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Evaluating the Financial Performance of Your Employed Physician Enterprise: Going Beyond Physician Losses

by Rudd Kierstead, Principal and Craig E. Holm, Director

If your employed physician enterprise is like most, you are experiencing calculated losses of $100,000 to $200,000 per physician, and the losses are likely increasingly intolerable. The figures for physician losses, as currently determined, certainly grab attention, and as a financial indicator are very important. However, those figures do not provide much in the way of guidance on what level of losses are sustainable and appropriate for your enterprise.

First, publicly available benchmark figures for physician losses vary up and down significantly from year to year (30 percent or more). There could be a number of reasons why this variation in data occurs, but it’s certainly not due to that much actual variation in performance from year to year. More likely it reflects a year-to-year change in the self-selected sample of survey participants. Therefore, it is not meaningful to compare your performance to this market data.

Second, we have confirmation of the variation problem from our own sources. Veralon recently surveyed leadership at 30 physician enterprises, with 11,000 employed physicians, and found that organizations vary widely in the methodology they use to calculate losses. When asked about their physician losses, managers described different accounting methodologies, with the most significant variation occurring in how, and how much, overhead is allocated (to the extent that respondents could describe how that allocation occurred).

Third, comparing your enterprise with the published benchmark ignores the potential impact of physician mix. As employed networks add specialists with high compensation—cardiac surgeons, neurosurgeons, etc.—their losses per physician are likely to increase. A benchmark with a large proportion of primary care physicians will be misleading when compared to performance in an enterprise with high compensation specialists.

Together, these factors make clear that the loss calculations are more a function of accounting methodologies than of operational realities. The calculations mask realities that warrant a closer look and that can identify opportunities for enterprise improvement.

A Better Self-Test
If the physician loss calculations are not useful, how can you evaluate the performance of your physician enterprise? You need to track a small number of narrowly defined indicators. The narrower definition allows for reasonably easy-to-measure internal statistics as well as access to relatively robust benchmarks.

  1. Physician compensation as a percentage of professional collections: If the figure is over 55 percent, it warrants a closer look for performance improvement opportunities.
  2. Non-physician expense as a percentage of professional collections: 55% is not a bad starting point for evaluation. If physician compensation and non-physician expenses are each 55% of professional collections, that would imply a deficit of only 10 percent of professional revenue.
  3. Specialty-adjusted group or practice average physician WRVU productivity: Once you have adjusted for differences in physician specialty distribution, any result under 90 percent of the median benchmark should be flagged for potential improvement.
  4. Non-physician expense per WRVU: Expenses greater than $75 merit examination
  5. Ratio of physicians to Advanced Practice Clinicians (APCs): The results of Veralon’s survey suggest that if there are fewer than 2.5 physicians per APC (or to invert this, fewer than 0.4 APCs per physician), you should assess whether it’s time to broaden the role of APCs in clinician staffing).
  6. Percent of gross charges with accounts receivable over 60 days: If this figure is more than 30 percent, assess your billing process indicators.

Because there are significant start-up costs associated with the hiring of new physicians, these figures should ideally be looked at with and without new hires (those hired within the last 12 to 18 months). Any new physicians that do not get to median production in 18 months should be reviewed.

There are many alternatives to these diagnostic questions. However, resist the temptation to take issue with any particular metric. The takeaway should not be the absolute level, but an understanding of why your physician enterprise is high or low in comparison and where to turn for improvements.

Once you have established the process of collecting and tracking this data, you can start on the hard work: identifying improvement opportunities, getting the changes made, and tracking success. This will also require assessing indicators of group culture, operations, and especially physician engagement. These are topics for other posts.