To make your practice successful, you need a staff that’s involved.

Involvement and productivity don’t happen by magic. After you’ve hired the right people, you need to create an environment in which staff members believe that they’re making positive contributions to the practice and that those contributions are appreciated. Often, physicians and managers are challenged to make this happen.

One key way is to make your office a community, in which everyone plays a key role in the practice success. “The practice’s patients are not just the physicians’ patients but the staffs’ patients as well,” says one primary care physician in Tennessee. “Patient care is a shared care.” In the same vein, staff members should be looking out for each other, believing that work is a joint effort — not just a collection of individuals.

There are effective ways to create this kind of environment.

Cross-training

Cross-training helps make your employees more productive. We have seen nursing staff answer the office phone when front-desk staff is tied up, and billing staff escorting patients and taking vital signs when the practice is overbooked. It’s most effective to let the employees themselves do the cross-training at staff meetings. The staff members could lay out, in writing, the procedures that are related to each element of their jobs. These lists of procedure would be the basis of the cross-training sessions at staff meetings.

Here is an example of how one office drew up the cross-training procedures for collecting copayments:

* Fixed dollar copays: Collect copays prior to patients seeing the physician. Copay amount is on the appointment schedule for the day and on most patient insurance cards.
* Percentage of copays: Because you are not certain of the amount of service to be provided, let patients know that you will be collecting the copay on their exit.
* How to ask for copay: “Mr. Patient, your plan requires us to collect a copay of $ xx. How would you like to take care of this today?”
* What to do if the patient says he/she can’t pay: Suggest: “We accept credit cards.” If that does not result in payment, provide patient with a copy of the encounter form with the amount to be paid circled. Also provide an envelope addressed to the practice. Ask the patient, “We’d appreciate your sending your check to us when you get home.”

Financial and Other Rewards

Many practices fell into the trap of automatically awarding annual year-end bonuses, particularly during the holidays. Once these bonuses became institutionalized, they were the “assumed” rewards, ie, we will get them because we have gotten them in the past. It’s time to reconsider them.

Anticipate some resentment when annual bonuses are discontinued. It’s best to announce the new bonus system at a meeting. This provides an opportunity to explain that “physicians’ bonuses are based on business brought in and results, so we’re starting the same idea with staff — rewards that are based on results.”

You can set reward standards, such as rewards for reaching practice goals. Consider rewards that are based on measurable performance goals: collections, not more than 25% of accounts being over 90 days; number of patients seen per week, per physician; and patient waiting time reduced to an average of 20 minutes. When goals are met, rewards should be considered for all staff because, realistically, all have contributed to achieving these goals: billing staff; front desk; and nursing.

You can also offer rewards for individual performance. For individuals’ achievements: anniversaries with the practice (for being there 5 years, 10 years, etc); perfect attendance; or converting to a new computer electronic medical record and/or billing system.

Rewards do not have to be in the form of money. You could consider time off, tickets to local events (plays, team sports, concerts), a trip to a seminar, dinners at a local restaurant, cameras, watches, massage or other amenities at a local salon/spa, or tuition paid for college courses.
Performance Reviews

Most physicians and managers dread conducting performance reviews. However, all employees want to know how they are doing.

Of note, the annual performance review has changed. For employees, the concept of the single annual review is not enough to satisfy them, nor is an annual review very helpful to either employees or employers. If there’s a problem with an employee’s performance, why let it go for a year?

Additionally, it’s more effective not to just give report cards, but to focus on how performance can be improved. Specifics are most helpful, not generalizations.

I recommend giving mini-reviews 6-8 times per year for each employee. This schedule is realistic and is what performance-oriented businesses do. It only takes a little time. The annual performance review is now antiquated.

Although managers may see the mini-reviews as just more performance-review work, they force the manager to undertake reviews more frequently — to the satisfaction of the employees. Result: more frequent focus on performance and more manager-staff interaction.

The manager can still perform the annual comprehensive performance reviews. For the employee this means fewer “surprises” at the yearly review because any performance weaknesses would have been covered at 1 or more of the interim mini-reviews. Hopefully, these mini-reviews will move in on areas meriting attention, leading to improved performance as well as better employee-manager communication.

One suggestion is to ask staff members to come to the annual meeting with 2 ideas to help the practice, and 2 ideas to help improve their jobs. Ask them to present these ideas in writing so that you can have a document to help discuss them.

Staff Meetings

Staff meetings sometimes fall by the wayside because you’re too busy seeing patients to hold meetings. However, they are important to have on a regular basis — typically once a month — to give staff members a sense of community, reinforce practice goals, and unearth smoldering problems.

To make meetings effective, managers can post tentative agenda a week prior to each staff meeting — and allow staff members to add agenda items that they deem worthy of consideration. One or 2 days prior to the meeting, the manager could review any suggestions. In some cases the manager may determine that some suggestions do not merit staff meeting time. Whatever the reasons, they need to be spelled out when that meeting takes place.

Meeting specialists repeatedly refer to the 80/20 rule: that only 20% of meeting time be devoted to past issues. To be successful, a good meeting should try to devote 80% of the meeting to future issues.

When an important agenda item cannot be resolved during the meeting, consider appointing 2 staff members to act as a team to try to resolve the issues prior to the next meeting. At that time, they could report on their findings and recommendations. During the interim the team members could address the issues with other staff members.

Meeting tip: Each attendee must come to the meeting with 2 ideas to improve the practice: That is the price of admission. The manager round-robins, with each attendee presenting her/his ideas — the manager serving as the moderator. This should provide a good vehicle to get staff involvement and, probably, some usable ideas.

More Tips

There are a couple of other tips that can help make the workplace more of a community and boost staff involvement.

Office equipment: Each employee should have easy access to equipment needed most of the time — and reasonable access to equipment needed some of the time. Additionally, outdated equipment — whatever the category — leads not only to staff dissatisfaction, but to lowered staff productivity.

Manager needs to be accessible: Having an “open-door” policy, suggested by most management experts, means just that. Also, the open-door policy should always be refreshed. When a staff member relates a problem that could have been addressed earlier, the manager needs to re-emphasize: “My door is open, and it would have helped if I knew about this beforehand.”

Let employees know how their work affects coworkers: A manager’s job is to let staff members know the interrelationship of their work with others at the practice.

For example, your front-desk staff should recognize that any neglected front-desk collections of copayments and deductibles result in extra work for the billing staff.

Similarly, overbooking by the scheduler results in more patients, creating added pressures on the nursing staff as well as the front desk. Also, lack of timely staff response to calls from patients and referring offices results in unnecessary follow-up calls that increase the practice’s phone traffic. All of these instances, and others, are part of the physician and manager challenges.

These concepts go a long way in helping to improve staff involvement and productivity, and make for a happier, more successful office.

Read more articles at Medscape.com.

Introduction

Between the recession and proposed healthcare reform, many physicians wonder whether their practices would have much value if they decided to sell them. Experts agree that well-established practices with solid revenues are still worth more than the value of their hard assets. Opinions differ, however, on how much practices are worth and whether that worth is headed up or down.

Overall, reimbursement cuts and an increase in the number of physicians seeking employment have depressed practice values. But the competition of hospitals for market share and their efforts to lock in physicians in preparation for changes in Medicare payment policies have supported practice worth in some areas.

Practice values vary in different markets, and the acquisition strategies of local hospitals explain most of these differences, says Alan B. Simons, a Philadelphia-based principal in the healthcare valuation practice of LarsonAllen LLP. Where hospitals are competing for market share, he says, “Values are being pushed higher. In less active markets, practice values are fairly minimal.”

Stephen Messinger, a principal with ECG Management Consultants in Arlington, Virginia, disagrees. “Because of regulatory requirements, there’s been little upward pressure in practice valuations, despite the fact that we’re seeing more and more physicians being hired by hospitals and big groups. Part of the reason is that we’re not usually seeing the bidding wars that we used to see for practices.”

Across the country, there is downward pressure on practice values, partly because of reimbursement cuts by Medicare and private payers, Messinger says. The shakiness of their income stream is driving more physicians to seek hospital jobs “to get a steady paycheck,” Messinger says. “The growth in supply of physicians seeking employment is having a suppressive effect on the market for medical practices.”

The Value of Primary Care

Michael La Penna, a healthcare consultant in Grand Rapids, Michigan, agrees that practice values have fallen in many areas, and he sees little value in primary care practices beyond their hard assets. Only “brand-name” specialty practices that earn substantially more than their peers are really worth much, he says.

Simons disputes this assertion, noting that primary care physicians are among the most highly recruited doctors, and that Medicare is starting to shift some money from specialists to generalists.

But La Penna points out that demand for primary care physicians may actually reduce the value of their practices. Where there’s a shortage of primary care in a market, he says, hospitals may offer primary care doctors substantially more than they can earn on their own. As a result, the value of a practice diminishes because they and other physicians who want to earn more can simply go to work for a hospital. Also, where demand for physicians is high, it’s relatively easy to start a practice, so doctors are less interested in buying an existing practice.

Specialty practices, on the other hand, may have substantial value because of their ancillary revenue streams and their value to hospitals, La Penna says. A well-established urology practice with lithotripsy equipment or a cardiology practice that brings in far more revenue than its competitors may be able to command a higher price than a lower-earning practice that is not considered a leader in the field.

Regional differences may also exist, he adds, because of the prevalence of managed care and certificate-of-need laws. “In Texas, an orthopaedic practice might be able to start a surgery center, while in Michigan, there’s a CON [constitutional] law that prevents them from doing higher-end capital development. In New York, doctors can’t really do anything because of the CON law.”

Hospital and Physician Buyers

That hospitals have a growing interest in acquiring practices is the major factor in the market today. The extent of this buying binge — which reminds some observers of the hospital feeding frenzy of the ’90s — is dramatic. Between 2002 and 2008, the percentage of Medical Group Management Association member practices that were hospital-owned shot up from 24% to nearly 50%, while the percentage of physicians working for hospitals increased from 25% to 37%. Medical Group Management Association members don’t include solo or 2-doctor practices, but there’s no reason to think that those practices are being sold more slowly than larger groups.

Simons believes that eventually most physicians will work for hospitals. In the meantime, he says, there are some good opportunities for entrepreneurial physicians who want to own practices. And physicians who want to sell their practices may also be able to get a decent price, depending on their specialty, location, and other circumstances.

Because of federal regulations, hospitals cannot pay more than fair market value for practices, and they cannot compensate employed doctors at a higher-than-fair market rate. Paying doctors above that level in expectation of referrals would violate the Stark and antikickback rules, and not-for-profit hospitals embarking on that practice would also violate the private inurement rules of the Internal Revenue Service.

Nevertheless, hospitals often pay more for a practice than another doctor would. This is partly because they can — as long as they stay within the bounds of fair market value. Also, they may perceive that it is less risky to buy an existing practice with a revenue stream than to recruit a doctor from outside the area and help him or her start a new practice, Simons notes.

Most hospitals also have a strategic goal in buying practices. That objective may be related to referrals, procedures, competition, physician “alignment,” or something else.

“The fear of losing referrals and the joy of gaining them still drives hospital decisions,” notes La Penna.

On the flip side, practice owners are having a harder time selling partnerships. Fewer young physicians are interested in acquiring a partnership, which entails additional responsibilities and often a hefty buy-in. Also, the differential between associates’ and partners’ incomes has shrunk in recent years, and it’s hard for an owner to ask for much of a buy-in if he’s making only slightly more than his physician employees.

The discussions about partnerships are usually quite informal, notes La Penna. “The two doctors never agree that the associate will pay $160,000 and write it down. The senior doc will say, ‘You can get a job for $110,000, I’m going to pay you $90,000, with no bonus for 2 years, and then I’m going to give you 25% of the practice.’ Nobody valued the practice.”

A bigger group that wants to buy a small practice may not hire an appraiser, either, La Penna says. But it generally has a structured approach to purchasing practices and might pay a modest amount for what is known as “goodwill” (see the discussion of practice value components, below). On the other hand, the group might pay the practice owners out over 3-5 years. Hospitals, which typically do formal valuations, “are paying higher, and they’re paying now,” he says.

What’s Included in Goodwill?

The classic components of practice value are hard assets (equipment and fixtures), cash, accounts receivable, and goodwill. Medical buildings and other real estate holdings are not usually included in a practice sale.

Increasingly, physicians and hospitals are also excluding accounts receivable. Physicians can get more out of accounts receivable by working it down themselves, notes Messinger. Many hospitals don’t want to deal with such accounts, partly because of liability concerns, Simon comments.

Goodwill is often regarded as the sum of all the intangible assets of a practice, including its reputation and its excess earning power. But many appraisers define goodwill as the practice’s “residual value” after calculating the worth of identified tangible and intangible assets. Intangibles may include the physician workforce, staff, location, telephone number, patient charts, and other such definable features as an investment in an electronic health record.

What, then, is goodwill? From the viewpoint that a practice can be worth more than the sum of its parts, goodwill is the premium a buyer will pay for the practice because of its value compared with other practices in the same specialty or its strategic importance. For instance, the practice might include a surgeon with a national or a statewide reputation, or it might be the top pediatric or ob/gyn practice in town.

When Simons and his colleagues valuate practices for hospitals, however, they focus only on identifiable assets to avoid any implication that the hospitals are paying more than fair-market value.

“In markets where there’s not a lot of competition, hospitals will generally buy the tangible assets and won’t pay anything for the intangibles or goodwill,” he says. “In competitive markets, we’re trying to keep the value limited to tangible and intangible assets and not have them go off and develop calculations that are pie in the sky.”

While La Penna says hospitals pay for goodwill only in exceptional cases, Messinger sees them paying “nominal goodwill” amounts in most purchases. Primary care physicians frequently receive signing bonuses, and hospitals may extend themselves in other ways. For example, Messinger recalls an orthopaedic group that borrowed money to buy a magnetic resonance imaging machine. When the doctors were negotiating to sell their practice to a hospital, they pointed out that the hospital wasn’t offering enough to pay off the money borrowed for the machine.

“So the hospital said, ‘We’ll extinguish the debt,’ which was a couple of hundred thousand dollars. It was absolutely goodwill, within the fair market value of the practice, so the hospital felt comfortable about it, and it made the transaction possible. But it was really a nominal value for goodwill.”

Another major variable in practice valuation, which can affect the value placed on goodwill, is the compensation package that the physicians negotiate. Because of regulatory requirements, purchase price and compensation are considered together in arriving at fair market value.

So if physicians receive less for their practices, they may be paid more as employed physicians, notes Robert Wade, a healthcare fraud and abuse attorney in South Bend, Indiana. Messinger agrees. “Rather than load up the hospital’s balance sheet with goodwill, what they do is pay tiny bonuses and add more to compensation to make the transaction feasible.”

Ways to Calculate Practice Value

The methods used to compute the dollar value of practices are discounted cash flow, market value, and the cost or asset approach. The discounted cash flow method calculates the “present value of a practice’s future earnings stream discounted at an appropriate risk-adjusted rate of return,” notes Simons.

The problem with this approach, he says, is that most practices don’t have a positive cash flow because they distribute all profits to the partners and/or because the hospital will pay them more than they could earn in private practice. “So when a hospital acquires them, there’s no cash flow the hospital can expect to receive from the practice.”

Still, appraisers do use discounted cash flow to valuate practices. La Penna looks at the cost of capital and the risk factor. Although interest rates are at historic lows, he notes, the future income streams of practices are increasingly risky because of the changes in the healthcare environment.

“So as this stuff drags on, the discount rates we’re using go way up because of the risk. But they go down because of the recent decline in interest rates.” Today, he says, the discount rates, which rise as practice values fall, are approaching 20%, compared with 15% to 16% a few years ago.

Another method of assessing practice value is the market value approach. This is similar to figuring out how much to ask for your house: You find out the purchase price of similar practices in your area that were sold in recent years.

Besides calling former practice owners, you can get some information about practice sales from the Goodwill Registry, a listing of sales in various specialties and how much goodwill was included in them. The Goodwill Registry is available from The Healthcare Group in Plymouth Meeting, Pennsylvania.

Unfortunately, this registry includes fairly sparse data for many specialties, with a focus on The Healthcare Group’s own consulting clients. Also, the registry does not reveal anything about physician compensation after the sale or which valuations were done in the context of divorce proceedings. The registry also doesn’t include practices that were sold with no goodwill.

Simons says his firm looks at the Goodwill Registry, Pratt Stats, Irving Levin Health Care Acquisition Record, and the Institute of Business Appraisers database. “None of them are really good,” he says, because the underlying information is confidential and is limited to what has been disclosed. So, like most appraisers, he simply uses these data as a “reality check” in computing practice values.

Simons primarily relies on the asset approach to valuation. First he identifies all of the tangible and intangible assets and assigns a fair-market value to each. Then he adjusts the balance sheet of the practice to come up with an overall figure for its market value.

Different appraisers use different methods. But in the end, the value of your practice is what a buyer is willing to pay.

Read more articles at Medscape.com.