Live Webinar | Operations and Other Technology
Save
Live Webinar | Operations and Other Technology
Save
Live Webinar | Patient Financial Communications
Save
Column | Accounting and Financial Reporting

The metrics that matter in today’s physician enterprise

Sponsored by Kaufman Hall
Column | Accounting and Financial Reporting

The metrics that matter in today’s physician enterprise


Matthew Bates

Erik Swanson

Advanced practice providers (APPs) now represent about two-fifths of the physician enterprise workforce. New metrics are required to reflect this and other transformative changes within the physician enterprise.

Over the last decade, the physician enterprise has undergone transformative changes. As of 2021, 73.9% of physicians were employed by hospitals or other corporate entities, according to an April 2022 study conducted by Avalere Health. While the physician employment trend predates COVID-19, the study found that 83,000 physicians became hospital employees since the onset of the pandemic, suggesting that physicians increasingly sought employment as a safe harbor during a turbulent time.

In addition, APPs — a category that includes nurse practitioners, physician assistants and certified registered nurse anesthetists — are increasingly taking on work traditionally performed for physicians, and now represent about two-fifths of the physician enterprise workforce. In 2020, APPs represented more than 60% of all new entrants into the labor pool, according to a Kaufman Hall analysis.

Since Kaufman Hall began publishing the Physician Flash Report in 2020, we have received frequent questions about the metrics we use and regular requests for metrics beyond what we’ve included in the report. In addition, our clients often ask our counsel on navigating the metrics they get from electronic medical records, as well as finance and human resource systems.

These inquiries have allowed us to develop a series of “metrics that matter” for margin, revenue and expense. We started by deliberating and creating an updated list of the financial metrics that matter for the employed physician enterprise. We then vetted the list with employed physician groups to ensure we were on the right track. We recommend annualizing all the metrics listed in the sections below to be able to compare trends over time, though the comparisons should still be made on a quarterly basis to monitor for signs of change.

Margin

One of the most critical metrics in any business is margin, or put simply: “Are we making or losing money?” In the case of employed physician enterprises, the question is usually, “How big a financial gap do we have?” In reality, almost all employed physician groups lose money, and we have evolved our language to talk about the “Investment” (or subsidy) levels it takes to sustain these organizations. 

We recommend a couple of metrics to best assess and evaluate margin performance. It is important to note that the metrics listed below are outcome measures. As a result, the focus should be placed on understanding the variances of the components of these measures when seeking to drive change.

 

Metric

What is it?

Why it matters

Investment per Provider

(Revenue / Expense) / number of Provider FTEs

As the number of APPs in the workforce continues to grow, it is increasingly important to consider investment across all providers and not just the physicians.

Investment per Physician

(Revenue / Expense) / number of Physician FTEs

Physicians are the leaders of the provider workforce and typically comprise the majority of the workforce. While the increase in APPs sometimes adds noise to this metric, it remains a key indicator of financial performance.

Physician - APP Percentage

Percent of Provider Workforce that is APPs

With some high-performing organizations now employing more APPs in primary care and hospital settings than physicians, it is important to understand this shift and how it impacts the physician enterprise’s financial performance.

 

Revenue

We focus on net patient revenue as it comprises the revenue that counts in the physician enterprise. Other revenue sources sometimes exist in the financials we review, but for employed groups, the revenue often represents funds flowing from other parts of the organization. Net patient revenue includes all revenue derived by delivering patient care, including fee-for-service, capitation payments and quality/value payments.

Revenue in the physician enterprise is driven by two levers: (1) How much are we being paid for our services? (i.e., revenue per work relative value unit(wRVU) and (2) How busy are our providers? (i.e., wRVU production).

  1. Revenue per wRVU is controlled by an organization’s payer mix and reimbursement model (something the individual provider has little ability to influence).
  2. wRVu production reflects how busy your providers are seeing and treating patients (something providers exercise a significant amount of control over).

We use wRVUs versus total RVUs as they better reflect provider productivity. They are also constant regardless of whether work is delivered in a physician clinic, hospital-based clinic or hospital setting.

And we use FTEs to recognize that some physicians work part-time. We would also encourage you to consider clinical time versus other time — as it is not unusual for a physician to split time among clinical delivery, administration, research and teaching in academic settings.

 

Metric

What is it?

Why it matters

Net Patient Revenue per Provider FTE

Net Patient Revenue divided by number of Provider FTEs

This is the key revenue metric for a physician enterprise. This metric needs to be evaluated in the context of the specialty composition of the enterprise as different specialties generate materially different net patient revenue.

Net Patient Revenue per wRVU

Net Patient Revenue divided by the number of wRVUs

This reflects organizational net revenue per wRVU, and is largely outside of the control of an organization’s providers. Organizations looking to improve this metric need to focus on payer mix, commercial rates and revenue cycle.

Commercial Payer Mix Percentage

Percent of Commercial Patient Net Revenue

Evaluating your payer mix helps you understand your reimbursement levels against benchmarks. Typically, organizations with a larger commercial payer mix should see a higher net patient revenue per wRVU.

wRVUs per Provider FTE

Total wRVUs divided by Provider FTEs

This metric represents your provider workforce’s production. Improvement in this metric requires increasing patient volume for your providers.

wRVUs per Physician FTE

 

Physician wRVUs divided by Physician FTEs

This metric represents your physician workforce’s production. Improvement in this metric requires increasing patient volume for your physicians.

 

Expense

Employed physician enterprises are expensive to operate. The vast majority of their expenses are driven by physician, APP, staff and administrative labor costs (i.e., salary & benefits). This is why we suggest organizations focus on managing labor costs as their primary expense management focus. While other expenses do exist, they make up a very small percent of the total and rarely provide material improvement opportunities. Therefore, we typically find organizations looking to improve their financials focus on revenue (i.e., productivity and rates) first and then cut labor expenses only if the patient volume and payer mix is unsustainable.

 

Metric

What is it?

Why it matters

Total Expense per Provider FTE

Total Physician Enterprise Expense / Provider FTEs

Total expense represents the combination of labor and non-labor costs that are directly attributable to the physician enterprise. This includes all labor costs plus support services and items such as facilities, drugs and supplies, revenue cycle and call centers.

Labor as % of the Total Expense

The percent of total expense represented by Labor (salary & benefits) costs

Labor costs are the principal driver of expense in the physician enterprise. By looking at them as a percent of the total expense, we can understand their contribution and help determine if non-labor expenses need attention.

Compensation per Provider FTE

Provider Compensation / Provider FTEs

Provider compensation (physicians + APPs) is the single largest expense in every medical group.

Compensation per Physician FTE

Physician Compensation / Physician FTEs

There is no physician enterprise without physicians — and they are also the most expensive members of the team.

Provider Compensation per wRVU

Provider Compensation divided by wRVUs

Examining compensation per wRVU is a good way to quickly understand financial performance. Organizations whose Provider Compensation per wRVU comprises a large percentage of their total per wRVU revenue, will require larger investments/subsidies to sustain operations.

Support Staff FTE per 10k wRVUs

Support Staff FTEs divided by 10,000 wRVUs

Reviewing support staff per 10,000 wRVUs is a way to quickly understand how support staff is contributing to labor cost. It is important to consider not only front- and back-office support but also centralized support staff (e.g., calls centers, revenue cycle, etc.) in this ratio.

 

We hope these metrics are helpful to your physician enterprise and encourage and welcome your questions and comments. We encourage you to read our Physician Flash Report to see these metrics in action.

 

Glossary

  • Advanced Practice Providers (APPs) are principally nurse practitioners, physician assistants and certified registered nurse anesthetists.
  • Providers refer to both Physicians and Advanced Practice Providers (APPs). This article — and the Physician Flash Report — uses the Physician metric when APPs are not included.
  • Work relative value units (wRVUs) measure the value of a provider’s work relative to all services and procedures.

 

.

 

About the Authors

Matthew Bates

is a managing director and leader of the Physician Enterprise Practice at Kaufman, Hall & Associates, LLC, Chicago, Ill. (mbates@kaufmanhall.com).

Erik Swanson

is a senior vice president and leader of the Data Analytics Team at Kaufman, Hall & Associates, LLC, Chicago, Ill. (eswanson@kaufmanhall.com). 

Sign up for a free guest account and get access to five free articles every month.

Advertisements

Related Articles | Accounting and Financial Reporting

Column | Cost Effectiveness of Health

Effective healthcare finance leaders understand more than just finance

Laurence Appel, CPA, FHFMA, and the CFO of University of Illinois Hospital and Health Sciences System — and a 37-year member of HFMA — says it is important for finance leaders to be well-versed in the clinical aspects of the business and its responsibility to meet the community’s healthcare and social needs.

How To | Accounting and Financial Reporting

A checklist for successful hospital cost reporting in the time of COVID-19

COVID-19 will have long-term impacts on the operations of hospitals, and on their costs in particular., making it imperative that hospitals be mindful of how those impacts extend to their cost report data.

How To | Cost Effectiveness of Health

Cost Effectiveness of Health Report, February 2022

The January 2022 edition of HFMA’s Cost Effectiveness of Health Report, sponsored by Kaufman Hall, explores key tactics successful independent community hospitals use to help them sustain their mission to the communities they serve. Also included is a preview of the first of a series of columns by hfm columnist David Johnson addressing the need for nonprofit health systems to address 5 structural defects that keep them from delivering truly high-quality care to patients.

How To | Capital Finance

Healthcare providers face a growing risk of violating debt covenants

COVID-19 has increased the financial strain on healthcare providers that puts them at risk of being noncompliant with lending covenants. They should be taking proactive steps now to avoid or mitigate the potentially severe adverse financial consequence of such an occurrence.