If you haven’t noticed yet, the costs in your practice are becoming a key factor in your continued profitability. With continued cuts in reimbursement by almost all managed care plans, including Medicare, and the disappearance of balanced billing, your ability to cost shift from the remaining contracts that pay more than your expenses is shrinking. This pressure on your margin and your income is being felt acutely in some markets, especially those with high managed care penetration and high competition for patients.
Scope of the Problem
To deal with this problem, you need to be in-tune with your practice’s operating expenses. Unfortunately, most practices are still using a gluteal approach to judging their costs by comparing their income on an annual basis to previous years. Since everyone knows how hard they are working, some estimates of cost can be made from this approach.
A more accurate way to estimate costs is to use your annual accounting report summary to compare your costs with those of other surgeons. Such reports are published in Medical Group Management Association’s (MGMA) annual reports, Medical Economics magazine, or the annual AMA Socioeconomic Monitoring Survey Report.
The most useful way, however, is to develop the data within your practice that allows for calculation of the actual expense of providing specific services, even at the level of individual procedures. This requires that a standard measure of professional services be used to quantify your work product. This measure is codified as relative value units (RVUs) in the resource based relative value scale (RBRVS), which is now used by the majority of payers for health services. When the total RVUs produced in your practice are calculated from your billing system, the actual expense per RVU can be calculated using the total expense data divided by the total RVUs. Armed with this dollars-per-RVU-figure, you can determine your practice’s actual expenses by multiplying the RVUs for any procedure by this factor.
When this method is applied in a practice, the practice administrator can realistically analyze fee schedules and managed care contracts for their actual impact. Cost management techniques based on real data can also be employed to contain costs while preserving the quality of services. Other applications include defining floor capitation rates, allocating capitation payments among a group of providers and third-party profitability analysis.
Practical Data
For those not yet convinced that cost management may be important to your practice, some information from the AANS Survey on Practice Expenses may provide you with practical examples of this type of data. The survey now includes data from 54 neurosurgical practices, including 246 neurosurgeons and 34 other physicians within those practices, and represents a modest mix of states, and practice sizes-both private and academic. The survey includes a case mix database, which represents a one- year accumulation of all procedures and services billed by CPT code, both with and without CPT modifiers. Moreover, the survey provides the raw frequency data needed to calculate the total work product of the practice for the year, by multiplying the RVUs for each billed code by the listed frequency for that code. This calculation, therefore, offers a measure of the expense per RVU that may match the output of different practice billing systems.
For example, if your computer uses only the total RVUs per CPT code in the billing process, the expense per RVU that would match that system would be the dollars per total RVU when calculating expense per CPT code. An example using the survey data to calculate the current practice expense payment by Medicare is as follows:
$ per work RVU = $39.08
$ per total RVU = $19.44
Finally, a thorough understanding of practice expenses will enable you to more accurately eevaluate fee schedules. For example, payments from Medicare for your practice expenses are consistently below actual cost. The table below lists five frequent neurosurgical procedures, and compares the actual practice expenses to the amount Medicare paid in 1999.
Clearly, the shortfall is alarming when the realization of what is happening to your business expenses is exposed.
| Actual Practice Expenses Versus Medicare Expense Payment – 1999 | |||||
| 1999 CPT | Procedure | Actual Practice Expense | 1999 Medicare Practice Expense | % Difference From Actual Payment Expenses | |
| 35301 | Carotid Endarterectomy | $731 | $494 | -32% | |
| 61510 | Brain Tumor Excision | $1,112 | $919 | -17% | |
| 61700 | Carotid Aneurysm | $1,974 | $1,150 | -42% | |
| 63030 | Lumbar Discectomy | $469 | $453 | -3% | |
| 63047 | Lumbar Spinal Decompression | $571 | $548 | -4% | |
Robert E. Florin, MD, is a semi-retired private practice neurosurgeon in Whittier, California. He is a 37-year member of the AANS and the Chair of the AANS Physician Reimbursement Committee, consultant to the AANS/CNS Washington Committee and a member of the AANS/CNS Cost Containment Task Force.