September 2001
Practice Management
John W. McDaniel
Many physicians today are seeking to start or build group practices, and it is
important for them to understand the many factors that can help them to succeed
in this endeavor. In a past issue, we discussed the feasibility and development
phases of starting or building a group practice. In this issue, we continue
discussing practice development and address implementation issues as well.
One of the first operational issues to address in developing a group practice is to identify the physicians or executives who will be members of the management team. For this task, group members should seek candidates who have the experience, education, and personal skill to lead effectively.
Legal Issues
After members of the management team have been selected, one of the first issues
the team must address is the legal structure the practice will use. Will it be a
sole proprietorship (not likely, if there is more than one physician), a
partnership, or a corporation? For this task, the team is best advised to retain
an attorney to help form the partnership or corporation and to help the new
group with physician contracts, office equipment leases, collections questions,
representation in hospital matters, and employment issues.
Once the management team is in place and the physicians have settled on a legal structure, the physicians should review call and coverage issues by analyzing the existing call groups and establishing new ones if needed.
Early in the development process, a new group also needs to address issues related to office space and design by reviewing existing leases and current practice sites. A real estate agent may be able to assist the group in selecting the best location for the practice, but the group also may need the expertise of a physician practice consultant in order to evaluate the needs of the market involved. To do so, the physicians or a consultant should collect demographic information on the areas under consideration. They should also analyze competitors in the region by evaluating how the competitors are serving the market. In this way, the physicians can identify potential opportunities for providing new or enhanced services in that market.
Determining whether it would be better to build a new building or to lease office space is another decision that many new groups must make. If the group decides to build a new office, the management team will need to get preliminary plans, draft construction documents, negotiate construction contracts, and supervise the contractor. If the group decides to lease space, the group members should be thoroughly familiar with the type of lease and the requirements of the leaseholder. While reviewing the physical needs of the group, they should review the capability of the security system of the existing or new building and contact system vendors for information or for bids on installing a new system, if necessary.
When considering new office space, physicians should also pay particular attention to ensure that the office is designed so that patient flow is optimized.
System Requirements
Every group today needs an effective and efficient medical management system.
Therefore, the physicians should review existing systems and contracts to
determine whether it is better to upgrade the current hardware and software or
whether buying or leasing a new system makes the best business sense. Any new
system must be able to help the group comply with the new requirements under the
Health Insurance Portability and Accountability Act (HIPAA) of 1996. Also, the
group will want to ensure that a new system can help speed billing and payment.
If the physicians decide to buy or lease an information system, they may want to consider a system that is capable of storing medical records electronically. In the past, many physician groups had electronic systems for billing and kept paper files on all patients. Today, however, patient medical record systems are being used for billing purposes. Therefore, physician groups should carefully consider getting one system to do both. To do so, physicians will need to determine which format they will use and obtain samples from vendors. Also, the physicians should determine whether they will need dictation machines because some medical records systems eliminate or minimize the need for such equipment.
In any case, physicians will want to develop policies and procedures for patient record maintenance and for billing and collections before soliciting price and performance information from vendors. Also, physicians should consider what other office equipment the group will need (such as a copier) because many pieces of ancillary office equipment can be linked to compatible office equipment.
Determining a group’s hardware and software needs in order to enhance practice efficiency is a complex and arduous process. In fact, the physicians may want to consider hiring an adviser. As medical office systems become more sophisticated, they are being used in so many functions that most physicians need advice when considering patient records and billing systems and when designing a financial reporting system and appropriate software. The physicians and their consultant or accountant will want to design an income statement and balance sheet, develop procedures for tracking managed care and capitation contracts, and create appropriate accounting systems for payroll and accounts payable. Also, the physicians will need to establish new bank accounts.
The accountant also will develop a chart of accounts, accounts payable procedures, and a fee schedule. He or she will prepare an operating budget, income and cash-flow projections, and a first-year estimate that includes percentages for collections, overhead, and the approximate number of projected patient visits, gross billings, and expenses. The accountant also will address banking issues, such as the types of accounts that will be needed.
Policies and Procedures
Once the required systems are chosen or in place, the group should consider
hiring an office manager to help complete many of the steps that will follow.
The office manager can do a staffing assessment, develop a staffing plan and
salary projections, and create a new organization chart. Also, the manager may
be able to help the group with such personnel issues as job descriptions,
benefits, personnel policies and procedures, and advertising for and
interviewing applicants. The office manager can help the group find
best-practice policies and procedures and meet these as closely as possible. The
office manager also can get copies of federal and state regulations relative to
employment law.
At this point, the group should determine the licenses, permits, and registrations it will be required to obtain and other administrative duties it must complete. For example, the group will need occupational licenses from the city and county, and it will need to inform the state medical licensing board of its new address. The group also will need to determine state requirements relative to narcotics licensing and determine which requirements under CLIA it will need to meet and submit an application, if necessary. Also, the group will need to apply for federal and state employer identification numbers.
Each physician member of the group also will need a provider number and credentialing applications for affiliated hospitals and health plans. The group will need to apply to the federal Centers for Medicare and Medicaid Services in Bethesda, Md., for provider applications.
In addition to personnel policies, the group will need clinical procedures and a fee schedule for each service it will offer.
Ancillary Services
While developing policies and procedures, the group must consider issues related
to insurance. The office manager and accountant can assist the group in choosing
an insurance broker and review policies for general and professional liability,
for general and business insurance, and for service contracts and vendors.
The group also may need vendors for general office services, such as waste management (regular and biohazardous), janitorial and pest control services, landscape maintenance, telephone answering, transcription, and laundry. It is also important to consider marketing services at this time.
Completion
Upon the completion of the feasibility and development phases, the practice
should set forth a reasonable and achievable implementation timetable. Indeed,
many of the activities in the development phase of this process will take time
for physicians to consider both individually and collectively.
Still to be resolved are some of the major issues in the implementation phase, including a physician and executive compensation plan, and a retirement plan.
While the rewards of group practice can be extraordinary, careful attention to detail and extreme due diligence in the early practice development stages are crucial to later success.