Adding a physician practice? Learn these revenue cycle management basics

Home sales nationwide may have collapsed since the expiration of a tempting tax credit, but sales of physician practices to hospitals continue to occur at a brisk pace as hospitals plan and execute their strategies to prosper under health reform. For example, Skagit Valley Hospital in Mount Vernon, Wash., recently decided to buy Skagit Valley Medical Center, an 81-physician Mount Vernon-based multispecialty medical group. The sale will mark the sixth physician group in the Puget Sound region to sell to or partner with a hospital within the past year, reports the Puget Sound Business Journal. "As a nation, we have hit a milestone," said Gregg Davidson, the hospital's CEO. "Fewer than 50 percent of physician clinics are privately owned."

CFOs discussed options for integrating physicians and hospitals into a cohesive healthcare delivery system last week at the Healthcare Financial Management Association's (HFMA) 2010 ANI: The Healthcare Finance Conference in Las Vegas. HFMA even released a new white paper, "Integration in a Reform Environment: Strategies for Success," discussing the art of integration and the seven key competencies required to execute an effective integration strategy: market awareness, goal setting, structure, physician leaders/champions, technology/data sharing, compensation/incentives, and engagement/cultural blending.

I recently spoke with Mary Pat Whaley, a practice administrator for a North Carolina-based community hospital and the Editor of the Manage My Practice blog, to peel back the bells and whistles and look at the core integration issues that CFOs need to consider to ensure smooth revenue cycle management when bringing a physician practice on board. Here are her recommendations:

1.  Acknowledge that there are significant differences between revenue cycle management for hospitals and physicians, and allocate a resource to manage the physician process.

In previous buying sprees that have occurred over time, "hospitals were trying to run practices as departments of the hospital, and that's just not successful from a cultural standpoint, a philosophical standpoint or a financial standpoint," notes Whaley. The "best of both worlds" would be for a hospital to have an employee with experience in hospitals as well as experience in private practice to drive the revenue cycle for the practice. But at a minimum, hospitals need someone with private practice expertise, she says.

2. Be ready for a learning curve--for both practice and hospital employees.

The truth is that hospitals and physicians don't speak the exact same billing language, says Whaley. For example, "most practices are on a cash basis with their accounting and their receivables, and most hospitals are on some sort of accrual basis," she explains. "So right there, the two basic accounting systems are quite disparate."

In addition, the coding is different. "The codes that are submitted for ambulatory services are not codes that the typical hospital would ever have occasion to use," says Whaley. Even the terminology is different. "Practices talk about charges, write-offs and receipts, while hospitals talk about booked revenue or gross revenue, contractual adjustments and net revenue," she explains.

So there needs to be a collaborative effort between the hospital and the practice, advises Whaley. "CFOs have to understand that practice managers have a lot to bring to the table, and the practice managers have to make a big effort to understand the accounting processes of the hospital and try to talk their language."

3. Evaluate the benefits of traditional billing vs. split billing for the practice.

The traditional way for physician practices to bill "is to bill one charge for physician services that covers both the physician work and the facility," says Whaley. "However, if a practice is owned by a hospital, they have an opportunity to bill more like a hospital billing system, which is to separate the professional fee and the facility fee. There's a lot of evaluation that needs to go on before that decision is made."

Some hospital-owned groups believe that split billing is more financially advantageous, while "others think the standard billing is more advantageous," says Whaley. So far, the evidence of which system works the best is anecdotal. "Depending upon how things go with healthcare reform, that may be something that is visited much more intentionally in the future," she points out.

4. Learn from the hospital's billing system and the practice's billing system to identify opportunities for improvement and collaboration in both systems.

Hospitals tend to bill episodically, but practices usually "deal with the finances a little bit more comprehensively because patients might see the physician a number of times throughout the year," says Whaley. "There are some things to be learned from the episodic billing of the hospital, and there are things to be learned from the kind of ongoing billing relationship that practices have with patients. If practices and hospitals could learn more from each other now and create a more collaborative approach, they might be better positioned in the future to deal with bundled payments." - Caralyn