Webinar Examines Benchmarking Medical Practice Performance

Benchmarking for Medical Practices
Lori A. Foley, CMA, PHR, CMM
Tynan Olechny, MBA/MPH, AVA
Questions@BVResources.com
Prepared for BVR 2013 Online Symposium on Healthcare Valuation Part 7
July 30, 20132013 Business Valuation Resources, LLC
©
© 2013 Business Valuation Resources, LLC

Page 0

What is Benchmarking?
• Process of measuring and comparing an
organization’s performance to national, and
regional, or industry averages
– Provides quantitative data to support informed
decision-making

• Internal vs. External

July 30, 2013

Page 1

Why Benchmark?
• Insight into:
– How business is operating compared to peers
• net income/overhead

– How individuals/entities are producing compared
to peers
• production, compensation

– How efficiently staff or processes are working
• A/R days, collection rates, A/R aging
July 30, 2013

Page 2

Benchmarking Applications
• Routine daily management
• Situational analysis
• Self evaluation in contemplation of a sale
• External evaluation in contemplation of a purchase
• By appraiser to understand and normalize the business

July 30, 2013

Page 3

What Can Be Benchmarked?
• Production
– Procedures

- Patients

- RVUs

– Cases

- Medical records

- wRVUs

– Visits

- Hours worked

• Compensation/Benefits
– Compensation per wRVU

– Compensation to collections ratio

• Overhead
– Numerous expense categories

July 30, 2013

Page 4

What Can Be Benchmarked?
• Staffing Complement
• Efficiency Ratios
– Days in A/R
– Gross/Adjusted Collection %

• Collections
– Collections per wRVU

• Payor Mix

July 30, 2013

Page 5

Benchmarking Resources
• Financial Surveys
– Medical Group Management Association, American
Medical Group Association, Sullivan Cotter & Associates,
Towers Watson, etc.
• E/M Bell Curve Data Book
• Specialty Medical Associations
– NERVES Socio-Economic Survey
• Entity itself (trending)
• Proprietary Internal Databases
July 30, 2013

Page 6

Financial Surveys
• Medical Group Management Association
• Physician Compensation & Production Survey
• Management Compensation Survey
• Cost Survey

• Individual Specialty Surveys (i.e. Anesthesia, etc)

– Most comprehensive; largest sample of physicians
– Generally represents small, single specialty medical
groups
– Shifting split between private practice and
Hospital/IDS-owned
July 30, 2013

Page 7

Financial Surveys
• American Medical Group Association
• Compensation & Financial Survey

– Generally mid-to-large multi-specialty medical groups
– Not as many expense category benchmarks
available

• Sullivan, Cotter & Associates
• Physician Compensation & Productivity Survey
• Physician On-Call Pay Survey

– Generally represents larger organizations, including
hospital-based systems and academic groups
July 30, 2013

Page 8

Undertaking the Task
Critical to understand:
- The data you have
- What the benchmarks measure

- How they are defined and calculated
- What they [might] mean

July 30, 2013

Page 9

Obtaining the Data
• Clearly understand what information you are
seeking

• Cooperate with entity to get what you need
– Discuss systems, capabilities and data inputs
– Any gaps/overlaps due to system conversions
– Provide detailed requests for information
– Communication, communication, communication!
July 30, 2013

Page 10

Working with the Data
• Understand what you received – is
normalization required?
– Any providers/services/locations added or
deleted?
– Significant changes to charge master/fee
schedule, reimbursement contracts, expenses?
– Double check report parameters and time periods
• Matching
July 30, 2013

Page 11

Working with the Data
• Understand what you received – is
annualization required?
– The more months included, the better.
– Does the period reflect the norm?
– Are there alternatives to annualization?
• 12 months “moving”/TTM

July 30, 2013

Page 12

Remember:
• Data comes from a variety of sources
– Not always comparable

• Collection of data is often contingent on how
systems are set up
– Varying levels of sophistication
– Close, but not quite “there”

• Definitions may differ according to situation
• Varying degrees of “electronic” data
• Always subject to interpretation
July 30, 2013

Page 13

Using the Benchmark Resource
• Read the narrative – make sure you know
what is being measured and how
– Often includes disclaimers as to how it should or
should not be used
– May narrate differences from previous years’
benchmarks
– Identifies and discusses trends in the data

• Be as specific as possible to each situation
July 30, 2013

Page 14

• Review the formula to perform the calculation
• Differentiate between Median and Mean
• High percentiles – it’s not always good to be at the top
of the chart!
– Example – 90th percentile in collections vs. 90th percentile
in expenses

• Understand the metric definition – total compensation
in one survey may not equal total compensation in
another survey
• Consider the number of survey respondents
July 30, 2013

Page 15

• Data results from one benchmark metric do
not always correlate to data results from
another benchmark metric
– Example – Collections vs. Charges:
2013 MGMA Physician Compensation & Production Survey

Description

25th
Percentile

Data Points

Median

75th
Percentile

Mean

90th
Percentile

Family Medicine - Total Collections

2,136

$

325,241

$

418,763 $

433,343 $

524,404 $

637,880

Family Medicine - Gross Charges

2,378

$

515,475

$

656,422 $

708,798 $

841,652 $

1,072,879

July 30, 2013

Page 16

Understanding the Benchmark
• Result of the calculation seldom tells the
entire story – dig deeper!
– Surrounding circumstances and other factors
should be considered.

• Creates a starting point for additional
questions, analysis and understanding
– Double check: Does the result of the calculation
make sense in light of the other information?
July 30, 2013

Page 17

Benchmarking Charges
– Better internal measure (e.g. year over year for
the same entity) than external

– Establishment of charges is subjective for the
entity
– Important to understand if calculating gross
collection rate (GCR) [payments/charges]
– Often benchmarked as a percent of the Medicare
fee schedule
July 30, 2013

Page 18

Benchmarking Charges
• Example
– Practice A sets charges at 200% of the Medicare
allowable and has GCR of 62.5%
– Practice B sets fees at 400% of the Medicare
allowable and has GCR of 31.25%

– Benchmark is 66%

July 30, 2013

Page 19

Benchmarking Payments
• More objective measure than charges
• Remember - not all payment types may be
included in the benchmarks
– Read the benchmark to understand what to
include for comparison

– Understand the data to ensure that only
applicable amounts are included

July 30, 2013

Page 20

Benchmarking Payments
• Payment considerations:
– Is A/R high?

– Are billing and collection processes routine and
operating as they should be?
– Are new providers credentialed so that claims
can be processed?

• An adjustment may be warranted to paint a
more complete picture for decision making.
July 30, 2013

Page 21

Benchmarking Compensation
• Not all types of compensation are included in the
benchmarks
– Read the benchmark to understand what to include
for comparison
– Understand the data to ensure that only applicable
amounts are included

• Influenced by a variety of factors –
ownership, net income, contract, compensation
formula, sources of compensation
July 30, 2013

Page 22

Benchmarking Compensation
• Compensation considerations:
– Does the provider have a contracted salary or
ownership interest?
– Is compensation allocation tied to production?
– Is provider in a start-up or wind-down situation?
Buying in?
– Does the physician receive compensation for call
coverage, medical directorship, etc.?
– Is compensation being taken in the form of
rent, personal expenses, etc.?
July 30, 2013

Page 23

Benchmarking Operating Overhead
• Can benchmark actual dollars or expense as a
percent of net patient revenue – both may be
relevant
– Again, beware of benchmark definitions!

• Personal and discretionary expenses are
typically excluded
– Often requires a significant amount of normalization

• Non-recurring/extraordinary items are often
excluded or normalized
July 30, 2013

Page 24

• Operating overhead considerations:
– Keep in mind a function of both collections and
expenditures – “reasonable” expenses in terms of
$$ but low collections yield high percentages
– If you are analyzing part of a larger whole, are all
expenses fully captured?
• If not, how should they be accounted for?

– If forecasting, consider fixed versus variable
July 30, 2013

Page 25

Ancillary Service
Revenue & Expense Allocations
A

B

Entity Financial
Statements 12/31/10

1
2
3

V
V

Revenues
Professional Fees
Professional Fees - Direct
Total Income

4
5
6
7
8
9

Non-Physician Expenses
Accounting Fees
Automobile Expense
Automobile Expense - Direct
Bank Service Charges
Collection Costs

2,000,000

15,000
7,000

C

D

(500,000)
500,000

(1,000)
1,000

5,000
1,500

1,500,000
500,000
2,000,000

F

G

Allocation Basis (4)

Direct Adjustments ($)
Allocable
(2)
Expenses ($) (3)

E

Allocation
Rate (9)

Allocated Ancillary
Income Statement ($)
(10)

Common Size

Professional
Percent Technical Revenue (1)

15,000
6,000
1,000
5,000
1,500

Percent Revenue
Percent Revenue
Direct
Percent Revenue
Percent Revenue

86.3%

0
431,657
431,657

21.58%
21.58%
100.00%
21.58%
21.58%

3,237
1,295
1,000
1,079
324

(11)

100.00%

1
2
3

0.75%
0.30%

4
5
6

0.25%
0.08%

8
9

July 30, 2013

Page 26

Benchmarking Production
• Important because it is a key driver of
revenue (along with reimbursement rates)
• In many of today’s affiliations, production is a
direct driver of provider compensation
• Measured in a myriad of ways

July 30, 2013

Page 27

Measure

Issues to Consider

Office Visits

Number of patients seen in an
ambulatory (office) setting

Encounters

Can mean ambulatory visits or
procedures

Procedures

Can mean every CPT submitted or
the number of times a certain case
is performed

Cases

Often comprised of multiple CPT
codes or procedures; assistant
surgeon cases may be reflected

RVUs/wRVUs

Impact of modifiers, multiple
procedure discounts
July 30, 2013

Page 28

• Production considerations:
– If the entity has non-physician practitioners
(NPPs), understand how they are tracked in the
reports
• Billing provider vs. rendering provider

– Are the results reasonable - can one provider see
___ patients per day?
– Are there any planned changes with regards to
production?
• Retirement/slow down, loss of patient base or key referral
source, etc.
July 30, 2013

Page 29

Benchmarking Staffing
• Often one of the Practice’s highest line item
expenses

• Certain levels of staffing needed to achieve
certain economic results
• Both under and overstaffing may yield less
net income; consider during normalization
process
July 30, 2013

Page 30

Benchmarking Staffing
• Staffing considerations:
– Must understand classifications and who is
included
• Some benchmarks exclude NPPs, others include

July 30, 2013

Page 31

Benchmarking Financial Indicators
• Reflect the results/efficiency of certain
processes, usually A/R related
– Days/months in accounts receivable
– % of A/R in each aging bucket
– Gross Collection Rate
– Adjusted Collection Rate

July 30, 2013

Page 32

A/R Benchmarking Considerations
• Accounts Receivable Indicators
– Understand the entity’s process for writing off bad
debt/uncollectible accounts
– Identify aging parameter – time of service, time of
filing, re-aging impact

– If entity changed billing systems during analyzed
period, make sure to account for related activity
in both
July 30, 2013

Page 33

GCR Benchmarking Considerations
• Gross Collection Rate =
Payments
Charges
• If fee schedule is set very low, GCR can be
very high and vice versa – does not
necessarily reflect efficiency of collections
• Material changes in fee schedule affect
comparison from one period to the next
July 30, 2013

Page 34

ACR Benchmarking Considerations
• Adjusted Collection Rate =
Payments

[Charges – Mandated Adjustments]
• Effective calculation relies on how
sophisticated entity is in tracking adjustments
by category

July 30, 2013

Page 35

ACR Benchmarking Considerations
• Different benchmarks treat certain categories
differently
– Professional courtesy

• Can exceed 100% due to timing issues but
not for sustainable period of time

• Can be a measure of effectiveness of
collections
July 30, 2013

Page 36

Applying Benchmarks
• Once appropriate benchmarks are
identified, valuation experts should use this
information to guide their analysis, looking for
areas in the practice that may deviate from
the applicable benchmark data
– Identify areas requiring adjustments

July 30, 2013

Page 37

Applying Benchmarks
• What questions should you ask to better
understand what’s going on in the
practice, using benchmark data as an
indicator of the norm?
– Does this benchmark make sense in light of other
information? What other factors could be causing
this result? How can or should practice
performance be adjusted to get to the norm?
July 30, 2013

Page 38

Case Study 1: Physician Productivity
When comparing 2012 financials to those of
previous years, a valuation expert notices a
decrease in revenue. Valuation expert investigates
by looking at individual physician production.
-Physician A made $251,000 in 2012, and
generated 4,800 wRVUs.
-Physician B made $300,000 in 2012, and
generated 2,000 wRVUs.
July 30, 2013

Page 39

National Compensation Survey Data, Neurology

Description

25th
Percentile

Data Points

2013 MGMA Physician Compensation and Production Survey
2012 SullivanCotter Physician Compensation Productivity Survey
2012 AMGA Medical Group Compensation and Financial Survey

693
781
1,062

Median

75th
Percentile

Mean

90th
Percentile

221,076
201,991
211,009

$
$
$

265,443
247,948
249,250

$
$
$

298,599
253,185
273,255

$
$
$

343,410 $
271,276 $
301,540 $

470,966
347,365
396,081

$

Average of Surveys, Rounded

$
$
$

211,359

$

254,214

$

275,013

$

305,409 $

404,804

Physician A

wRVU Survey Data, Neurology
Description
2013 MGMA Physician Compensation and Production Survey
2012 SullivanCotter Physician Compensation Productivity Survey
2012 AMGA Medical Group Compensation and Financial Survey
Average of Surveys, Rounded

Data Points
587
432
846

25th
Percentile
3,818
3,655
3,643
3,705

Physician B

Physician B
Median
5,158
4,454
4,717
4,776

Mean
5,589
4,977
5,185
5,250

75th
Percentile
6,810
5,844
6,158
6,271

90th
Percentile
9,155
7,627
8,058
8,280

Physician A

July 30, 2013

Page 40

• Physician A is compensated at the median
level, and seems to be producing accordingly.
• Physician B is compensated near the 75th
percentile, and is producing far below the 25th
percentile.
– Physician B’s compensation and production
levels do not align.
– Physician B historically produced at the 90th
percentile.
July 30, 2013

Page 41

• Does this account for the decrease in revenue?
– It could. However, all possible factors that affect revenue
should be explored.

• What next?
– The valuation expert should investigate Physician B’s
compensation levels in previous years.
– Understand how compensation is calculated in the
practice. Is a portion of revenue shared, e.g. Is there a
direct correlation in the formula between production and
compensation?
– The valuation expert should investigate other potential
causes.
July 30, 2013

Page 42

• What other questions should the valuation expert
ask in this situation?
– Is the decrease in revenue a new trend, or has it been
ongoing? Is it expected to continue?
– Could the decrease in revenue be caused by factors other
than Physician B’s production?
• Are practice reimbursement rates normal? Are there problems
with collections? Has there been an increase in expenses? Have
there been any operational changes within the practice?

July 30, 2013

Page 43

• What would any willing Buyer adjust to get
revenue back on track?
– Which of these findings require normalization in
the valuation?

July 30, 2013

Page 44

Case Study 2: Operating Overhead
Valuation expert analyzes operating overhead
of a family medicine practice in comparison to
other similar practices. Currently, the practice
spends about 30% of its revenue on general
operating costs (excluding physician
compensation and benefits).

July 30, 2013

Page 45

General Operating Cost as a Percentage of Revenue, Family Medicine
Description
2012 MGMA Cost Survey

Data Points 25th Percentile Median Mean 75th Percentile 90th Percentile
372
29.19% 41.04% 50.77%
62.12%
90.19%

• The practice’s operating overhead
approximates the MGMA 25th percentile.
What does this mean?

July 30, 2013

Page 46

• What questions should the valuation expert
ask in this situation?
– Expenses may be low, but are they appropriate?
Is the practice understaffed or undersupplied?
– Are collections much higher than the
norm, resulting in lower expenses as a
percentage of revenue?
– Are all expenses accounted for?
July 30, 2013

Page 47

Keys to Remember
• Benchmarks do not tell the whole story, but
instead offer insight.

• Not all benchmarks are relevant, and not
everything is worthy of comparison.
• Keep it in perspective!
– A benchmark with an n = 356 is probably more
reliable than one with an n = 28.
July 30, 2013

Page 48

Keys to Remember
• Finally, always step back and look at the
relationships of the analysis to see if they
make sense. If wRVUs and collections are
greater than the median and expenses are at
or below the median, why isn’t compensation
greater than the median? What is missing?

July 30, 2013

Page 49

Thank You
Lori A Foley, CMA, PHR, CMM
lfoley@pyagatesmoore.com

404.266.9876
www.pyagatesmoore.com
Tynan Olechny, MBA, MPH, AVA
tolechny@pyagatesmoore.com
404.266.9876
www.pyagatesmoore.com
July 30, 2013

Page 50

Recording & Transcript of this Presentation
Buy the Training Pack of “Benchmarking
Medical Practice Performance” and receive
instant access to:
• Complete audio and video recordings,
• A complete transcript, and
• All handout materials from this
presentation.

Visit Business Valuation Resources, or
click here.
July 30, 2013

Page 51

Webinar Examines Benchmarking Medical Practice Performance

Recommended

Recommended

More Related Content

What's hot

What's hot (19)

Similar to Webinar Examines Benchmarking Medical Practice Performance

Similar to Webinar Examines Benchmarking Medical Practice Performance (20)

More from PYA, P.C.

More from PYA, P.C. (20)

Recently uploaded

Recently uploaded (20)

Webinar Examines Benchmarking Medical Practice Performance

Editor's Notes