Primary care financial sustainability: less is more
“You should never hesitate to trade your cow for a handful of magic beans”
Death by a thousand cuts
Maintaining a financially viable primary care practice has never been easy in recent decades. Many new business models have been launched to break from the traditional primary care model with good success. Concierge/ membership and direct primary care business models are becoming more common as physicians look for more financially sustainable business models and lower administrative complexity.
The average primary care physician completes medical school with $264,500 in student loan debt. There are practice options that may help relieve some of that debt, such as the Federal Public Service Loan Forgiveness Program (PSLF.) But these programs do not always align with the family and lifestyle choices a new graduate desires.
A 2020 Health Affairs study looked at 1,300 primary care practices nationally, documenting their administration expenses, revenue, salary and overhead. The study determined the net fee for service revenue earned per full time physician was $10,580. With three quarters of a million dollars in student loan debt and annual net revenue so low, it is no wonder medical school graduates are opting for specialty care over primary care.
Limited revenue requires limited overhead
It is easy to lament the disproportionately low primary care average reimbursement per encounter vs specialty care. But that trend is not likely to shift soon. The only choice is to reduce administrative complexity and overhead expenses, like a well-run business.
Traditional primary care practices find themselves today with an untenable number of payer contracts, each with their own nuanced reporting requirements, billing/revenue models and financial incentives. Recent surveys of primary care physician practices indicate the average practice has anywhere between 16 to 20 different payer contracts. That number can grow if the practices spans multiple state borders or participates in capitated/ value based contracting.
Having multiple contacts with multiple payers results in:
Complex collections, billings and documentation
Adherence to multiple sets of medical policies, practice requirements and performance metrics
Increased resources required to submit encounter and claims data on multiple digital platforms
The costs associated with this complexity is material, with internal labor representing 90% of provider claims processing expense.
Here is an example of the many types of payer contracts a single primary care practice may have across all patients covered by private insurance. This diagram excludes government programs such as fee-for-service Medicare, Medicare Supplement and Medicaid – all of which add even more complexity.
So where’s the magic beans?
There is no rule a primary care practice must contract with every carrier in their area for every type of private insurance offered. The first step toward financial sustainability is to assess total visit volume per carrier by type of insurance. Carrier contracts that don’t drive material visit volume should be termed, reducing low value administrative complexity.
The second step is a clear eyed identification of areas the practice excels in. If the practice does a great job with seniors, it may make sense to term the ACA individual and employer group plans and laser focus on Medicare Advantage. This would allow the clinic team to focus on the upside CAHPS and HEDIS financial incentives, potentially increasing average per visit revenue based on outcomes.
If the practice has begun to shift to value based/ capitated contracts, terming the fee-for-service contracts can also drive increased average per visit revenue. This tactic paired with the step one above could result in material financial improvements as well as increased staff satisfaction, since value based contracting often frees up dollars for care delivery innovation. We lead a primary care pilot integrating a provider group and payer that proved this was the case.
Why this matters
As much as we can hope for a silver bullet to revive the traditional primary care business model, that is unlikely to appear any time soon. With stagnant revenue and ever increasing demands from insurance carriers, the smart move is to reduce the web of contracts and requirements that are dragging down financial sustainability.
There are no magic beans, but there are improvements to be had.
This article was written by a human being; no chatbots or AI were used. No permissions are granted for any use of this content.
Copyright 2itive 2024
2itive is a Portland based consultancy founded by Erik Goodfriend, offering a unique combination of market intelligence, knowledge of healthcare payment systems and creative business strategy insights. Feel free to contact us at info@2itive.com
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