Thomas Freeman
Stan Stephen

To boost the bottom line of an acquired physician practice-and the organization overall- a hospital should first establish a shared understanding with the practice of the organization's overall game plan and what matters most to both sides.

At a Glance

Hospitals should boost the revenue cycle performance of acquired physician practices by:

  • Effectively assimilating the physician practice into the overall organization  
  • Standardizing revenue cycle processes, policies, and tools between the hospital and physician practice  
  • Enhancing physician/patient scheduling policies and procedures  
  • Regularly auditing physician documentation and periodically comparing hospital charges against practice charges  
  • Improving procedures for responding to denials  

Many forces are driving the trend in hospital acquisition of physician groups, from the need to strengthen physician-hospital alignment to new payment systems that will cut fees and lower reimbursement. But simply acquiring a physician practice doesn't guarantee financial success for hospitals.

Achieving financial objectives requires effective management of the practice-based behaviors, processes, and tools that affect the revenue stream. But hospitals and health systems face several challenges in managing the revenue cycle performance of the physician groups they acquire. To begin with, hospitals and physician practices are separate entities with goals, practices, and standards that are often very different from each other. The challenges that result from such differences-such as differences in culture, policies, tools, and processes-can be alternately clear cut and hard to grasp. Without a solid understanding of what makes each entity "tick," achieving the financial targets a hospital sets for a physician practice can be an exercise in futility.

Improving the bottom line of hospital-acquired physician practices requires an understanding of these challenges and a plan to overcome them. Following are five strategies for enhancing revenue cycle performance of physician practices.

Effectively Assimilate the Practice into the Overall Organization

The challenge: Hospitals and physician practices operate in entirely different ways. In a hospital, for instance, decisions are made via committees and layers of authority, while in a physician practice, one or two key physician leaders may be calling the shots. Such differences can create an environment that is not conducive to setting-let alone meeting-goals. It is critical that hospital leaders invest time and effort into bridging this cultural gap and bringing the practice into the organization's fold.

Action Steps  

Create an action-oriented culture through which an evidence-based improvement plan can be implemented. To promote accountability for such a plan within the practice, hospitals should establish a shared understanding with the physicians of the hospital's goals. Hospital leaders such as the CFO, COO, and clinical affairs director should work closely with key physician practice leaders and the practice administrator to explain the hospital's overall game plan-not just what the plan is for that particular specialty, but where financial resources are to be invested throughout the hospital and how quality and staffing will be improved. If physicians understand the hospital's strategic plan, they can better understand its financial decisions and be mindful of hospital interests in internal decision making.

Set clear practice performance expectations and establish organizationwide agreement on how to best assess the practice's performance in meeting those expectations. Examples of performance metrics include collection rate, days in accounts receivable, and payer mix. Realistic physician performance targets (such as for volume, procedures, and revenue) should be set based on current levels and industry norms, rather than solely on hospital goals. Physicians won't buy into unrealistic goals.

Develop and distribute a comprehensive reporting package to allow for ongoing comparison of performance outcomes against internal and external benchmarks. The practice administrator should be responsible for generating such reports and distributing them routinely to the hospital team, physicians, and revenue cycle staff to generate ideas for improvement from all levels.

Create revenue cycle teams to lead improvement by specialty. Team members should include the clinical department director for the hospital, a hospital finance manager, and the physician group practice administrator. The team should hold regular team meetings, led by the practice administrator, to track revenue cycle strengths and weaknesses within each specialty and identify issues that need to be addressed. Periodically, the teams should involve lower-level revenue cycle staff from both the hospital and physician practice to foster cultural alignment on the front lines, where processes and tools are used and implemented.

Standardize Revenue Cycle Processes, Policies, and Tools

The challenge: Implementing plans for revenue cycle improvement within a physician practice requires a melding of resources between the hospital and the group practice for the plans to be effective. A practice's use of processes, policies, and tools that differ from those used by the hospital can hinder the practice's financial performance.

Action Steps  

Standardize chargemasters to create efficiencies and avoid complications on the front and back ends of the revenue cycle. With input from physicians, who receive the brunt of patient complaints about charges, the revenue cycle team should ensure that hospitals and physician practices are charging the same amount for the same service, to avoid the appearance of misalignment.

Consider the provider-based issues associated with standardizing the chargemaster among both entities. Weigh the pros and cons of whether to charge services as hospital- or practice-based. In cardiology, for example, charges for ancillary services, such as echocardiograms and ultrasounds, are typically twice as high in a hospital setting as in a physician practice setting. And in a hospital setting, the patient receives two bills-one from the hospital and one from the physician who reviews the results-which can lead to confusion and anger over greater out-of-pocket costs. The patient may direct his or her anger toward the physician or even leave the practice altogether. Such negative ramifications should be considered when deciding how to charge for services.

Adopt a common charity policy and create an automated patient eligibility system for the policy. Because they often are personally familiar with patients, physicians are likely to write off charges in hardship cases. Yet this practice may run counter to the hospital's charity care policy. The hospital business office should develop the policy, but should include physicians in the decision making to ensure compliance. Physicians should be made to understand their role in following-not interpreting-the policy.

Enhance Physician/Patient Scheduling Policies and Procedures

The challenge: Physician scheduling can have a major impact on a physician group's productivity. If the hospital has more physicians on staff than the patient count requires, the number of office visits by patients will be reduced, unnecessarily limiting the growth of the practice. Likewise, poor patient scheduling procedures can unnecessarily reduce the number of patients seen in physician offices, which will reduce the number of ancillary services ordered-and ultimately reduce the number of procedures performed at the hospital.

Action Steps  

Review physician and patient scheduling options that can directly affect hospital and practice revenue. Hospital administrators, such as the vice president of clinical affairs and clinical department director, should work with physician practice leaders to consider various schedule-related questions, including the following:

  • How many physicians need to be in the hospital at any given time?
  • Who will make rounds? (All physicians, or just one physician who will see all patients?)
  • Who will handle discharges?
  • Who is going to be on call?
  • Will each physician see only his patients, or will he see his colleagues' patients as well?
  • Will every physician be available for referrals?
  • Will referrals be seen on the same day as the request was made?

Many decisions will be based on the practice's compensation system, whether it be a shared revenue structure or one in which each physician is compensated according to what he or she bills. If physicians share revenue, for example, it may not matter who should specifically make hospital rounds.

Avoid taking a top-down approach when developing scheduling policies. The hospital should gauge physician preferences, and then determine what options are appropriate. The importance of making the scheduling process as efficient as possible to accommodate new patients, who generate more ancillary services than established patients, should be underscored.

Audit Physician Documentation and Compare Hospital Versus Practice Charges

The challenge: Physician documentation directly affects the bottom line, yet is heavily prone to misinterpretation of rules and error. For example, documentation involves recording not only the type of services provided by the physician, but also the level of service provided. If a physician codes for a service one level lower than the level the documentation actually supports, the payment will be about 50 percent less than it would have been had the level of service been coded correctly. Another common problem is that hospital procedures for which the practice has billed patients may not accurately reflect the total number of procedures performed by physicians in the hospital.

Action Steps  

Monitor the codes being billed by each physician and the supporting documentation to ensure compliance and uncover revenue charge capture opportunities. Even the smallest change in coding can have a major financial impact. For example, a level-five office visit requires a physical examination of eight organs. If the physician's documentation reports an exam of only seven organs, the level of service would drop from a level five to a level three, reducing the potential for payment by more than 50 percent. In turn, continual undercoding by a single physician can mean a loss of thousands of dollars in revenue. Internal anecdotal reports suggest, for example, that cardiologists may be losing as much as $45,000 a year individually due to undercoding. And the Centers for Medicare & Medicaid Services (CMS) estimates that undercoding costs practices $1 billion in fees annually (Improper Medicare FFS Payments Report, CMS, November 2009,

Periodically compare the number of hospital-based procedures billed by the practice with the number billed by the hospital. Discrepancies are common because physicians often inaccurately report to the practice's billing department the number of procedures they performed during weekend and night shifts. Not only do physicians often inadequately track the services they provide, but also coders may find physicians' handwritten logs difficult to decipher, adding further to an inaccurate count of procedures performed. For example, the practice's billing system may record 50 cardiac catheterizations performed during one month, while the hospital's system may record 54. Physician charges for those additional four tests would not be captured, resulting in lost revenue.

Conduct audits using an outside firm initially, then bring the function in-house once the hospital has gained the appropriate level of expertise. Practice administrators should regularly share the results of an audit with physicians. If a physician's error rate exceeds an established internal or external norm, a revenue cycle staffer with expertise in the physician's specialty should meet with the physician to explain the CMS rules and the financial impact of improper coding. The frequency of audits should increase for that physician until his or her error rate decreases.

Improve Procedures for Responding to Denials

The challenge: Many physician practices routinely write off bills that are denied by a payer, often because the practice has neither a clear understanding of payer rules nor a dedicated resource to handle payment issues. With appropriate effort, however, many of these denials can be easily appealed and overturned.

Action Steps  

Track denials to determine what's being denied and why. The organization should maintain a separate log for each denial received that includes information related to the patient, payer, bill amount, and reason for the denial. Tracking the total amount of denials can help in determining the amount of resources that should be devoted to reducing and preventing denials. If a practice has $10,000 worth of denials annually, it doesn't make sense to invest $40,000 to reduce that amount. The potential savings should be able to justify the expense.

Dedicate a role within the practice to working on denials. If the dollar amount is substantial, the role should be full-time. An internal staff member, most likely a coder, who has a comprehensive understanding of payer rules and the appropriate negotiation skills, should be assigned to work with the payer on overturning denials. If someone with these skills is not available internally, the organization also could consider engaging an outside firm to handle denials for the practice or recruiting a person with these skills.

Determine the appropriate remedy for avoiding future denials. If the practice is successful in winning appeals, the payer will most likely deny fewer bills. If, however, a denial is caused by a physician error-such as failing to sign a document-the physician should be educated on proper coding/documentation. The employee charged with monitoring denials should either give a presentation at a medical staff meeting on this topic, work one-on-one with physicians who are the source of particular denials, or both.

Shared Understanding Is Critical

Overall, the goal in managing the revenue cycle performance of a physician practice should be to avoid creating an "us versus them" mentality. The key-and the crucial element for success within each of these five strategies-is gaining that often-elusive physician buy-in, which can be accomplished by investing time in sharing organizationwide objectives with physicians and understanding their priorities. If physicians have a solid understanding of the hospital's or health system's goals, they are more likely to accept policies, processes, and tools that are directed toward reaching those goals.

Essentially, each side should understand what makes the other side "tick." The practice should understand how a hospital achieves financial success, while hospital leaders should understand what makes a practice successful. Achieving this shared understanding requires a solid hospital-practice alignment that continuously underscores what's important for both sides and dedicates time and resources to achieving bottom-line targets that will benefit both parties-and the entire organization.

Thomas Freeman is a vice president, Paragon Health, Southlake, Texas (

Stan Stephen is a senior consultant, Paragon Health, Southlake, Texas ( 


Publication Date: Thursday, September 01, 2011

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