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How to make a turnaround

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   By Harry Magnes, M.D., November 2011

Despite a $40 million operating loss, one group practice managed to build a sustainable financial foundation.

Magnes, M.D.

Today, ABQ Health Partners is a multi-faceted entity encompassing four urgent care centers, a nationally accredited endoscopy center and a plastic-surgery center, and 56 clinics spread across 19 locations across Albuquerque and Rio Rancho, N.M. It is the largest physician-owned multi-specialty medical group in the Southwest, serving more than 200,000 patients with a total of 800,000 visits each year.

In 2007, the financial picture and structure of the group were much different. We were losing $40 million, employee morale was very low and we were losing 30 percent of our doctors annually. We knew we had to take decisive steps in order to continue to serve the community and care for patients.

The initial step began when we successfully purchased a $50 million practice for $10 from Ardent Health System, the parent company of Lovelace Health. The exchange was amicable. Ardent was able to move the group – and its operating loss – off the organization’s balance sheet, and we had greater control to address the changes needed.

Decisive steps yield rapid results

While striking out on one’s own after losing $40 million the prior year might sound unbalanced, we were very optimistic. The leadership team knew that significant changes were needed to increase revenues, cut costs and enhance productivity. As a result, the group managed to decrease the debt to less than $16 million in 2008 and almost to breaking even the next.

One of the first steps in that process was to reduce operating costs while also creating physician accountability. Temporary salary reductions reduced costs by $6 million. At the same time, it was determined that all physicians would receive a profit-and-loss statement for their departments and each physician would share in the gains, through a bonus pool, as well as in any losses.

We further cut expenses by systematically negotiating new business contracts for everything from payroll to rent. Renegotiation of malpractice insurance alone reduced costs by 30 percent and saved ABQ $1 million in the first year. We cut in areas that would not affect patient care. This was very important to us, and we continue to invest in the services we deliver for the community.

Another early step was to review the rates ABQ was being paid by health plans. In some cases, we had not received contracted rate increases for several years. New rates were negotiated, netting ABQ $15 million in gained revenues.

Prior to becoming independent, we had worked with McKesson Revenue Management Solutions to revive a proprietary billing system. We extended our relationship with McKesson Revenue Management Solutions to help us take our “new” practice forward as rapidly and productively as possible, including management of the group’s claims and collections processes.

As a result of the partnership, over a period of 30 months, we saw accounts-receivable days drop from 60 to 27, accounts more than 120 days past due plummeted from 45 percent to 17 percent and the first-pass clean-claims rate rose from 85 percent to 95 percent. All our primary revenue-cycle numbers easily beat the Medical Group Management Association benchmark comparisons.

Advice: Reevaluate, renegotiate and rely on relationships

In retrospect, any advice I might offer other physician groups is to consider looking at old processes as if they were new.

Evaluate all third-party and payer contracts to make sure they are current. Reexamine payment terms, including annual increases, and don’t be afraid to renegotiate. Focus on strategic partnerships with payers and other vendors instead of just contract.

Assess how your billing and accounts-receivable services are working and consider which functions should remain with the staff. For example, we wanted continuity of customer service, keeping the people who our patients knew and trusted. At the same time, we found working with an outside billing-and-practice-management partner to be highly cost effective.

I would also recommend that groups value relationships with industry experts. It’s a fallacy that doctors can’t also be excellent business professionals. At the same time, knowledgeable analyses can spotlight areas where costs can be cut and new opportunities for additional revenues identified.

In conclusion, managing the chaos in the healthcare industry can be tough; but if you’re committed to success, are willing to try new things and have the right partners in place to help you do it, the rewards can be most gratifying.

Harry Magnes, M.D., is president and CEO of ABQ Health Partners.
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