Wrong Answer?
How one group of doctors is erasing third-party influence over their practice. 
By Thomas J. Pusateri, M.D., Tampa, Fla.

Like many other practices in the past decade, we thought managed care was an inevitable part of our future whether we liked it or not. Large managed care companies had penetrated our urban marketplace, and we were competing for patient access with high-volume group practices like our own.

For 10 years, we participated heavily in managed care plans. During that time, we learned several lessons. (See Managed Care Promises and Realities) One of the biggest, as you might expect, was that we had access to patients, but were working harder to earn less. Also, we worried about our ability to upgrade our facility and buy the equipment we wanted for the future. In the long run, we knew this situation would prevent practice growth. Finally, and most importantly, we weren't able to care for our patients the way we wanted -- and needed -- to. Eventually, this was going to affect patient satisfaction and hurt the goodwill of the practice.

A year and a half ago, we decided to begin turning away from managed care. It was scary at first, but we're now seeing signs that we made the right move. Taking care of patients is our first priority, patient satisfaction is rising, and the practice is growing faster than anticipated.

In this article, I'll explain the steps we've taken in our practice and how they've affected us. My aim is to provide you with a framework that you can tailor to your situation should you decide to regain control of your practice by limiting your involvement with managed care.

Improving Revenue Per Unit of Work

Revenue per relative value unit (RVU) is an important tool for comparing the effects of managed care plans on practice revenue. (Use your practice management software to make the calculations.) As the data below show, once our practice began dropping plans with the lowest payments and/or highest administrative costs, our overall compensation per unit of work improved.

Our breakdowns for 1999, which was before we dropped any managed care plans, and 2000,  looked like this:

As you can see, we increased our average revenue per RVU. So far this year, we're averaging $33.36, another increase.

*Charts represent only managed care activity and do not include other practice activity, such as indemnity insurance or self-pay transactions.

-- Thomas Pusateri, M.D.

Something had to give

For us, as time passed, the negative effects of the high volume generated by the managed care plans became clear. Each of our four ophthalmologists, who practice general ophthalmology with an emphasis on cataract surgery, retina and pediatrics, were seeing 65 to 75 patients per day. This meant we had as little as 2 to 3 minutes to spend with some patients. Many didn't know our names. And as far as they knew, we were no different than any of the doctors they could've chosen from their lists. That's the impression that managed care gave them.

While we continued to provide the most advanced procedures and surgeries, the low compensation wasn't giving us the resources or motivation necessary to maintain or improve the level of quality we wanted to deliver to our patients. This is one area in which no physician should be asked to compromise.

For the most part, we had very little leverage with which to negotiate higher payments from the managed care

Staff members felt the pressure, too. They were overworked, and low job satisfaction created low morale and high turnover. Eventually, we couldn't keep up. Something had to change.

Taking control

To fix these problems, we knew we'd have to analyze exactly what was happening and what we wanted to do about it. We began by determining our:

• Desired capacity. As I indicated earlier, each of our four doctors was seeing 65 to 75 patients each per day. This was preventing us from spending an acceptable amount of time with each patient. It was overtaxing us, our staff members and our facility. To remedy this, we decided that seeing 45 to 55 patients each per day would be much more manageable. We made that our goal.
• Desired revenue per patient encounter. At the height of our participation in managed care, our average per-encounter income was $80, which was below the national benchmark. Now that we were going to decrease volume, we'd have to increase that to an average of at least $100 per encounter in order to cover our overhead costs.
  We knew that to meet our goals, we'd have to replace patients from the lower-paying managed care plans with self-pay and Medicare patients. (While you may not, we viewed Medicare allowables as fair compensation for our services.)
  We also knew it would be a big challenge. While we were seeing that high volume of managed care patients, we were pushing out our higher-paying, typically more loyal Medicare patients. Having to wait too long for non-urgent appointments was forcing them to go elsewhere. The percentage of our patients who were under standard Medicare, those not opting for a managed care Medicare replacement, had dropped from approximately 60% to 20%. We'd have to bring that percentage back up.
• Market demographics. It was also important that we knew our market. We knew we wanted to see more Medicare patients, so we had to make sure they were available in our area. With the help of a consultant, we gathered demographic data from multiple sources, including the county government, chamber of commerce and the University of South Florida. We learned that 55% of the seniors in our area weren't in managed care plans. We were spending most of our time with the other 45% and consequently bringing in far less revenue than we could've been. Also, an increasing number of seniors, who typically spent only winters in the area, were building houses and living here year-round.
  We also ascertained that the number of young families in the area was increasing. That meant a healthy supply of patients for the pediatric and refractive segments of our practice.
  Next, we held a staff meeting to inform everyone that we were changing the overall direction of the practice by breaking away from some of our managed care contracts. Their response was positive because they saw this as a way to make their workload more reasonable and reduce their stress.

Identifying counterproductive plans

Once we had a solid understanding of our practice finances and our market, we could begin determining which managed care plans were preventing us from reaching our goals. We identified "bad" plans based on three main criteria:

• Revenue per relative value unit (RVU). We began breaking down what we were being paid per unit of work by each plan. (For samples, see "Improving Revenue Per Unit of Work" .)
• Administrative effort required. The second factor we used to evaluate managed care plans was how much time we had to spend administering the plan, e.g., checking eligibility and obtaining referrals. If we had to hire extra staff to keep up with a plan's paperwork requirements, we were likely to drop it. Frequent unwarranted downcoding of our claims or a pattern of delayed payment would also put a plan on shaky ground with us.
• Medical support. When we're participating in a plan, it's important to us that the patients in the plan have convenient access to whatever specialists we determine they need. In one case, a plan was having trouble retaining local retinal specialists, who were all dropping out because of low reimbursement rates. That left our patients with no access to that care within 50 miles.
  To make matters worse, the plan told us that our staff members should convince patients to travel the necessary distance, even though a retinal specialist was right down the street. That was an extra headache that we didn't need.
  The decision to drop out of a plan isn't always purely financial (unless it's paying us only slightly more than our cost per RVU to deliver the care). For example, more than one plan tried to dictate where we performed surgeries. We weren't willing to let them impose such a rule, which compromised our ability to provide quality care. (We were uncomfortable with the overall performance of that facility.) For us, that was reason enough to discontinue them.

We assess how the plan affects our entire situation. As we've stated, administrative costs and lost opportunity are important, too.

The hatchet falls

In January 2000, we dropped our first plan. Its revenue per RVU amount was among the lowest. The administration was costly and cumbersome. And the volume it generated was preventing us from seeing higher-paying patients. We were booked 4 to 6 weeks ahead, but preferred to be booked less than 2 weeks ahead so that fewer patients would feel the need to look for another ophthalmologist. The plan accounted for a large percentage of our patients.

In March 2000, we dropped two more plans. Both wanted to dictate where we performed surgery and were consistently late paying us. Other providers in the region were willing to accept the plans' rates, so they made no effort to negotiate with us, even though it meant patients would now have to travel a significant distance to those other providers.

We sent letters to all of the patients involved, explaining that we'd no longer be able to see them because we couldn't work out an arrangement with their plan. We also informed them that we participated in other plans. Some switched plans immediately to stay with us. And just about every day we see patients who are back under standard Medicare or a plan we kept, who say they're glad to be back.

Together the three plans we terminated accounted for approximately 20% of our total patient volume. The backlog of patients kept us as busy as usual for about 3 months.

In the 6 months immediately following those, we experienced the most uncertainty and instability. It was too soon to experience enough new growth, so too many appointment slots were going unfilled. Our costs per RVU reflected this.

The 1999 number illustrates that we were in a high-volume/overworked doctor and staff situation. In 2000, after we 

had dropped the managed care plans, we were in a low-volume/overstaffed situation. Changes in staffing occurred, which put overhead back in line.

Stabilization    

Once this overhead issue was remedied, our cost per RVU gradually stabilized during the rest of 2000. We were seeing other positive signs, too. From 1999 to 2000:

• Our percentage of Medicare patients increased from 20% to 25%.
• Our percentage of indemnity insurance and self-pay patients increased from 27% to 33%.
• Our average revenue per RVU for patients in managed care plans increased from $24.95 to $29.02. (See "Improving Revenue Per Unit of Work," .)
• Accounts receivable declined considerably. After we dropped the most administratively challenging plans, staff members were in a much better position to stay on top of billing.

Encouraging trends continue

A look at key 2000 vs. 2001 figures confirms that we're continuing to move in the right direction. For example:

• Our average revenue per patient encounter has risen from $80 in 1999 to $108 todayA Our average revenue per RVU for patients in managed care plans has increased from $29.02 to $33.66.
• Our cost per RVU has declined from $23.42 in 2000 to $18.06. As our transition progresses, we expect this to fall even lower, probably to between $16 and $17.
• Our percentage of Medicare patients was 25% in 2000. It's now 30%. And the percentage of revenue that represents went from 34% to 44%. (On the downside, we've seen an increase in the percentage of patients under a lower-paying plan we're still participating in. We'll have to keep an eye on that so we don't end up allowing those patients to nudge out higher-paying patients as was happening in the past.)
• We've reached our goal of each doctor seeing an average of 45 patients per day. (This could slow in the summer, but we're steady now.) Because we're now operating at a comfortable volume for our practice, we were able to lower overhead compared to 2000, which improved profitibility. Also, we've been able to spend 5 to 7 minutes with each patient instead of only 2 to 3.

Patients are delighted with this and we've seen word-of-mouth referrals increase as a result. We were even able to 

negotiate higher rates from one managed care plan in part because patients wrote letters requesting that we remain on the panel.

Being proud of the quality time we're able to spend with patients, we're concentrating more on internal marketing, which will strengthen our bond with patients. This has been working, as evidenced by our optical's improved performance.

Patients covered by managed care plans typically wouldn't use our optical because their plans sent them to other locations. Now that more of our patients have a choice, our optical revenue has increased significantly in each of the past 2 years. In 1998, the optical accounted for approximately 6% or our profit. Now, it accounts for approximately 22%. Because we hit the overall revenue goals we set for last year, we were able to provide bonuses to our highly qualified optical manager and staff. And because doctors and staff members are less stressed, they can spend time properly recommending eyewear and explaining the benefits of our optical.

We're beginning to spend time developing other aspects of the practice as well, such as LASIK. And we were able to carry out the necessary planning to become partners in an ambulatory surgery center. We're also happy to report that we're able to get out into the community again, speaking at public service events and attracting new patients with little expense.

Caring for patients on our terms

Our practice is far from perfect. We've got plenty of other problems to solve. But we're pleased with the progress we've made on what we considered our biggest problem -- suffocating under managed care. Each time we're able to replace a percentage of low-paying patients with higher-paying patients, we'll be able to drop the next most troublesome plan.

Backing away from managed care is difficult, but we now know it's possible. We're enjoying our work again. Better yet, we're looking forward to a future of growth -- on our terms. 

Dr. Pusateri has been in private practice at the Florida Eye Center for 12 years. He's an assistant clinical professor in the Department of Ophthalmology at the University of South Florida. He has numerous publications to his credit, including research in the field of spectacle lens technology. He also lectures nationally on optical dispensing and managed care. You can send questions or comments to him via ifftda@boucher1.com.