Pat A. Sorrentino
Brian B. Sanderson

Hospital leaders entering the physician practice acquisition pool should take into account the inherent differences between hospital and physician revenue cycles.

At a Glance

To be able to effectively manage physician revenue cycles, the hospital revenue cycle team must understand and address several issues in physician practices:

  • Physician organizational structures 
  • Payment methodology 
  • Registration 
  • Provider compensation modeling  
  • Provider on-boarding process 
  • Systems integration  
  • Communication processes and culture  

Physician practice consolidation, declining payment rates, and skyrocketing costs have led many individual physicians and physician groups to look to hospital systems for employment. Hospitals, in turn, are interested in developing robust networks to qualify as accountable care organizations (ACOs) that can treat Medicare patients under the Affordable Care Act. The ACO initiative is scheduled to launch in January 2012.

As more hospitals acquire physician practices, many are running into difficulties managing the practices' revenue cycles due to a lack of requisite experience and resources. In addition to hiring staff with the necessary expertise, hospitals should adopt appropriate processes, technology, and automation to obtain desired financial results. But such resources are costly and sometimes hard to obtain.

Issues to Consider

To effectively manage a physician revenue cycle, a hospital revenue cycle team needs to understand the following nuances prevalent in physician practices.

Physician organizational structures. When acquiring new practices, a hospital should determine whether to add the practices to an existing structure or create a new umbrella group. A hospital or health system with an existing practice structure might acquire several community-based physician groups. In such an instance, the best approach from a cost and benefit perspective might be to create a "physician group light"-with a different benefit and governance structure from the existing structure-that facilitates a smoother integration with the overall health system. The advantage of this approach is that it avoids the possibility of an unnecessary and counterproductive culture shock from adding the groups to the existing structure. Another advantage is that the acquired physician groups might be more nimble in the new group than they could be in the larger, perhaps more lumbering existing structure in which it might be more difficult to make clinical and administrative changes.

Payment methodology. The most significant distinction between hospital and physician revenue cycles is physician payment, which is transaction-based instead of case-based. As a result, payers can pay or deny individual line items. The transaction-based payment methodology also affects the contract negotiation process. Hospitals are generally accustomed to negotiating case rates, but contracts for physician practices require more negotiation and a thorough understanding of the different services physicians perform and the associated costs.

Registration. Registration can pose a problem because the payer classification varies for physicians and hospitals. Even though the payer is the same for both hospitals and physician services, the payer could have separate processing units with separate addresses for hospitals and physicians.

Provider compensation modeling. Hospitals that acquire physician practices must determine a compensation model for physicians-whether it is a straight salary or another model based on variables such as relative-value units (RVUs), clinical quality indicators, practice-related costs, and cash collections. The variables provide incentives for physicians to maximize their productivity, improve clinical quality, and remain attentive to practice costs and overall profitability.

Provider on-boarding process. Hospitals should understand and properly execute the steps required to bring the new physicians on board, from ordering lab coats to getting the physicians situated in their offices. In particular, defining and establishing standardized physician fee schedules and enrolling physicians with Medicare, Medicaid, and nongovernmental payers will be pivotal in maximizing the success of the revenue cycle downstream.

Systems integration. The medical records, billing, and scheduling systems are set up and used differently in physician practices than in hospitals, requiring integration from the beginning. The differences might include specific physician scheduling templates and types of visits, transaction or line-item physician billing as opposed to account-driven hospital billing, and physician-based medical record content (orders, referrals, physician documentation, problem lists) that differs from the typical hospital medical record.

Communication processes and culture. To hold staff members accountable-a key to managing physical revenue cycles effectively-the hospital and the practices should establish roles and responsibilities early and design a communication process that will manage information exchange efficiently and foster collaboration on new initiatives. For example, a monthly status meeting with the practices could address financial trends, practice staff changes, systems issues, and denial review. The denial review would cover back-end denials associated with the central business office and denials associated with the back-end revenue cycle process and front-end revenue cycle processes.

Recognizing and addressing these issues will make it easier to implement the strategies for managing physician revenue cycles described below.

Use of Metrics and Monitors

One of the most crucial steps in managing financial performance is developing meaningful monitors and metrics. For physician revenue cycles, however, hospitals should look beyond traditional measures-such as days in accounts receivable (A/R), percentage A/R over 120 days, denial rates, first-time claim acceptance, charge lag, and collection rates-and use cost-related and clinical quality indicators.

Cost-related indicators include cost per unit of volume (generally the cost per transaction). The goal is to drive down indicators continuously while improving financial performance. Clinical quality indicators relate to Physician Quality Reporting Initiative (PQRI) measures. Payers use PQRI measures to identify clinical quality by medical specialty. If a physician performs a certain number of quality-related activities during an exam, the physician will generate additional revenue from the payer.

The audience receiving the monitoring reports and managing the related metrics is broader on the physician side than the hospital side, where staff members who produce monitoring reports also manage results. On the physician side, reports are distributed to physicians, administrators, and chief medical officers for the practice group and the hospital. Because physician revenue cycle teams necessarily work with individuals and departments that are outside the revenue cycle process, they require knowledge of how their actions affect financial and clinical performance to perform their jobs effectively. To this end, they require constant feedback, education, and training to continue refining the reporting process.

Denials Management

Claims denials are categorized as noncontrollable or controllable. A denial is noncontrollable if the payer's reason for the denial is outside the control of the physician practice or the revenue cycle team. For example, if a payer initially denies a claim pending a request for medical records or reviews, submitting the claim in a different manner would not have prevented the denial. No error was made; the payer simply sought additional information.

Controllable denials, on the other hand, are denied due to issues such as registration or coding errors and lack of precertification. These errors point to a breakdown in a specific unit, such as the registration staff. In a hospital setting, it's typically up to the central business office to fix errors and resubmit claims, all too often without informing the persons who made the errors.

The physician side, however, calls for an accountability-driven process, where employees who are the cause of denials are also responsible for responding to the denials. As a result, the revenue cycle team needs to know which staff members are responsible for which activities that could lead to controllable denials.

For example, a specific employee in a physician's office is responsible for scheduling and registration activities. If that person codes the wrong insurer as payer and the claim isn't submitted to the actual payer, a delay occurs and the potential for a write-off is created. In an accountability-driven process, the person who made the error would locate the correct insurer information, change it in the system, and reprocess the claim. The process-often set up as an automated work queue-provides clear incentives to do it correctly and makes it easier to manage and track to ensure that edits are completed in a timely fashion.

A preclaim editing system can be integrated with the main patient management system as another tool for reducing controllable denials. The system allows users to build specific edits into the process. A physician practice, for example, could establish edits that are triggered when an employee enters a charge for ICD-9 and CPT codes that the designated payer frequently denies. The system would warn the employee to correct the codes before submitting the claim and can be set up to provide the employee with options for more appropriate codes for the original code combination. By sending clean claims from the start, physician practices can reduce lags in payment.

Use of Bolt-on Solutions

Preclaim editing systems are just one of several "bolt-on" solutions that can be integrated with a patient management system to manage physician revenue cycles. Additional options include:

  • Contract management systems that evaluate the accuracy of payments, comparing payments with submitted claims
  • Net A/R and reserve tools that help the finance director or CFO evaluate net A/R and reserve calculations
  • Credit balance management tools that facilitate effective management of credit balances, help identify and generate refunds for patients and payers, and make automatic adjustments to A/R

Revenue cycle teams also can maximize "e-transactions" by integrating a solution for submitting electronic claims, receiving electronic claim status reports, and posting electronic payments from payers. Although larger payers already provide such solutions, smaller payers might still send paper documents. Revenue cycle teams should use tools that aggregate the information from smaller payers and funnel it to physicians' systems, increasing efficiency and reducing the labor-intensive, transaction-based workload.

Point-of-Service Patient Collection

Physician practices generally offer greater opportunity than hospitals for point-of-service (POS) collection from patients of past-due balances, copayments, and deductions. Securing payment in a physician's office is critical, as the likelihood of collection drops dramatically after a patient leaves the office.

Physician practices can improve POS collection by:

  • Providing office staff members with up-to-date information on patients' outstanding balances and payments due for that day's visit
  • Providing training programs and scripts to teach staff how to ask patients for payments
  • Developing monitors to manage activities associated with POS collection

One POS collection monitor is the "missed opportunities" report, which identifies all patients with outstanding balances who came in to see a physician. The revenue cycle team can monitor, retrain, and reward staff members for collection efforts. The revenue cycle team also can track POS collection trends by staff member over time. The team can establish goals for staff, monitor activity based on goals, and retrain or reward.

The Role of Collaboration and Communication

Strong collaboration and communication with physicians and administrators play a vital role in managing physician revenue cycles, especially when communicating monitoring results and training (or retraining) staff in collections. Physicians' offices should operate not as silos, but as part of the entire revenue cycle process.

Ideally, a hospital would be able to place dedicated revenue cycle staff in each physician practice. The staff would meet with physicians and administrators regularly to review trends and strategize on improving volume and referral management. For example, the staff would see if there was a reduction in referrals and follow up with referring physicians to address issues. A practice liaison model can work well, too. The hospital designates a practice liaison group to connect with physician practices and develop ongoing communications about specific metrics, processes, and related topics.

Hospitals also should consider combining and standardizing registration activities across the physician practice and hospital settings. A shared registration system can help maximize revenues by reducing registration-based denials on both sides and better manage staff productivity, consolidated training, and increased patient satisfaction. Patients have a single point of contact and endure shorter wait times on calls.

Hospitals can further improve registration by incorporating technology and automation, which give registration staff real-time access to payer information, enabling them to validate insurance coverage before a patient's appointment. The solution will flag invalid coverage so that staff has time to obtain correct information. The automated validation means staff members need to spend time working only on coverages identified as invalid.

Finally, hospitals should consider empowering physician practices to schedule ancillary services, such as X-rays. The hospital would capture additional outpatient revenue by keeping patients in the system. Otherwise, patients might schedule ancillary services at out-of-network providers.

Look Before You Leap

Hospitals that acquire physician practices must take a holistic approach to managing physician revenue cycles by adopting processes, new technology, and automation. Understanding issues in physician practices, from organizational structures and payment methodology to provider compensation models and system integration, also are keys to managing the revenue cycles. Developing monitors and metrics also will assist in managing financial performance while communicating and collaborating with physicians will play a vital role as well.

Pat A. Sorrentino is with healthcare services, Crowe Horwath LLP, Oak Brook, Ill., and a member of HFMA's First Illinois Chapter (

Brian B. Sanderson is a partner and the healthcare services leader, Crowe Horwath LLP, Oak Brook, Ill., and a member of HFMA's First Illinois Chapter (

Publication Date: Thursday, December 01, 2011

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