Contract Decisions: The Data-driven Approach
In making the decision to take or pass on a new hospital contract, radiology groups often let emotion supersede reason, Jana Landreth, CPA, director of practice management at Medical Management Professionals, Inc (MMP), Atlanta, Georgia, explains. “The factor that most often challenges these decisions is emotion,” she says. “It manifests itself as the desire to grow, without accounting for what is feasible—or the inverse, the fear of growing, when it is what your practice needs.”
Landreth recommends, instead, that practices take a data-driven approach to business decision making, and she outlined best practices for doing so in a recent webinar, Smart Practice Decisions Begin With Data Integration. “Physicians had to make decisions based on emotion, in the past, because the technology that produces the numbers we crunch just was not available,” she says. “Emotional considerations are important, but using data also creates a common platform for communicating. Generally speaking, groups are becoming more open to this kind of data-driven approach. Some are craving it.”
Pulling the Right Data
A group should begin by determining what its priorities are for the prospective contract: How does the group hope that the contract will affect its business? “When 10 physicians must make a business decision in a short period of time, you can separate their priorities into what is necessary and what would be nice,” Landreth says. “If groups do not recognize the difference between what they have to have and what’s nice to have, they risk leaving a lot on the table. Knowing their priorities makes them more focused in their decision making and makes communication easier.”
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Greg Thomson, CPA, executive vice president of practice management for MMP, adds that having the data necessary to make the decision ready to go, at any time, hastens the decision-making process by making stakeholders aware of the group’s needs at all times. “These data could have been reviewed in the past, and if they had been, the discussion would have been much quicker,” he says. “The decision makers share a common platform and understanding of what the business needs to grow.”
Landreth says that practices should consider such issues as contract restrictions, the strength of their relationships with other hospitals, their ability to maintain patient satisfaction, and whether they will be able to staff appropriately; she recommends that they have at their fingertips, among other figures, current and projected total CPT® code volume, by payor; work RVU volume and total RVU volume, by payor; and trend information on work RVUs per physician—to illuminate whether the group can handle more work.
She emphasizes, in particular, the importance of looking at the practice’s (and the prospective hospital’s) current volumes by CPT code, not just by modality or in total. “You have to make so many assumptions the physicians may not be aware of when you only look at CPT volume by modality,” she says. “If I only know how many CT exams are performed at this hospital—without considering which CT exams—I am making assumptions that could mean the difference between breaking even and profitability in this marketplace. Breaking down the studies to this level of detail will become even more important with the reimbursement cuts we anticipate next year.”
She adds that having the data by CPT code also has an impact on recruiting: “Perhaps there are procedures your practice does not perform and should consider, when evaluating the cost and ability to staff the new site,” she says.
Thomson notes that in anticipating the future caseload from a hospital, it is important for groups to perform their own revenue calculations, rather than taking hospitals’ estimates of potential revenue at their word. “Those numbers will get you in the ballpark, but they are not definitive,” he says. “Looking at the old numbers in a static way is never right. We have to look at how we would run the contract, how we would staff, and what our business would look like.”
Leveraging the Numbers
In the webinar, Landreth used anonymized samples of these data to demonstrate how a practice could compare the potential profitability of two prospective hospital contracts, enabling the group to make the decision based on a solid financial foundation. “A decision like taking on a new hospital contract brings in so many elements of your practice—billing, finances, contracts, relationships, clinical staffing, and logistics,” she says. “The more components you bring into consideration, the more reliable your analysis will be.”
Throughout this process, Landreth says, practices should exercise caution by considering the prospective new business not merely as an addition to their existing portfolios, but also as stand-alone business. “I evaluate more hospital contracts that are not in a group’s best interest than those that are,” she says. “When you look at the business as standing alone, you may see why the contract is up for grabs—there may be something in that environment that is challenging for a radiology practice, like the absence of a stipend, the inability of a small number of physicians to cover call, or the modality or payor mix at that organization.” She adds that your billing might be more or less robust than the previous group’s, which could also skew the numbers.
Charting the data in this way can provide grounds for a more enlightened negotiation with the organization in question. “Often, you see what would have to happen to make this contract profitable for you, and you are more confident when you enter the discussion with that information,” Landreth says.
Thomson and Landreth conclude that in the end, the data-driven approach empowers true communication between the group’s stakeholders, as they go about making a critical business decision. “What administrators feel is that they finally have a method by which to evaluate this, rather than going based on their gut,” Thomson says. “They are appreciative of a structured way to go about making this decision: In a group of any size, you will have those in favor of something and those who are opposed, and someone has to make the final call.” Landreth adds, “Data are your tools as a decision maker for a radiology practice, and it is important to use them as just that.”
Cat Vasko is editor of ImagingBiz.com and associate editor of Radiology Business Journal.