed care, our personal experience suggests that happiness for the informed patient is truly an ethereal concept, made less celestial by the newly perceived realities of rationed services. Patient marketing surveys are also available in the waiting room. We no longer assume that a scheduled return visit is a measure of satisfaction; instead, we ask for it. These surveys help to monitor staff performance but, as importantly, assist in avoiding potentially damaging negative feedback from referring physicians and managed care organizations. MANAGED CARE
Over one third of practicing physicians now are involved in group practices6 These physicians have improved their bargaining leverage with managed care organizations; increased their economies of scale; gained greater access to capital, allowing them to modernize their facilities; recruited more experienced staff; and developed sophisticated information systems. The average size of group practices increased from 6.3 physicians in 1969 to 11.5 in 1991.3The size of these groups is continuing to grow, reflecting a trend toward consolidation throughout the medical care industry. In 1992, in an effort to retain their patients, 65% of physicians joined managed care plans, which often required them to participate in group practices. Physicians participating in this trend are joining one of two groups: (1)the hospital-centered group (i.e., physician-hospital organization), in which the medical staff forms an independent practice association or (2) they sell their practice to large investor-owned groups, or selectively contract with one or several health maintenance organizations (HMOs). The evolution of managed care has been described as a four-stage process. Stage 1 is characterized by relatively few affiliations among physicians, hospitals, and employees. Managed care penetration is less
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than 10%. In stage 2, loose provider networks form, and weak hospital affiliations develop; aggressive HMOs and medical groups emerge. The managed care penetration ranges from 11%to 30%. In stage 3, hospital systems form and compete for primary care practices and managed care groups begin to consolidate. Market penetration now ranges from 31% to 50%. In stage 4, capitation gains ascendancy, purchasers contract with integrated groups or hospital/physician groups to provide integrated, comprehensive services. In our area, we are in a stage of transition between stage 1 and stage 2, with 20% of our patient population currently enrolled in HMOs but this trend definitely is growing. Seventyfive percent of physicians with whom we practice daily have managed care contracts. Michigan Medicaid also is moving rapidly toward universal enrollment and managed care, anticipating that the "managed costs" eventually will be lower. Even familiar products like those of the traditional Blue Cross/Blue Shield policy now have many elements of managed care built in (i.e., precertified admissions). The perceived advantages of managed care for the providers who are paying the everincreasing costs appear so compelling that many experts have predicted that there will be few health services outside of managed care in the .~ concerns associated with the growth of mannear f ~ t u r eContinuing aged care include those of a bottom-line financial expediency assuming precedence over good medical practice, the budget-driven prioritization (read rationing) of health care services, and the continuing issue of quality of life after the provision of acute care. Although the growth of managed care has been a great source of anxiety to our practice group, we have accepted the challenge of responding to the necessity of change. In this process, we are making a concerted effort to convert this transition into an opportunity for practice growth. Having already enlarged and re-engineered our office and improved management via the support of a dedicated and more sophisticated staff, we also have expanded office hours, thereby increasing patient volume with a correspondent improvement in operating margins. We have recognized that appointments delayed often are appointments lost. We have contracts with all the managed care organizations who also have a relationship with our primary hospital, as well as those having a significant market penetration in our service area. To date, none has demanded an exclusive contract and all pay competitive fees. Our office manager makes a continuing effort on a scheduled basis to communicate with the administrator of each managed care organization. So far, we have successfully withstood numerous facility and administrative reviews. Several members of our office medical staff serve as reviewers for various managed care organizations on physiatric issues of quality care. These contacts assist our office in maintaining a beneficial dialogue with these organizations. Meanwhile, we have established "centers of excellence" in highly specialized areas of physiatric care, including orthotics/prosthetics, electrodiagnosis, pediatric rehabilitation, and chronic pain management. We
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have marketed these programs to the managed care organizations as both cost-effective and quality-assured with appropriate documentation that illustrates we say what we do and do what we say! Managed care only recently has attempted to deal with the escalating costs of rehabilitative therapy services. The proliferation of physical therapist-owned treatment centers serving patients with generic prescriptions and self-generated treatment renewals is aggravating this situation. Our office has been asked to serve as a "gatekeeper" for HMOs, screening requested therapy by evaluating the patient and, as appropriate, prescribing therapy and monitoring renewals. Physician practice organizations also have requested quality reviews and appropriate practice guidelines for treatment. Within the hospital, we have chaired the committee charged with developing and implementing subacute rehabilitation from concept to reality. The hospital is building a 60-bed subacute facility in a new, large, skilled nursing facility to complement our present 26-bed acute rehabilitation unit. As a private practice over the years, we have avoided becoming involved with utilization review as a "no win" situation, not wishing to potentially alienate our referral sources. With the advent of managed care, however, our participation in the utilization review process, with its promulgation of clinical pathways and practice parameters, has become a major source of patient referral. The nurse practitioners charged with expediting discharge planning have come to rely on the physiatrist to assist in that process. At admission, physiatric services are prescribed immediately for each stroke, spinal cord, and fractured hip, sometimes with and sometimes without the attending physician's specific request. This process has been fully supported by the medical staff because they have come to recognize its value in expediting their patient management. Discharge planning has been facilitated by this early physiatric intervention with an informed opinion as to the expected level of function at discharge and recommendations as to appropriate postdischarge placement. Orthopedic consultation with physical medicine and rehabilitation has been facilitated by the addition of a combined satellite physical and occupational therapy unit immediately adjacent to the orthopedic bed unit. With transportation time no longer a factor in daily rehabilitation care, twice-a-day treatment now is routine and length of stay for fracture and arthroplasty patients has been reduced significantly. Although, as a private practice group, we remain both anxious and concerned about the continuing trend from fee-for-service reimbursement toward managed care, we remain confident that, where these contracts include a reimbursement formula that provides financial incentives for performance, physiatrists will be rewarded appropriately. Physiatrists, with their unique ability to coordinate multidisciplinary teams and in-depth clinical knowledge sufficient to diagnose and treat neuromusculoskeletal complaints of pain and weakness effectively and efficiently, will survive in this new world of managed care.
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References 1. Brodenheimer T, Grumback K: The reconfiguration of US medicine. JAMA 27455-90,
1995 2. Findlay S: Networks of care may serve as a model for health reform. Business Health 11:27-31, 1993 3. Freudenheim M: Physicians are selling practices to companies as changes loom. New York Times, September 1,1993, pp 1 , 8 4. Grumback K, Brodenheimer T: The organization of health care. JAMA 273:160-167, 1995 5. Harris N: Managed care is right course, employers say. Business Health 10:32-41,1992 6. Iglehart JK: The American health care system: Managed care. N Engl J Med 327:742747, 1992 7. MacPhail J: Downsizing an office practice to counter rising costs and reduced net income. Can Med Assoc J 151:849-852,1994 8. Orient JM: What private-practice doctors can do to contain costs. Post Grad Med 95:32-38, 1994 9. Ramsey CN: Revolution in real time. Arch Fam Med 1:139-148,1992 10. Relman AS: The Choices for Healthcare Reform. Camp Hill, Pennsylvania Blue Shield Institute, 1992 11. Relman AS: The health care industry: Where is it taking us? N Engl J Med 325:854859, 1991 12. Sellars D: Computerizing your medical office. Oradell, NJ, Medical Economic Books, 1989 13. Stevens S: Health plans seen favoring groups over solo doctors. Physicians Financial News 1:29, 1993
Address reprint requests t o Myron M. LaBan, MD, MMSc, FACP Department of Physical Medicine and Rehabilitation William Beaumont Hospital 3601 West 13 Mile Road Royal Oak, MI 480734769