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How to Evaluate Medical Practice Profitability

August 14, 2018

Group Docs

Growth, profit margins, managing operating expenses, increasing revenues, fair market value, and productivity: all are ways to evaluate medical practice’s profitability. Through identifying and measuring a practice’s growth and the extent of any resulting profitability, owners can learn where its strengths lie as well as areas needing improvement.

“Fair market value” is usually the term used when physicians or other providers are preparing to sell or otherwise dispose of a business’s assets. This valuation approach, determined by either income valuation known as the “excess earnings approach” or by the “cost approach” is intended to accurately determine its worth and potential gain from a sale or other transfer.

For the purposes of this blog, we’ll assume that “evaluating profitability” means investigating the strengths and weaknesses of a practice that intends to stay in place while growing and thriving. As shown in the study below, increasing revenues is probably the most important factor in increasing profitability through balancing value with profits.

Recent study highlights major factors in profitability

The “2017 MGMA DataDive Better Performers” study of 2,941 practices released from the Medical Group Management Association (MGMA) highlights the five most influential factors in medical practice profitability:

  • Controlling operating expenses while increasing revenues
  • Controlling IT expenses
  • Improved provider productivity
  • Increasing use of patient portals

Greater effectiveness overall in patient focus, including faster scheduling, increased same-day appointments,  while reducing cancellations and no-shows

Key findings from the MGMA study:

Improve productivity among providers and staff
Physicians in higher-performing practices reported better productivity as well as more compensation than lower-performers. Using the latest technologies for EHR/ billing can improve productivity of providers and support staff as well as staying current on regulatory updates and maintaining good payer relationships.

Reduce operating expenses while increasing revenues

The top performers in the study reported that they had reduced most operating expenses while revenues increased. Removing inefficiencies in processes, such as using patient portals and EHR, can help reduce duplication of appointments and claims, resulting in better productivity and increased revenue.

Manage IT expenses

The study also found that top performing physician-owned practices held the line on IT spending better than those owned by hospitals. On the other hand, unless practices have the means of accessing the benefits of the current technologies, such as improved EHR as well as regular upgrades, they will find it more difficult to automate their practices enough for increased profitability.

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Since CMS is requiring practices to utilize electronic billing and records, most practices have by now purchased systems and trained personnel in electronic records and billing. More savvy practices, however, are choosing to outsource their billing tasks to an experienced medical billing company as well as many other areas of effective practice management.

In addition to utilizing EHR to speed up the claims submission process, practices can also improve profit margins by:

  • Reducing claims denials
  • Improving collections from patients as well as
  • Obtaining better reimbursement from payers

All of the above can be easily managed by partnering with a trusted claims management service.

Improve staff task allocation

Denied claims cost money and take up staff time; outsourcing billing and collection tasks to experienced pros with the latest billing software that’s compatible with most software systems used is an excellent way to save staff time and your money.

Improve patient relations and focus

Patients don’t care about your profitability – they do care about time, quality of services and getting more value for their healthcare dollars, especially in light of insurers shifting more of the financial burden of health costs onto patients. The MGMA study found that top-performing primary-care practices which encouraged adoption of user-friendly patient portals were able to offer patients:

  • Higher numbers of same-day appointments
  • Less time spent waiting for an appointment
  • The above improvements also resulted in fewer cancellations and no-shows

Manage pricing of services

Another hot-button, while not from the study, is the issue of pricing of services. Many providers are understandably reluctant to raise prices for fear of losing patients. However, unless you are practicing in an impoverished or otherwise underserved area, most practitioners can and probably should increase prices to be more in line with the quality of services offered.

For example, a 10 percent increase in overall pricing can result in better returns than a 10 percent cost reduction, or even an increase of 10 percent in new patient volume. The bottom line: your profit margin is what makes the difference between a thriving versus a struggling practice.

One caveat of course, is what is considered “usual and customary” for your region. If you overprice, you may see an increase in denials as well as patients balking with having to deal with higher balances. Common sense and knowledge of what others in similar specialties are charging and being reimbursed should be your guide. If you decide to raise your prices, even a little, be sure to emphasize greater transparency by your front desk in explaining charges and billing procedures. Emphasizing value through better physician care over price can help clear the air over billing issues.

Profit by partnering with a medical practice billing and management service

Since 2002, M-Scribe has helped practices of all specialties and sizes increase profitability by improving reimbursement rates through improved billing and efficiency in the claims and practice management processes. M-Scribe can help boost revenues by:

  • Sending “clean” claims that are paid faster and fully reimbursable
  • Collecting payments due from patients in a timely manner
  • Reducing waste and inefficiency though using state-of-the-art EHR technologies by experienced technicians and billing personnel
  • Compliance with the latest reimbursement regulations and updates
  • Helping practices identify long and short-term goals and the steps to achieve them

Remember that increasing revenue is probably the most important factor in increasing profitability through balancing value with profits, building efficient processes into your practice’s daily operations while improving efforts to keep existing patients. Contact M-Scribe at 800-727-4234 or email for a free analysis of your practice’s needs and learn how to boost income while controlling expenses for greater profitability.


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