medical practice reimbursement issues

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pivoprussia
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medical practice reimbursement issues

Post by pivoprussia »

A good friend is a physician-employee at a private practice. His contract states he is paid 50% of collections. This is paid every 2 weeks based on the collections received during that pay window.

He noticed his pay has dropped 30-40% since Jan 1. He already had concerns about a relatively high accounts receivable for his work but now it has skyrocketed. His 120 day + is 30% - 2-3x industry standard.

Unfortunately the owner of the practice hired his son as practice administrator several years back. He is a JD with no experience in this field. He has gotten a lot of push back about his concerns and some of the actions by the administrator appear to him to be covering up for his incompetence.

At my friends urging, the practice hired a billing specialist. The billing specialist has found out that apparently the office has been paid for some of his services but not yet allocated the funds to him. Yet they claim they do not know where the money is. Further, some claims have not been appropriately followed up on, making them now impossible to collect. Also, the check in staff has not been collecting co-pays/deductibles such that now patient balances are very high. Worse, reports to work those balances have only been run last May and now February.

My friend knows I am somewhat financially savvy, but I am uncertain about how to help address his concerns. Clearly there are issues but I am not sure how to advise him to proceed. Thanks in advance for any advice I can pass along.
malabargold
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Re: medical practice reimbursement issues

Post by malabargold »

Owner v. Employee
Not much he can do except leave, unless the
are guarantees or recourse stipulated in his contract.
Topic Author
pivoprussia
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Re: medical practice reimbursement issues

Post by pivoprussia »

malabargold wrote: Fri Mar 30, 2018 6:04 am Owner v. Employee
Not much he can do except leave, unless the
are guarantees or recourse stipulated in his contract.
I did advise him to have his contract reviewed by an attorney. But I don't agree, if the practice did collect money for his services but did not pay hiim for it, unless I am missing something, he is absolutely entitled to his 50% of those collections.
runner3081
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Re: medical practice reimbursement issues

Post by runner3081 »

pivoprussia wrote: Fri Mar 30, 2018 5:50 am Also, the check in staff has not been collecting co-pays/deductibles such that now patient balances are very high.
This is a real struggle for practices. We ended up moving to a pre-visit deposit or the patient couldn't be seen. What happens is that a large percent of people with HSA plans don't have enough money to be on an HSA plan and can't afford 100% of their services up to the deductible.

Many HSA plans don't have co-payments, which makes it harder.
jayk238
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Re: medical practice reimbursement issues

Post by jayk238 »

Im sorry but your friend did not do his due diligence. Why did he join the practice to begin with? The owner hiring his son should not have been a surprise. There should have been something that made him question the owner to begin with. I do not believe in joining a practice owned by someone else. As a physician your autonomy both clinical and financial are paramount. Unless you're joining a multi-specialty or multi-same specialty group practice (where everyone co-owns and there is a buyin/partnership that puts you in equal footing) or a hospital system you are basically entering no mans- land. Even the ones that offer partnerships can have problems and so too can hospitals but the larger the org and more corporate the more standardized everything is (in theory). The other option is starting your own practice.

I purposefully avoided joining these types of arrangements. I feel terrible he's stuck this way but its hard to show sympathy when he's making a bad choice.

Maybe there are mitigating factors that Im unaware of but this just doesnt seem to pass the sniff test of a good decision.

My advice:
1. use this as a learning experience and jump ship right now. He can get a job asap practically anywhere.
2. If he cant leave now due to contract then hire a good lawyer and see what his options are. If they are limited then do the best he can to get the job done and not renew.
3. Either way its going to be tough for him to come out ahead.
CRC301
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Re: medical practice reimbursement issues

Post by CRC301 »

pivoprussia wrote: Fri Mar 30, 2018 5:50 am A good friend is a physician-employee at a private practice. His contract states he is paid 50% of collections. This is paid every 2 weeks based on the collections received during that pay window.
...

At my friends urging, the practice hired a billing specialist. The billing specialist has found out that apparently the office has been paid for some of his services but not yet allocated the funds to him. Yet they claim they do not know where the money is. Further, some claims have not been appropriately followed up on, making them now impossible to collect. Also, the check in staff has not been collecting co-pays/deductibles such that now patient balances are very high. Worse, reports to work those balances have only been run last May and now February.

...
Next contract term he should try to get them to base the pay off what he bills (after insurance adjustments of course). That way it's on his employer to collect the money and he would get paid what he is owed regardless of how good or bad they are at collecting the money. An arrangement like that incentivizes the employer to collect the money as quickly and efficiently as possible. Collections are normally lower than billings because some people don't pay but the practice should have some statistics on how often that happens and the % of billing you get would be adjusted accordingly.

The sad truth is it's a bad sign this is happening and probably will continue in the future. This is further compounded by the fact they can't track where the money went!? This all just seems like bad signs. Your friend should probably look for a new job. Depending on the state they work in they should be able to terminate the contract whenever they want but they may have to deal with non-competes or other terms. A lawyer may help with determining how those terms will ultimately affect your friend.
oldnewinvestor
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Re: medical practice reimbursement issues

Post by oldnewinvestor »

I would say that your doctor friend could leave and get a better job. The next job he gets he needs to have his contract reviewed by a company that has experience in that and can make suggestions so he does not get screwed.
Golf22
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Re: medical practice reimbursement issues

Post by Golf22 »

In my experience this type of accounting could indicate embezzlement. My experience has show that people who embezzle have really messed up books or patient ledgers so tracking what happened to the money is nearly impossible.
toofache32
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Re: medical practice reimbursement issues

Post by toofache32 »

oldnewinvestor wrote: Fri Mar 30, 2018 6:43 pm I would say that your doctor friend could leave and get a better job. The next job he gets he needs to have his contract reviewed by a company that has experience in that and can make suggestions so he does not get screwed.
Maybe I misunderstood the first post, but to all you saying get a better contract, I don't think this is a contract issue. I think this is an issue of NOT honoring what may have been a fair contract. Cooking the books?
kiddoc
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Re: medical practice reimbursement issues

Post by kiddoc »

I left a private practice (partnership track) and became employed due to a similar situation. 2 possibilities:

1) Malicious intent: Practice wants to defraud him and keep the income. Would start by meeting the owner and discussing things. Take copies of documentation, dates, collection details, etc to the meeting. Then ask to be made whole. If they don';t sound sincere and don't fix things in 3 months, look for another practice and evaluate whether the money involved is worth going to arbitration with an attorney. Most physician contracts have an arbitration clause.

2) Genuine oversight/ billing disaster: This is not uncommon in small practices. Billing and follow-up has become a nightmare. Process basically the same. Start with a meeting with the owner. In the long run, even if he is on a partnership track, he should re-evaluate whether he wants to become a partner in such a practice. Billing practices are extremely hard to change in a cost-effective manner. You pay more to get better services unless you are lucky to find a biller/coder who is an expert but looking to cut back to part time and switching from a large system to a smaller practice. No guarantee it will be a success though.
Last edited by kiddoc on Fri Mar 30, 2018 10:25 pm, edited 1 time in total.
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ram
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Re: medical practice reimbursement issues

Post by ram »

I am an employed physician. I will not work for 50% of "X" when I have no control over "X"
My contract stipulates that I will work for Y. In return all my billings belong to my employer. Now the responsibility is on my employer to collect the maximum possible. I do not care if he elects to employ his incompetent relative to do the job.
1. Your friend should look for a new job.
2. Seek legal opinion to salvage whatever can be salvaged.
Ram
toofache32
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Re: medical practice reimbursement issues

Post by toofache32 »

ram wrote: Fri Mar 30, 2018 10:25 pm I am an employed physician. I will not work for 50% of "X" when I have no control over "X"
My contract stipulates that I will work for Y. In return all my billings belong to my employer. Now the responsibility is on my employer to collect the maximum possible. I do not care if he elects to employ his incompetent relative to do the job.
1. Your friend should look for a new job.
2. Seek legal opinion to salvage whatever can be salvaged.
This is good advice. Payment is usually on collectoins vs production. If I'm being paid on collections, then I need to be involved in the collections policies.
CedarWaxWing
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Re: medical practice reimbursement issues

Post by CedarWaxWing »

One thing that I think has not been mentioned. This practice should have a complete financial audit to determine what is wrong with billings, collections, payments, and record keeping. Bad management and or poor billing and collections practices can also be a set up for someone in the office embezzling. An audit is good practice anyway, but they have obvious problems that they seem rather oblivious toward.

Good business practices tends to also facilitate good medicine. If you cannot have both of those in your work environment time to be looking elsewhere.
oldnewinvestor
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Re: medical practice reimbursement issues

Post by oldnewinvestor »

toofache32 wrote: Fri Mar 30, 2018 10:02 pm
oldnewinvestor wrote: Fri Mar 30, 2018 6:43 pm I would say that your doctor friend could leave and get a better job. The next job he gets he needs to have his contract reviewed by a company that has experience in that and can make suggestions so he does not get screwed.
Maybe I misunderstood the first post, but to all you saying get a better contract, I don't think this is a contract issue. I think this is an issue of NOT honoring what may have been a fair contract. Cooking the books?
IMHO it was not a fair contract to begin with. They gave him contract based on collections. I would not have take that contract because you are then depending on the collecting person to work just as hard as you. But he did agree to it and that was that. So you are correct that they did not honor their contract.
Last edited by oldnewinvestor on Sat Mar 31, 2018 1:08 pm, edited 1 time in total.
oldnewinvestor
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Re: medical practice reimbursement issues

Post by oldnewinvestor »

kiddoc wrote: Fri Mar 30, 2018 10:22 pm I left a private practice (partnership track) and became employed due to a similar situation. 2 possibilities:

1) Malicious intent: Practice wants to defraud him and keep the income. Would start by meeting the owner and discussing things. Take copies of documentation, dates, collection details, etc to the meeting. Then ask to be made whole. If they don';t sound sincere and don't fix things in 3 months, look for another practice and evaluate whether the money involved is worth going to arbitration with an attorney. Most physician contracts have an arbitration clause.

2) Genuine oversight/ billing disaster: This is not uncommon in small practices. Billing and follow-up has become a nightmare. Process basically the same. Start with a meeting with the owner. In the long run, even if he is on a partnership track, he should re-evaluate whether he wants to become a partner in such a practice. Billing practices are extremely hard to change in a cost-effective manner. You pay more to get better services unless you are lucky to find a biller/coder who is an expert but looking to cut back to part time and switching from a large system to a smaller practice. No guarantee it will be a success though.
I agree with both point. Although I think the damage is already done. No point in setting himself up for more damage. I would start looking for something new right away.
oldnewinvestor
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Re: medical practice reimbursement issues

Post by oldnewinvestor »

ram wrote: Fri Mar 30, 2018 10:25 pm I am an employed physician. I will not work for 50% of "X" when I have no control over "X"
My contract stipulates that I will work for Y. In return all my billings belong to my employer. Now the responsibility is on my employer to collect the maximum possible. I do not care if he elects to employ his incompetent relative to do the job.
1. Your friend should look for a new job.
2. Seek legal opinion to salvage whatever can be salvaged.
This is correct and if you can add a production bonus then you are good.
tmcc
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Re: medical practice reimbursement issues

Post by tmcc »

get paid in terms of billed RVUs. base + $/RVU + bonus... problem solved.

also, depending on your contract, you may be able to make a claim for mismanagement of the Accounts receivable.
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gasdoc
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Re: medical practice reimbursement issues

Post by gasdoc »

tmcc wrote: Sat Mar 31, 2018 1:39 pm get paid in terms of billed RVUs. base + $/RVU + bonus... problem solved.

also, depending on your contract, you may be able to make a claim for mismanagement of the Accounts receivable.
Not so fast!!! I think the bottom line point here is never accept a contract where factors outside of your control affect your salary. Productivity is fine, as long as you alone control that productivity. The OP does not say what specialty the physician friend practices. As an anesthesiologist, I have been in various different contract configurations- including those based on RVU's. That didn't work out well because the hospital at which we practice made decisions that increased and decreased the number of patients I could see. Also, the person making the room assignments affected my production. Even if the employed physician is a primary care doc or a specialty with an office base practice, it is the employer that is making the choices regarding which insurance contracts to sign, which directs patients to or away from the employed physician. Or suppose the employer cannot keep good office staff, and productivity goes down, or assigns the better support staff to himself instead of the employed physician? Or the employer assigns himself the better office hours? Sometimes, the only fair contract is one that pays a straight salary, and that salary can be negotiated annually based on how profitable the business is, etc.

gasdoc
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pivoprussia
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Re: medical practice reimbursement issues

Post by pivoprussia »

Thanks for the responses...i'll pass the key points on to him.

Does any one else think he may have an argument for mismanagement of the AR? I feel certain he has a claim for payments received by the practice but not allocated to him for his services. But wasn't sure he could hold them accountable for a failure to make reasonable efforts to collect in a timely fashion.
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gasdoc
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Re: medical practice reimbursement issues

Post by gasdoc »

pivoprussia wrote: Sat Mar 31, 2018 3:33 pm Thanks for the responses...i'll pass the key points on to him.

Does any one else think he may have an argument for mismanagement of the AR? I feel certain he has a claim for payments received by the practice but not allocated to him for his services. But wasn't sure he could hold them accountable for a failure to make reasonable efforts to collect in a timely fashion.
Personally, I don't think he has any recourse. Medical AR collecting is a very complicated thing, and it would be extremely difficult to prove "negligence," I would think. I would just consider this a lesson learned and attempt to negotiate a better contract going forward. If this fails, again a lesson learned, and time to move on.

gasdoc
tmcc
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Re: medical practice reimbursement issues

Post by tmcc »

gasdoc wrote: Sat Mar 31, 2018 3:22 pm
tmcc wrote: Sat Mar 31, 2018 1:39 pm get paid in terms of billed RVUs. base + $/RVU + bonus... problem solved.

also, depending on your contract, you may be able to make a claim for mismanagement of the Accounts receivable.
Not so fast!!! I think the bottom line point here is never accept a contract where factors outside of your control affect your salary. Productivity is fine, as long as you alone control that productivity. The OP does not say what specialty the physician friend practices. As an anesthesiologist, I have been in various different contract configurations- including those based on RVU's. That didn't work out well because the hospital at which we practice made decisions that increased and decreased the number of patients I could see. Also, the person making the room assignments affected my production. Even if the employed physician is a primary care doc or a specialty with an office base practice, it is the employer that is making the choices regarding which insurance contracts to sign, which directs patients to or away from the employed physician. Or suppose the employer cannot keep good office staff, and productivity goes down, or assigns the better support staff to himself instead of the employed physician? Or the employer assigns himself the better office hours? Sometimes, the only fair contract is one that pays a straight salary, and that salary can be negotiated annually based on how profitable the business is, etc.

gasdoc
those are good points but that (referrals, facility tactics, etc) is always a risk in the hospital and asc. if someone is going out of their way to screw you via scheduling or referrals that is something onto itself.
tmcc
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Re: medical practice reimbursement issues

Post by tmcc »

pivoprussia wrote: Sat Mar 31, 2018 3:33 pm Thanks for the responses...i'll pass the key points on to him.

Does any one else think he may have an argument for mismanagement of the AR? I feel certain he has a claim for payments received by the practice but not allocated to him for his services. But wasn't sure he could hold them accountable for a failure to make reasonable efforts to collect in a timely fashion.
post selected language from contract for the EE and ER party obligations. otherwise everything is speculative.
kiddoc
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Re: medical practice reimbursement issues

Post by kiddoc »

pivoprussia wrote: Sat Mar 31, 2018 3:33 pm Does any one else think he may have an argument for mismanagement of the AR? I feel certain he has a claim for payments received by the practice but not allocated to him for his services. But wasn't sure he could hold them accountable for a failure to make reasonable efforts to collect in a timely fashion.
Unlikely to succeed unless his contract specifically states the steps they need to take. Even then, he will be looking at going through arbitration with involved time and cost.

To everyone saying an employed physician should only sign contracts where income is based on billed RVUs: Most small practices will be unwilling to do that if the physician is on a partnership track. It sounds like you are saying ,"I want to be a partner in the business but pay me regardless of what the business makes". Employed physicians on non-partnership tracks should absolutely aim to get paid by billed RVUs.
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LarryAllen
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Re: medical practice reimbursement issues

Post by LarryAllen »

Clearly time to move on to greener pastures. 50% of fuzzy numbers isn't the same as 50% of collections. I'd move on for sure.
toofache32
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Re: medical practice reimbursement issues

Post by toofache32 »

kiddoc wrote: Mon Apr 02, 2018 10:30 am To everyone saying an employed physician should only sign contracts where income is based on billed RVUs: Most small practices will be unwilling to do that if the physician is on a partnership track. It sounds like you are saying ,"I want to be a partner in the business but pay me regardless of what the business makes". Employed physicians on non-partnership tracks should absolutely aim to get paid by billed RVUs.
Can you explain what future partnership has to do with payment as an associate? I'm confused.
kiddoc
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Re: medical practice reimbursement issues

Post by kiddoc »

toofache32 wrote: Mon Apr 02, 2018 10:41 am
kiddoc wrote: Mon Apr 02, 2018 10:30 am To everyone saying an employed physician should only sign contracts where income is based on billed RVUs: Most small practices will be unwilling to do that if the physician is on a partnership track. It sounds like you are saying ,"I want to be a partner in the business but pay me regardless of what the business makes". Employed physicians on non-partnership tracks should absolutely aim to get paid by billed RVUs.
Can you explain what future partnership has to do with payment as an associate? I'm confused.
Just that if a small practice is hiring someone as a future partner in 2 years (no buy-in; sweat equity), they may want to see someone comfortable with the concept of being paid based on collections, not billing. Partners make/lose money based on collections+business income. If an incoming physician wants to be paid based on billing, that can raise a red flag about him/her being an unhappy partner when collections can vary. Or someone who won't want to partner in the practice and is looking to be there short-term.
"The four most dangerous words in investing are: 'this time it's different.'" - Sir John Templeton
toofache32
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Re: medical practice reimbursement issues

Post by toofache32 »

kiddoc wrote: Mon Apr 02, 2018 10:46 am
toofache32 wrote: Mon Apr 02, 2018 10:41 am
kiddoc wrote: Mon Apr 02, 2018 10:30 am To everyone saying an employed physician should only sign contracts where income is based on billed RVUs: Most small practices will be unwilling to do that if the physician is on a partnership track. It sounds like you are saying ,"I want to be a partner in the business but pay me regardless of what the business makes". Employed physicians on non-partnership tracks should absolutely aim to get paid by billed RVUs.
Can you explain what future partnership has to do with payment as an associate? I'm confused.
Just that if a small practice is hiring someone as a future partner in 2 years (no buy-in; sweat equity), they may want to see someone comfortable with the concept of being paid based on collections, not billing. Partners make/lose money based on collections+business income. If an incoming physician wants to be paid based on billing, that can raise a red flag about him/her being an unhappy partner when collections can vary. Or someone who won't want to partner in the practice and is looking to be there short-term.
Interesting. I bought into my practice as the 4th doctor. With "sweat equity", how do you decide the value of the practice? And how do you calculate the "basis" for tax and resale transactions? I took out a loan for $600,000 to buy into my practice. That was the value agreed upon for my 25%. The value was mainly assets and goodwill.
Tachyon
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Re: medical practice reimbursement issues

Post by Tachyon »

I'm going to venture out and guess that your friend is a new grad and this is his first job. Agree with most of the others, drop his current job and move on. There's not enough information provided on what his contract provides. But really even if the contract provides, is your friend going to try and litigate something when "not sure where the money is"? Call it lesson learned and move on.
Tachyon
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Re: medical practice reimbursement issues

Post by Tachyon »

toofache32 wrote: Mon Apr 02, 2018 12:16 pm
kiddoc wrote: Mon Apr 02, 2018 10:46 am
toofache32 wrote: Mon Apr 02, 2018 10:41 am
kiddoc wrote: Mon Apr 02, 2018 10:30 am To everyone saying an employed physician should only sign contracts where income is based on billed RVUs: Most small practices will be unwilling to do that if the physician is on a partnership track. It sounds like you are saying ,"I want to be a partner in the business but pay me regardless of what the business makes". Employed physicians on non-partnership tracks should absolutely aim to get paid by billed RVUs.
Can you explain what future partnership has to do with payment as an associate? I'm confused.
Just that if a small practice is hiring someone as a future partner in 2 years (no buy-in; sweat equity), they may want to see someone comfortable with the concept of being paid based on collections, not billing. Partners make/lose money based on collections+business income. If an incoming physician wants to be paid based on billing, that can raise a red flag about him/her being an unhappy partner when collections can vary. Or someone who won't want to partner in the practice and is looking to be there short-term.
Interesting. I bought into my practice as the 4th doctor. With "sweat equity", how do you decide the value of the practice? And how do you calculate the "basis" for tax and resale transactions? I took out a loan for $600,000 to buy into my practice. That was the value agreed upon for my 25%. The value was mainly assets and goodwill.
Holy crap, that's a big buy in. Assets matter. AR matters. I dunno what you do, but I don't really think "goodwill" matters that much in a physician practice. While it's all over the place, if you look at an individual physician practices being offered for sale, the median is roughly about 3x EBITDA. This includes the expense deduction of avg physicians salary. After all, if I only earn an avg physician salary "buying" a practice, why the heck wouldn't I just work as an employee for a corporation. So you guys essentially decided that the pre-money valuation of the practice is $1.8M? I hope that's mostly assets and AR. Otherwise, was the business throwing off $600K EBITDA over and above an average salary of the doctors (or what would the avg salary if it was paid)?
toofache32
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Re: medical practice reimbursement issues

Post by toofache32 »

Tachyon wrote: Mon Apr 02, 2018 2:30 pm
toofache32 wrote: Mon Apr 02, 2018 12:16 pm
kiddoc wrote: Mon Apr 02, 2018 10:46 am
toofache32 wrote: Mon Apr 02, 2018 10:41 am
kiddoc wrote: Mon Apr 02, 2018 10:30 am To everyone saying an employed physician should only sign contracts where income is based on billed RVUs: Most small practices will be unwilling to do that if the physician is on a partnership track. It sounds like you are saying ,"I want to be a partner in the business but pay me regardless of what the business makes". Employed physicians on non-partnership tracks should absolutely aim to get paid by billed RVUs.
Can you explain what future partnership has to do with payment as an associate? I'm confused.
Just that if a small practice is hiring someone as a future partner in 2 years (no buy-in; sweat equity), they may want to see someone comfortable with the concept of being paid based on collections, not billing. Partners make/lose money based on collections+business income. If an incoming physician wants to be paid based on billing, that can raise a red flag about him/her being an unhappy partner when collections can vary. Or someone who won't want to partner in the practice and is looking to be there short-term.
Interesting. I bought into my practice as the 4th doctor. With "sweat equity", how do you decide the value of the practice? And how do you calculate the "basis" for tax and resale transactions? I took out a loan for $600,000 to buy into my practice. That was the value agreed upon for my 25%. The value was mainly assets and goodwill.
Holy crap, that's a big buy in. Assets matter. AR matters. I dunno what you do, but I don't really think "goodwill" matters that much in a physician practice. While it's all over the place, if you look at an individual physician practices being offered for sale, the median is roughly about 3x EBITDA. This includes the expense deduction of avg physicians salary. After all, if I only earn an avg physician salary "buying" a practice, why the heck wouldn't I just work as an employee for a corporation. So you guys essentially decided that the pre-money valuation of the practice is $1.8M? I hope that's mostly assets and AR. Otherwise, was the business throwing off $600K EBITDA over and above an average salary of the doctors (or what would the avg salary if it was paid)?
It was actually an average buy in for my surgical specialty. Goodwill was huge because I joined a practice that is mostly referral based and walked in to an automatic income stream. All the other docs were insurance free and it only took me 5 years to become insurance free also. The assets were considerable also because of 3 offices full of equipment, xray machines, etc. My partners had to buy all that stuff with their own money, so as the 4th doctor I paid 25% of the valuation at a "used" rate. The reason for not working as an employee in a corporation is that you don't get to share in all the profits. Then again, becoming an owner you also share in the risks. As an associate for 2 years before buying in, I made 35% of collections. The overhead averages 50% which I did not have to pay as an associate. Now as an owner, I pay part of the overhead. So I went from 35% of collections to 50% of collections (same as my co-owners). As an associate, that 15% difference went to the owners. So I essentially waited until my collections were high enough to justify paying a loan on that 15%. I can't remember how I calculated that break even point. It's been very worth it.
Tachyon
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Re: medical practice reimbursement issues

Post by Tachyon »

toofache32 wrote: Mon Apr 02, 2018 9:46 pm
Tachyon wrote: Mon Apr 02, 2018 2:30 pm
toofache32 wrote: Mon Apr 02, 2018 12:16 pm
kiddoc wrote: Mon Apr 02, 2018 10:46 am
toofache32 wrote: Mon Apr 02, 2018 10:41 am

Can you explain what future partnership has to do with payment as an associate? I'm confused.
Just that if a small practice is hiring someone as a future partner in 2 years (no buy-in; sweat equity), they may want to see someone comfortable with the concept of being paid based on collections, not billing. Partners make/lose money based on collections+business income. If an incoming physician wants to be paid based on billing, that can raise a red flag about him/her being an unhappy partner when collections can vary. Or someone who won't want to partner in the practice and is looking to be there short-term.
Interesting. I bought into my practice as the 4th doctor. With "sweat equity", how do you decide the value of the practice? And how do you calculate the "basis" for tax and resale transactions? I took out a loan for $600,000 to buy into my practice. That was the value agreed upon for my 25%. The value was mainly assets and goodwill.
Holy crap, that's a big buy in. Assets matter. AR matters. I dunno what you do, but I don't really think "goodwill" matters that much in a physician practice. While it's all over the place, if you look at an individual physician practices being offered for sale, the median is roughly about 3x EBITDA. This includes the expense deduction of avg physicians salary. After all, if I only earn an avg physician salary "buying" a practice, why the heck wouldn't I just work as an employee for a corporation. So you guys essentially decided that the pre-money valuation of the practice is $1.8M? I hope that's mostly assets and AR. Otherwise, was the business throwing off $600K EBITDA over and above an average salary of the doctors (or what would the avg salary if it was paid)?
It was actually an average buy in for my surgical specialty. Goodwill was huge because I joined a practice that is mostly referral based and walked in to an automatic income stream. All the other docs were insurance free and it only took me 5 years to become insurance free also. The assets were considerable also because of 3 offices full of equipment, xray machines, etc. My partners had to buy all that stuff with their own money, so as the 4th doctor I paid 25% of the valuation at a "used" rate. The reason for not working as an employee in a corporation is that you don't get to share in all the profits. Then again, becoming an owner you also share in the risks. As an associate for 2 years before buying in, I made 35% of collections. The overhead averages 50% which I did not have to pay as an associate. Now as an owner, I pay part of the overhead. So I went from 35% of collections to 50% of collections (same as my co-owners). As an associate, that 15% difference went to the owners. So I essentially waited until my collections were high enough to justify paying a loan on that 15%. I can't remember how I calculated that break even point. It's been very worth it.
Ah. I had 1 caveat about goodwill and that's if you operated without insurance. I just didn't mention it because that's the minority of actual practices. Like plastics or something. In that case, I agree goodwill is important. In most physician practices, making insurance contracts will almost net you patients. Your patients could love you and rave about you and refer you, but if you don't take their insurance, they won't come. On the contrary, your patients could hate you, but if you're the only in-network specialist in your area, they'll still come. That's why I don't think goodwill matters in most practices.
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Re: medical practice reimbursement issues

Post by solobuildingblogs »

to answer the original poster's question, there are SO many ways a practice owner can screw over an associate on bonus based on percent of collections;

1. Accidentally by poor collections practice- not collecting patient responsibilites at time of service, inappropriate or missed coding/ accidental downcoding, forgetting to put in certain CPT codes for procedures.
2. Using a billing company that doesn't follow through with collections.
3. Maliciously- cooking the books. Shifting accounts they collected for patients you saw to their patients and claiming that they didn't collect anything for patients you saw.
4. Dumping patients with lower paying insurances to you, and keeping patients with higher reimbursement for themselves.

Possible solutions:

1. If you like the practice and/or think it's 1 or 2, speak with the owner. perhaps ask to get paid by work RVUs as suggested.
2. If it's 3 or 4 lawyer up and do an audit, start looking for a new job, or both- consider going solo. My collections is typically 99.5% of allowed amounts- because I control the process.

to answer questions about practice valuations:

1. Practice value for doctor to doctor transactions (or buy in or buy out of practice) is sum of accounts receivable, equipment and goodwill. Goodwill varies depending on specialty; for my field ophtho it's typically 25-35% of collections. Ballpark is 60-80% of total collections for practice. Other fields may not have as much goodwill someone told me for derm it's almost zero. This post has more details:
https://solobuildingblogs.com/2017/11/0 ... aluations/
In ophtho as a junior associate your salary is lower than as owner (they make some profit off you)- make sure your buy in is worth the increase in salary as an owner rather than an associate.
2. Selling your practice to private equity- this is a new trend which owners sell to private equity and remain employed albeit at a lower salary. The PE company will supposedly make things more efficient (i don't understand how a third party would do so), larger scale etc; they have more capital to "grow" the practice. The theory is they then sell it to a different PE company for a profit. I think it's a Ponzi scheme, but the fact of the matter is some larger (and even smaller) docs are selling out. Here's a post with more details: https://solobuildingblogs.com/2018/03/1 ... halmology/
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Re: medical practice reimbursement issues

Post by AirTimeMD »

OP,

Would you mind sharing what specialty your friend is in? I disagree with a lot of the feedback in this thread so far. In Dermatology for instance, it is very common for practices to bring on Mohs surgeons at a rate of 40%-60% of their receipts/collections.

It is also not uncommon at all for payments to dip in the first quarter of each year. The reason for this is because patient deductibles reset in the new year. This means that more of the payment responsibility falls on the patient. Patients take much longer than insurance companies to pay and sometimes do not pay at all. Also, depending on where your friend is located, there were snow storms in the NE of the country which reduce productivity as he cannot see as many patients (also February is a very short month).

Because your friend is paid on his collections, he should have the ability to see "charges, payments, adjustments, Insurance AR, patient AR, over 90 day AR (what isn't being paid after appeal), payer mix (make sure he isn't getting stuck with all Medicaid patients or lower reimbursing plans), and top "X" CPT codes performed. If he is using an EMR, he or his MA/scribe could be failing to appropriately document his E/M's correctly, resulting in lower coding/billing and reimbursement.

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Re: medical practice reimbursement issues

Post by White Coat Investor »

toofache32 wrote: Fri Mar 30, 2018 10:32 pm
ram wrote: Fri Mar 30, 2018 10:25 pm I am an employed physician. I will not work for 50% of "X" when I have no control over "X"
My contract stipulates that I will work for Y. In return all my billings belong to my employer. Now the responsibility is on my employer to collect the maximum possible. I do not care if he elects to employ his incompetent relative to do the job.
1. Your friend should look for a new job.
2. Seek legal opinion to salvage whatever can be salvaged.
This is good advice. Payment is usually on collectoins vs production. If I'm being paid on collections, then I need to be involved in the collections policies.
Yup. That's the right answer.
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toofache32
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Re: medical practice reimbursement issues

Post by toofache32 »

AirTimeMD wrote: Wed Apr 04, 2018 10:41 pm
Because your friend is paid on his collections, he should have the ability to see "charges, payments, adjustments, Insurance AR, patient AR, over 90 day AR (what isn't being paid after appeal), payer mix (make sure he isn't getting stuck with all Medicaid patients or lower reimbursing plans), and top "X" CPT codes performed.
This is a good point. I know of several offices where the new guy gets stuck with all the worst plans like Medicaid/Medicare/Tricare. I know of a couple instances where the owner doc's wife was running the front desk and did this routinely.
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Re: medical practice reimbursement issues

Post by goodenyou »

toofache32 wrote: Thu Apr 05, 2018 10:36 am
AirTimeMD wrote: Wed Apr 04, 2018 10:41 pm
Because your friend is paid on his collections, he should have the ability to see "charges, payments, adjustments, Insurance AR, patient AR, over 90 day AR (what isn't being paid after appeal), payer mix (make sure he isn't getting stuck with all Medicaid patients or lower reimbursing plans), and top "X" CPT codes performed.


This is a good point. I know of several offices where the new guy gets stuck with all the worst plans like Medicaid/Medicare/Tricare. I know of a couple instances where the owner doc's wife was running the front desk and did this routinely.
I think somewhere in this thread there was a mention that the son of the senior partner was involved. Seen that before and it didn’t work out so well. I’d start looking around. The well may very well be poisoned. Medical billing and collections is archaic and an outright disaster. Most practices are awful at it because it is so capricious. If I need my blood pressure elevated, I stop by the room filled with people sitting at their desks with computers, telephones and stacks of papers going after claims and receivables. Nobody in any respectable business would put up with it except for doctors.
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