5 Ways To...

David Clingo and Cesar Fernández-Mansilla

Costing for physician practices presents unique challenges for hospital finance professionals. Here are five things to keep in mind when attempting to produce costs for physician practices, whether hospital-owned or independent.

Don't automatically apply traditional hospital costing models to physician practices. Hospital cost accounting models lack the ability to track two dimensions that are critical to cost physician practices: location and specialty. This is an especially important concern when costing multilocation/multispecialty practices. Because hospital general ledger and billing systems are not expected to account for these two dimensions, a cost accounting system for physician offices needs to bridge that gap-something most hospital costing systems are not designed to do. For example, hospital billing codes distinguish the nature and location of the work completed, but in the physician practice, the current procedural terminology (used for billing codes by physician offices) is the same no matter the location or specialty.

Consider using a physician practice cost accounting system rather than a hospital costing system. Hospital cost accounting systems follow models that are inadequate for costing physician practices. Attempting to use a hospital costing system to cost a physician practice will result in a lot of jury- rigging to make it work, resulting in maintenance headaches.

Know that not all physician group expenses should be categorized as "expense." In many group practices, physician owners receive total compensation exceeding the market value of the service. This excess is neither a direct nor a variable cost. Assuming the practice does not discriminate the expense appropriately (say, as a clearly separate account in the general ledger), it would be up to the costing system to make accommodations to separate those dollars. However, the system may not even have the data to do so, because the practice may not disclose the compensation by provider. In this case, a separate system or component at the professional corporation may be needed.

Be aware of hurdles that could affect continuum-of-care costing. For example, identifying a patient who is treated in both the hospital and the physician office can be a challenge when the medical record number for the practice does not match that of the hospital. A uniform master patient index should be used to identify patients across the continuum of care. Additionally, gaining agreement on what constitutes a case is not a trivial matter and deserves careful consideration and agreement.

Consider the type of physician practice model in determining the costing approach. There are various models under which a physician practice may conduct business (e.g., a traditional medical group, a
hospital-owned clinic, a professional corporation/management services organization, and more). Each of these models has different systems setups that dictate the way in which the costing model is to be built and implemented. These setups heavily influence how the feeder systems are interfaced and how costing and activity (billed and nonbilled) structures are to be built.

David Clingo is financial transformation authority, Fiscal Medics, Inc., Escondido, Calif., and a member of HFMA's San Diego-Imperial Chapter (dclingo@fiscalmedics.com).

Cesar Fernández-Mansilla is managing director, Integrated Medical Organization Systems, Carlsbad, Calif. (cfernandez@imos.com). 

Publication Date: Tuesday, May 01, 2012

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