43 Strategies for Managing a Health Care Practice
A successful health care practice requires the provision of excellent clinical care, a commitment to good customer service, sound business planning, efficient day-to-day operations, and ongoing attention to administrative and risk management operations. If the practice has excellent clinical providers but does not pay attention to or does not devote equal resources to its business operation, its future ability to operate will be compromised. This chapter is a primer for setting up and managing a health care practice and provides brief overviews of key administrative and clinical management strategies necessary for successful practice operations.
Paying attention to business operations in a medical practice can seem like a daunting task at times. Staying current with state and federal regulations, employment laws, and risk management issues requires constant vigilance and attention. Compliance with these legal requirements is only the beginning of ensuring good business operations. Strategic planning; financial management; staff recruiting, training, and retention; efficient administrative and clinical operations; ongoing practice benchmarking; risk management awareness; marketing; customer service and patient education are areas that can make a practice either mediocre or outstanding and are basic and necessary elements of successful medical practice management.
Developing a business plan and creating an operations plan are two practice management strategies that can provide the structure for many of the administrative and clinical recommendations that make the practice successful.
The Business Plan
Creating a business plan is a requisite first step for a new practice and is also recommended for established practices when considering a new project or change in business operations (e.g., adding a new provider, opening a new office, or offering new services). The business plan clearly declares the philosophy and goals of the practice on which an overall strategic plan will be based and how these goals will be reached. Even a simple one- or two-page plan can help provide a formal structure for present and future planning. A vision statement, market analysis, strategic plan, and organizational chart make up a simple business plan for the practice and provide the necessary framework for clinical and administrative operations. If the practice is seeking funds from a financial institution or granting organization, a business plan will most certainly be requested as part of the application process.
Vision Statement
This vision statement is the foundation for all clinical and administrative operations of the practice. It may be one or two simple sentences or one or two paragraphs, but it should summarize the practice’s reason for being and the philosophy of the organization. It is a good idea to revisit the vision statement annually to ensure that it continues to reflect the mission and values of the practice.
Market Analysis
A market analysis is a primary and critical key task that should be done to better understand the specific demographic makeup of the targeted patient population. This analysis looks at the current and future demand or need for (pediatric) health care services in a particular area and the current capacity or options for providing these services. Factors such as population data, growth projections, primary care competition, and the current economic and business climate, are important areas to review. Gathering this information requires time and effort but is important for good decision-making for new business operations as well as for short- and long-range planning.
Strategic Plan
The vision statement and market analysis are used together to formulate the strategic plan for the practice. A strategic plan is useful for starting a new practice, planning practice growth, or simply developing new projects. It provides both framework and direction for the task at hand and sets the business plan in motion. The strategic plan normally includes the following:
Organizational Chart
An organizational chart is a helpful administrative resource for the strategic plan and ongoing practice operations. The organizational chart normally shows names, titles, and reporting responsibilities of the people involved in implementing the business and operations plans of the practice. It not only provides a visual snapshot of the management structure of the practice but also connects its business plan with the practice’s personnel resources.
The Operations Plan
Successfully moving the business plan from paper to reality requires additional planning and implementation. The operations plan provides structure during this process and helps ensure that key elements for successful practice management are not overlooked. It uses the formal business plan for its initial direction, but has a different purpose. Its goal is to take more of a micromanagement view of the business and strategic plan and make them fully functional. Developing an annual operations plan and corresponding budget is a valuable process and a tool for ensuring that the practice’s clinical, administrative, and financial goals and operations are integrated. Although every practice is individual and distinct, and business plans differ by design and need, the operating plan establishes systems and processes to:
• Identify key practice management areas and practice resources.
• Develop policies and procedures to ensure administrative and clinical quality assurance.
• Monitor, report, and benchmark clinical and administrative results.
Operational checklists are included in this chapter for the areas of legal, governance, financial, human resources, and clinical practice operations. The checklists include a basic list of elements and issues that are important in practice operations, regardless of size or strategy.
Legal and Governance Operations
Legal counsel and a certified public accountant (CPA) are necessary professionals to consult about legal, fiduciary, and financial issues that can affect a practice. Developing a strong business relationship with an attorney and accountant with experience in health care operations is valuable, not only during the start-up phase of a health care practice, but also for ongoing consultation. Box 43-1 includes a checklist of major items included in this category that need to be taken into consideration, especially for a new practice.
BOX 43-1 Legal and Governance Checklist
Organizational Structure and Tax Status
Choosing an organizational structure and a tax status are two initial decisions required when starting a practice or in subsequent years if the practice undergoes ownership changes or it is beneficial to take advantage of new tax laws relating to business structures. Because of the numerous legal and financial implications involved when choosing an organizational structure, it is imperative to have good legal advice during this process. Trusted financial and legal advice is also essential when drafting the practice’s governance documents, such as bylaws, articles of incorporation, employment agreements, and buy-sell agreements, and when reviewing lease documents and contracts.
Federal Tax Identification, National Provider Identification and Required Licenses
In addition to appropriate legal documents, the practice will require a federal tax identification number, also called an employer identification number (EIN), and a national provider identification number (NPI). A state tax identification number is required for state tax reporting, and most cities require a local business license.
There are also identification and licensing requirements for health care providers. All providers should have an individual NPI. Most states require a state license and a Drug Enforcement Administration (DEA) number as minimum requirements.
Insurance Requirements
Basic insurance requirements for the practice include general liability, professional liability, and workers’ compensation insurance.
General liability insurance protects the assets of the business from casualty damage, employee dishonesty, theft, business interruption, and personal injury. Pediatric practices are advised to add “spoilage” coverage to provide protection for their substantial vaccine inventories.
Professional liability insurance provides coverage for both individual providers and the practice in the event of a claim of medical malpractice. Professional liability insurance is written on either a claims-made or an occurrence basis. Because claims-made policies normally require the purchase of a “tail” or extended coverage in the event that the policy is terminated, it is important to understand the differences and which type of coverage is offered under the policy. When purchasing professional liability insurance, it is wise to insure the practice and the individual providers. Insuring the practice provides an added layer of protection in the event of a medical malpractice claim and includes coverage for clinical and administrative support staff. Limits of $1 million to $2 million for each occurrence with an aggregate limit of $3 million to $4 million are considered minimal standards of protection. Insurance payers will normally have coverage requirements in their provider contracts. Medical staff privileges also require a certain amount of coverage. The practice will need to review the pros and cons of individual policies for providers versus obtaining coverage on a group basis. This decision may vary based on practice preference, organizational structure, or legal or insurance company recommendations.
Workers’ compensation insurance protects the practice and its employees against accidents or injuries on the job. Examples of accidents that most often happen in a health care practice are needlestick injuries; injuries caused by lifting or moving patients, equipment, or files; and repetitive motion types of injuries suffered by administrative staff. The practice’s annual claims experience will impact its premiums for workers’ compensation coverage; consequently an ongoing training program regarding safety in the workplace is important for good risk management and managing practice expenses.
Government Regulations
There are numerous and important regulations for health care practices. Special attention must be given to these regulations to ensure awareness, training, and compliance.
Health Insurance Portability and Accountability Act
Health care providers and managers should have a good understanding of the Health Insurance Portability and Accountability Act (HIPAA) and be aware of important and ongoing changes to this major piece of legislation. Although the section of this regulation dealing with the portability of health insurance (Consolidated Omnibus Budget Reconciliation Act [COBRA]) has been in effect since 1996, two more recent sections on privacy and security have important relevance for health care providers. The primary purpose of the privacy section of HIPAA is to protect the rights of patients. HIPAA regulations define how providers must treat protected health information (PHI). HIPAA regulations now require health care providers to provide all patients with a “Notice of Privacy Practices.” This notice informs patients of their rights under HIPAA and how the practice will use and disclose their PHI for treatment, payment, or health care operations. Other parts of this regulation include requirements for the electronic transfer of PHI and for the development of business associate contracts with organizations with which the practice may share confidential information (outside billing or collection agencies, medical records couriers, transcription companies, answering services, etc.).
The security provisions of HIPAA require specific precautions for the safety and confidentiality of electronic health information. Being HIPAA compliant requires the practice to develop policies and procedures that ensure confidentiality of patient information within the practice and to orient and train staff in these areas.
The American Recovery and Reinvestment Act of 2009 (ARRA) includes the Health Information Technology for Economic and Clinical Health (HITECH) Act, which added new provisions to both the privacy and security sections of HIPAA. One of the more important additions to the privacy regulations is the fact that a patient who pays for medical services in full out of pocket can restrict a medical practice from disclosing PHI to a health plan (for payment and health care operations). Other important changes include guidelines for security breach notification and an expansion of HIPAA requirements for a practice’s business associates.
The HITECH Act also includes stimulus funding to increase the use of electronic health records by health care providers. Financial incentives for providers as well as funding to support regional health information exchanges are significant pieces of this legislation.
Occupational Safety and Health Administration
The Occupational Safety and Health Administration (OSHA), a division of the Department of Labor, regulates health and safety in the workplace. Medical offices are required to meet safety standards regarding universal precautions, blood-borne pathogens, and tuberculosis and have written policies that enforce these standards. Practices must also provide education and annual training to staff and keep accurate records regarding any injuries and exposures that may have occurred. OSHA standards focus on infection control and contain guidelines for personal protective equipment, frequent handwashing, decontamination, and waste disposal.
Clinical Laboratory and Improvement Amendments of 1988
The Clinical Laboratory and Improvement Amendments of 1988 (CLIA) set performance standards and licensing requirements for hospital and physician-office laboratories based on the complexity of the tests being performed. CLIA standards focus on personnel qualifications of laboratory staff, quality control, quality assurance, and proficiency testing. A procedure manual that details how to perform every test conducted in the laboratory must be kept up-to-date. Based on the complexity of tests performed, the laboratory will have a CLIA designation of waived, physician-performed microscopy (PPM), moderate complexity, or high complexity. When determining what types of laboratory tests or services will be performed in the office, it is important to ensure that the practice has the necessary CLIA designation before providing those services. For example, a rapid strep test could be categorized as waived, PPM, or moderate based on the particular brand of the test. A cost-benefit analysis should be undertaken as part of any decision regarding laboratory services. The cost of CLIA compliance, proficiency testing, equipment, and staffing of the laboratory should be included along with the price of the individual tests when analyzing clinical needs, potential reimbursement, and customer service.
Retention of Records
There are specific guidelines for the retention of all records and business documents in the health care practice. Requirements vary depending on the type of records (medical records, financial records, claims and billing records, staff and employment records). Table 43-1 contains general recommendations for records retention. As the practice gets larger, the retention of records can become an expensive storage problem. Technologies such as optical scanners and “electronic file cabinets” can help practices meet these requirements efficiently.
TABLE 43-1 Guidelines for Record Retention
| Document/Records | Months to Keep |
|---|---|
| Agenda or schedules | 24 |
| Bank statements | 60 |
| Budgets | 60 |
| Canceled checks | 60 |
| Committee meeting minutes | 60 |
| Contracts | 60 (after expiration) |
| Employment applications | 36 |
| Financial reports | 60 |
| Financial statements | Life of organization |
| Insurance documents | 36 |
| Insurance policies | 72 (after expiration) |
| Invoices | 72 |
| Policies | Life of organization |
| Accounts receivable | 84 |
| Account reconciliations | 24 |
| Reports | 60 |
| Tax returns | 72 |
| Medical records | Pediatric records should be kept a minimum of 7 years past age of majority |
Developed from Recommendations of the American Society of Association Executives and the U.S. Code of Federal Regulations.
Financial Operations
Managing the revenues and expenses of a practice requires the establishment of good financial and accounting systems. This includes developing and implementing financial policies and processes to ensure necessary cash flow for the financial health of the practice and regular monitoring, review, and reporting of its revenues and expenses (Box 43-2). The following steps are recommended when establishing the financial operations of the practice.
• Establish a professional relationship with a bank or other financial institution for the purposes of opening a checking account, a payroll checking account, a savings account, and a line of credit.
• Work closely with an accountant to develop the bookkeeping and accounting systems to meet the needs of the practice. Depending on the size and sophistication of the practice this may mean that the accountant actively reviews financial operations on a monthly basis and prepares the financial reports or is used more as a business consultant. In either case, the accountant will probably be responsible for preparing annual tax returns.
• Choose computerized accounting software. A packaged accounting software, such as Quick Books or Quicken, usually meets the needs of a small to medium-sized practice, whereas larger organizations with multiple locations and many cost centers may require a more powerful and sophisticated system. The accountant should be able to suggest a system that will best meet the needs of the practice. The system should not only be able to manage accounts payables and write checks but also be able to develop budgets, automate payroll, and provide a standard set of financial reports. The practice’s accountant can also help decide whether to operate the accounting system on a cash basis, an accrual basis, or a modified cash basis. Most medical practices use a cash or modified cash basis of accounting.
• Establish a chart of accounts. The chart of accounts plays a key role in budgeting and financial reporting. Although any chart of accounts that can break out and report on revenue sources and track expenses by similar types will suffice, the practice may wish to adopt a chart of accounts similar to the one recommended by the Medical Group Management Association (MGMA). Setting up the chart of accounts so that financial reports are comparable with those of other similar medical groups can be helpful not only for the management of revenue and expenses in the practice, but also comparison or benchmarking purposes.
• Establish internal controls. Safeguarding the assets of the practice is an important part of responsible financial operations. Policies and procedures for handling and depositing cash and checks, reconciling bank statements, check signing, and petty cash management need attention in this area.
• Prepare an operations budget. The development of an operations budget is important as a tool for (1) synchronizing the clinical and administrative operations of the practice with the anticipated revenues and expenses, (2) monitoring the revenues and expenses throughout the year, and (3) reporting the status of actual financial operations compared with the budgeted plan.
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