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Benchmarking: The Key to Improving Physician Practice Financial Performance

As many health systems continue to acquire or have recently acquired physician practices, the challenge for healthcare finance leaders is how to manage these practices effectively. There are many examples where healthcare systems aren’t realizing the financial benefits of these newly acquired practices. So what can health systems do to ensure a better financial return on their physician practices? 

In truth, there are many possible solutions, ranging from improved due diligence before an acquisition to the better alignment of financial incentives of physician contracts to the evaluation of a practice’s accounts receivables, billing and coding. All of these factors could help lead to better financial returns.


But to make lasting improvement in financial performance, the establishment of benchmarking is critical. Too often we’ve seen hospital leaders attempt to “fix” practice issues before they have a reasonable understanding of where performance deficiencies may lie. Benchmarking can answer a series of questions regarding organizational-wide trends, specific practice patterns, norms of a service line within a health system or the output of a single physician.

Health systems need to utilize both internal and external benchmarks to evaluate their practices effectively. Medicare and national organizations such as MGMA provide useful specialty benchmarks that include E/M levels and other coding information. There are other widely used benchmarks that can assist with key performance indicators for billing timeliness and collection performance.

However, external benchmarking tells only part of the story. As we all know, every health system faces unique challenges, based on geography, patient mix, staffing, regional practice patterns, the availability of corporate resources, etc. Consequently, relying solely on national benchmarks, or even regional ones, may not be a realistic barometer for performance improvement.

Health systems need to develop their own internal best practice standards for evaluating practices and specialties. An organization must determine which benchmarks are crucial to its internal evaluations. And after establishing these internal benchmarks, health systems must then prioritize which of them should receive primacy as a driver for performance improvement. These decisions might vary significantly from organization to organization. For some, A/R management within a practice might be the first area to tackle. For others, it could be E/M utilization levels across a specialty.

Perhaps most importantly, any effort to improve physician practice financial performance should involve realistic goals and timeframes to accomplish change. Many physician practices or specialties within a system have developed protocols and habits that have been ingrained over many years and as a result it’s never an easy proposition to introduce new protocols. With that in mind, make sure to set goals that are attainable. It may be unrealistic to expect rapid improvement in 90 days. In addition, sometimes even a 5% or 10% improvement in a specific benchmark could lead to vast revenue (or compliance) improvement.

Ultimately, utilizing benchmarking to drive physician practice financial improvement requires a disciplined process. But once this process is initiated, employed and proven to yield success, it can be repeated (with needed tweaks) across an organization. Benchmarking allows for health systems to understand and quantify their performance problems and provides direction for how to prioritize areas for improvement. And while benchmarking may not be the sexiest first step to fixing a poorly performing physician practice or specialty, it’s one that can yield significant and lasting benefit.

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