As Complexity Rises, Income Falls

June 15, 2002
Practice Management
John W. McDaniel

Physicians today are facing an increasing number of challenges that make it difficult for them to deliver optimal patient care. At the same time, they are confronting different challenges that make it hard for them simply to run their businesses.

While many of the challenges physicians confront today may seem to be occurring at a dizzying pace, there are five major trends that physicians need to be aware of in order to be successful. First is that payers are focusing on reducing reimbursement in outpatient medicine; second, evaluation and management (E&M) coding is receiving increased scrutiny by all payers; third, physicians are opting out of the Medicare and Medicaid programs; fourth, more physicians will seek information technology solutions; and fifth, physicians will begin to view their employees as being capable of enhancing revenue.

Reimbursement Woes
Among physicians, one of the most important issues today is the declining rate of reimbursement for outpatient services. Over the last decade, payers have been successful in shifting the majority of health care services to the outpatient setting. Last year, hospital revenue totaled $430.3 billion and ambulatory care revenue amounted to $443 billion. Physician offices accounted for the biggest share of ambulatory care revenue at $215.2 billion.

Given the growth rate of outpatient medicine, payers are continually looking for new ways to control costs. Interestingly, the best tools to control costs and to improve quality have been developed in an area that is becoming less important: inpatient health care.

The federal Centers for Medicare and Medicaid Services, for example, is decreasing Medicare payments to physicians this year by 5.4%; at the same time, however, CMS is raising hospital reimbursement for outpatient Medicare services by 2.3%. The growth in the number of Medicare recipients due to the aging population has created a problem for CMS: It wants to control Medicare expenditures but it does not know how to control volume. Indeed, the Medicare program faces a difficult challenge with respect to balancing higher costs with rising utilization, and the likely target for cost reduction will be outpatient medicine, specifically physician services.

The actions of CMS cause a domino effect on various managed care contracts, particularly those that use a Medicare fee schedule as the basis for physician payments. A complex formula exists with respect to physician payments, and in order to determine appropriate reimbursement rates from each of their major payers, medical practices must continually review their top 25 CPT-4 codes with respect to charges, collections, and adjustments. At the same time, practices must analyze the effect of changes in the Medicare fee schedule because specific procedure codes will vary with respect to Medicare reimbursement.

Coding Compliance
Coding is important in the second trend as well—because E&M coding is receiving increased scrutiny by all payers. In its work plan for this year, the Office of Inspector General (OIG) of the federal Department of Health and Human Services has made E&M coding a top priority.

Through its ongoing audits, the OIG is trying to determine whether physicians are coding correctly for E&M services and are using documentation guidelines effectively. While physicians still have the option of using either the 1995 or 1997 guidelines, it is generally believed that physicians tend to overcode for the services they document and undercode for the services they provide. Overcoding can lead to an audit and fines, and undercoding results in physicians failing to get full reimbursement for the work they have done.

Furthermore, the OIG said in its work plan that it will closely examine coding for consultative services. In particular, federal officials will look for the appropriate utilization and documentation of consultations from referring physicians.

The increased scrutiny by the OIG has resulted from the audits involving codes 99214 (evaluation and management during an office visit that include a detailed history, examination, or decisionmaking of moderate complexity), and 99233 (evaluation and management related to a hospitalized patient). Government auditors have found that about 75% of these codes were downcoded by at least one level of service due to insufficient documentation. Furthermore, E&M services represent 11 of the top 25 most frequently billed services to Medicare.

For example, code 99213 (evaluation and management during an office or other outpatient visit of an established patient that require an expanded-problem-focused history or examination, or decisionmaking) was billed 91.2 million times last year, accounting for 12.3% of total Medicare services. Interestingly, 97110 (therapeutic exercise) increased by 34% since 1999, the single largest increase in terms of the number of claims of any other CPT code, including 99213.

Steps to Take
Since the federal government is continuing to monitor the use of procedural codes, medical practices should develop and implement an effective coding compliance program. This program should involve at least the following three steps:
• An analysis of the use of all E&M codes by physicians to ensure compliance with CMS standards;
• A chart audit for each physician to ensure that each physician is using the codes correctly and documenting appropriately; and
• Educational sessions with physicians to review the outcome of the assessment.

Given declining reimbursements and the complexity of Medicare and Medicaid compliance procedures, it is no surprise that many physicians are choosing not to serve the beneficiaries of these federal and state programs. As Medicare reimbursement declines and operating expenses rise, the average medical practice cannot continue to survive financially without making drastic changes. The states also are reviewing Medicaid reimbursement and looking to cut fees, most of which come at the expense of physician income.
As Medicare and Medicaid reimbursement continues to decline or fails to keep pace with expense increases, such as those for professional liability insurance and the cost of regulatory compliance, many medical practices may find that making a profit in the future will be a significant challenge.

Seeking to do more with less, physicians are fostering the fourth trend by turning to information technology for solutions. Physicians will use computers to increase patient throughput and enhance the patient visit experience while decreasing operating expenses, particularly administrative costs.

More practices will consider the costs and benefits of electronic medical records and various hand-held personal digital assistants (PDAs) for coding, charge capturing, and prescription writing, among other tasks.

Since the market has put so much pressure on physicians, they will foster the fifth trend by beginning to view employees as being capable of improving revenue. In virtually every area of health care, staff members are either directly providing patient care or giving immediate assistance to caregivers. While most medical practices view employees as a labor expense, employees should be viewed as investments in human resources.

In effect, physicians should be able to calculate the return on investment that each employee either produces or indirectly assists in producing. If a nursing assistant can help a physician see just one additional patient per day, the assistant’s contribution would be worth about $15,000 annually, in addition to the contribution he or she is already making to the practice.

Boosting Revenue
Similarly, if front office personnel are highly trained, motivated, and appropriately compensated, they may be in an ideal position to improve over-the-counter collections of copayments, collections on deductibles for noncovered services, and collections on outstanding patient accounts.

The front office employees have the first opportunity to provide outstanding customer service. Also, as they become more efficient at insurance verification, eligibility, and the gathering of demographic information, this work can lead to fewer denials and rejections of insurance claims, thereby increasing cash flow.

Indeed, viewing employees as human resource investments means physicians must care for and nurture them with appropriate compensation, ongoing in-service training, continuing education, and performance evaluations that can provide the basis for base-pay and incentive compensation plans.

While the environment certainly is challenging for any physician practice, there are steps physicians can take to confront these challenges while also improving efficiency and boosting revenue.