My approach to strategic planning is very pragmatic. Among the primary principles of this approach is the need for radiologists to be involved in planning, although it may constitute a foreign area for many of them. The thought process used in planning is very different from that used in radiology, for example. A radiologist makes literally hundreds of decisions each day, but once each of those decisions is made, the case is finished. The radiologist is free to move on to the next set of decisions. Radiology practice administrators, in contrast, may be tied up solidly for 6 months while carrying out one business decision. The decision-making processes, environments, and timetables differ so greatly between physicians and administrators that bridging those cultural gaps becomes, in itself, an important step in planning.
Failure to plan is a plan for failure. Planning gives a practice a map and a game plan. It does not mean that the practice cannot deviate from the plan, but it enhances the focus and efficiency of the practice in pursuit of its goals. Planning is not a hard-and-fast exercise; instead, it sets a direction for the practice to follow. Lack of planning leads to uninformed decision making. It may also cause decisions to be made that favor the most persuasive advocate of a particular action, who may not always have the goals of the practice in mind.
Inadequate planning means that a practice is operating with fragmented resources. Insufficient funding, overworked personnel, and reactive (rather than proactive) actions are symptoms of this problem. The results produced by the practice will be inconsistent, and success, if obtained, may be expensive. Stress levels are much higher in the absence of planning, and the likelihood of error increases, as well. Personnel may be very busy every day without being very productive, and the practice is likely to spend money unnecessarily.
Often, radiology practices realize that they need to plan only when they are struggling to survive or are expanding rapidly. It should be remembered that, even in the absence of these two extremes, radiology markets are volatile and subject to unexpected change. Entrepreneurial activity, managed care, and nonradiologist imaging can? create instability in a market at any time; a strategic plan should be in place at all times as a coping mechanism.
BEGINNING TO PLAN
There will always be factors (such as Medicare reimbursement rates) that the radiology practice cannot control. Planning will let that practice determine what it can control (or at least influence) and then commit the resources and effort needed to assert control in the areas that it considers most important. Planning also helps physicians and radiology practice administrators agree on reasonable expectations, and this helps to prevent unpleasant surprises for either.
Formal planning begins with physician input.? Measurable, specific goals are then outlined. Action steps and timelines are constructed next, and these are accompanied by detailed cost estimates that include the cost of staff hours. The last step is the measurement of progress, which is accompanied by reporting on the degree to which the plan’s goals have been met.
Taking the plan from its infancy (the talking stage) through to reality requires the radiology practice administrator to know and keep track of the many variables that help him or her produce an intelligent plan and obtain the necessary background to implement it. Documenting what is happening in the practice’s market area is the first necessity. Each year, before planning, I have spent several days just going over what has occurred in the market area. Once that has been documented, the practice should look over the plans of the previous 3 years. There may be strategies there that are still viable, but were never implemented because of interim changes; it can be helpful to review what the group was thinking at the time that each prior plan? was written. In addition, it may be far easier to update a past plan than to start over in its construction.
The practice should consider the kinds of entrepreneurial activity taking place in the area, including the degree to which radiology services are being offered by nonradiology specialties. The effects of managed care should also be evaluated. This analysis will help the practice determine whether it is a good idea to expand services at a given time. Expansion may sound like a great idea, and nearly everyone will want to do it, but the practice must be careful to avoid spending a great deal of money to obtain business that it already has. Even if the business is obtained in a less-than-ideal way and the practice wishes it had more control, additional spending could be unwise. An example is to build a new imaging center and take on the associated debt simply to get business that the practice is, in fact, already getting.
ASSESSING THE SITUATION
In evaluating the impact of managed care, the practice should determine its penetration in the local market and whether it is still evolving or on the decline. The relative dominance of HMOs, preferred provider organizations (PPO)s, fees based on Medicare allowables, and capitation should be evaluated. These factors will determine the financial projections of the practice. If the practice plans to launch new initiatives, it must first be certain that it will be paid. It is necessary to understand whether payor activities and policies have changed recently. In our market, capitation is definitely on the decline because physicians have been leaving for areas where their incomes will be higher. HMOs are still dominant, but PPOs are beginning to move up; plans are offering more options and are paying slightly more.
The realities of managed care are such that if it is growing in the practice’s market area, it will cause a reduction in what that practice is paid.? Managed care? also has other ways to decrease practice revenues. For example, decreases in the time limits set for filing claims will lead to more denials of reimbursement. Some practices have been accustomed to having as long as a year to file claims; in Albuquerque, NM, having 90 days to file is considered very good and having 60 days is considered more normal. In fact, our practice turned down arrangements permitting only 30 or 45 days because, being hospital based, information did not always reach us in time. A practice that does not have the systems in place that would permit it to file timely claims, and that will be moving from a 365-day filing limit to a 90-day limit, is guaranteed to lose money until it learns to work with a shorter filing limit. Prior authorization requirements can also affect practice revenues. HMOs seem to be strictest in this area; the practice that performs an examination without prior authorization has performed it free of charge, in effect.
Capitation for radiology services has not, to date, been successfully designed. The practice might make money for the first 2 years under a new capitation plan, but the payor will eventually find ways to make the arrangement less profitable. Utilization is a constant worry, but the practice has no control over it. The practice? can be the victim if the health plan manages utilization poorly. If the members of a referring specialty attend a society meeting at which they are told to order MRI studies for a particular condition, for example, the resulting jump in MRI utilization is desirable only in a fee-for-service setting. Under capitation, it can be fatal.
Utilization-review requirements are usually built into managed care agreements. They may have no negative impact on practice operations, but they add to overhead. Few add administrative layers, but compliance requirements vary from contract to contract. The accreditation of health plans causes additional provisions to appear in contracts. Suddenly, radiology practices may be required to provide more documentation, and periodic site reviews may be mandated. The practice has little room to negotiate, in this regard, because these provisions are conditions of the health plan’s accreditation.
MAKING FINANCIAL PROJECTIONS
Generally speaking, more managed care in a market means higher overhead and lower income. If the practice must verify eligibility, for example, more staff time will be required to handle managed care accounts. Managed care is also a consideration in capital planning: what happens to the practice’s pro forma projections if fees decrease slightly for each of the next 5 years? Often, in putting together a pro forma, assumptions are made; a given case volume is expected to generate a predictable number of dollars. If fees can be expected to decrease, this information should be part of the planning analysis.
It can be a helpful exercise for the practice to determine where it would stand financially if it were to receive reimbursement strictly at Medicare rates. When the practice is looking at capital equipment, these projections will determine the merits of leasing versus purchasing. It was once fairly common to purchase equipment and simply pay cash for it, with financing? beccoming necessary only at the MRI cost level or higher. Physicians were willing to pay a great deal out of their own pockets for their own imaging centers. Leasing means that the practice will pay more for an item over the course of the lease, but it is tremendously helpful in month-to-month cash-flow implications.
Developments in financing should be researched and reviewed by radiology practices. I remain neutral regarding the application service provider (ASP) model, although I am studying it more. In some cases, ASPs appear viable, particularly for MRI and CT teleradiology, but they may be less so for plain film. Practices can use vendors as their experts in this area (and many other types of trend watching), since the vendors will be able to make projections based on knowledge that is not always available to an individual practice. ASPs are more common in medical technologies due to the high cost of equipment; for example, positron-emission tomography is being used by facilities that pay a fixed amount per scan to the company providing the technical component. This is one of the typical uses of the ASP model, but it is also available for picture archiving and communications systems (PACS) and teleradiology. ASPs of this kind might be popular for a few years and then disappear; they could, however, also continue to grow and to become more successful. ASPs are now becoming available for billing systems. Practices should bear in mind that, after the technology actually needed to perform imaging, their second-highest expenses are usually for their billing systems. Many of those costs are staying the same, but vendors are becoming ever more creative (with? ASPs being one example) because they realize that many radiology practices face financial challenges.
Pro forma projections are based on a predicted number of examinations per day and an assumed revenue per examination. Many practices forget that they must also take the collections ratio into consideration. Otherwise, the pro forma amount will be based on an unrealistic presumption of 100% collections. Clearly, the projection must be adjusted for collections failures if it is to provide an accurate estimate of the revenues needed for an activity to be viable (defined as paying for the necessary equipment and making a profit). A reliable projection requires a thorough knowledge of the business and its efficiency (collections, bad-debt write-offs, and average days in A/R). In developing projections, the practice should also assume that the promises of referral that it receives from physicians are usually overestimated. If a physician claims that he or she will send the radiology practice every single case if only the practice will open a new imaging center, the physician’s assertion must be taken with a grain of salt.
Using the standard definitions and formulae of the Radiology Business Management Association will help the practice set up reports and conduct business analysis. In making projections, practice administrators should assume that the practice will be less efficient when it introduces a service than it will eventually become when it has gained more experience.
Practices should remember that market-expansion options may include the use of the money of others. At times, for example, expansion can be funded through a joint venture with a hospital. It should be realized, though, that joint ventures always have strings attached.
The imaging center constitutes the most traditional option for business expansion, and this is the direction chosen by most groups seeking expansion. Teleradiology, however, eliminates geographic boundaries, and mobile radiography is a relatively low-cost (if highly regulated) avenue for business expansion. For example, mobile units can serve prisons and nursing homes.
Among market strategies, being first is always best and being second is always a weaker stance. If three imaging centers are opening in an area, the one that opens first is going to have a strategic advantage (unless it provides inferior service). It is harder to take business away from the center that opens first than it is to open first oneself. When it is possible, first to open is what a practice should aim to be. If it is not possible to open first, the practice’s projections should reflect the fact that it will take longer to obtain a share of the market as the second center. If the practice will be third to open, it should determine very carefully whether it can afford to wait for its share of the market until the one of the two previously opened centers has failed.
No matter how tempting it is to believe that your radiology group is the best, it is important to determine what other groups do better. Through acknowledging that superiority and paying attention to the operations of others, a practice can learn a great deal concerning its own path to success.
In considering any expansion, the practice must determine whether it really has the financial resources needed. The initial investment can often be found, but operational resources, including personnel and funding, may be harder to maintain.
New developments are being seen in information services in response to the needs of radiology. Managed service providers (MSPs) are an example; as more of radiology’s information technology moves to the Internet, practices must either incur much of the cost of that migration directly or pay companies to perform their network-management, web-hosting, security and security-monitoring, archiving, and disaster-recovery functions. It may be preferable for a practice to obtain these services through contracts instead of building these functions into its daily operations by itself. The emerging, rapidly changing industry that provides these services appears to offer considerable cost efficiency and to allow practices to remain up to date (through ongoing upgrades) without high initial investments. MSP services are available at various levels of complexity and cost, based on the client’s needs; for some clients, MSPs do a tremendous amount of work. MSPs are used heavily in the banking and credit-card fields, where clients pay a premium to have the MSP support and monitor a very high number of transactions. MSP use allows the radiology practice to obtain help in managing its wide-area network and virtual private network.
Practices need to look at information technology as a means of furthering operational improvement. It is necessary to improve the efficiency of physicians because they are the most expensive employees of a practice.? Most of the time, they should be reading films. This is made possible by technologies that move the images to the physician instead of moving the physician to the images. Teleradiology and PACS are the means of obtaining and benefiting from this access to images.
Information technology can also promote operational improvement through report delivery to referring physicians via web access or email, as well as through Internet-based eligibility verification, claim status checking, claims editing, and electronic filing. Expansion may sound more exciting than these investments, but such technologies can help make later expansion a reality by improving efficiency.
It is necessary to maintain an ongoing awareness of technological developments. The use of artificial intelligence for coding is now undergoing beta testing in radiology practices, and this ability appears to be reaching a level of considerable refinement. While oversight coders (perhaps at off-site locations) will still be needed to check the work of the coding systems, overall coding costs may decrease significantly.
Telemedicine and online patient visits are now beginning to gain reimbursement. Teleradiology has been fortunate in being reimbursable for some time, but telemedicine has not. Some California insurance plans are now recognizing telemedicine patient visits as reimbursable. This is a trend to watch, as is Internet access to major payors.
PLANNING FOR COMPLIANCE
Radiology is already one of the most heavily regulated industries in the United States, but I can guarantee that the Health Insurance Portability and Accountability Act (HIPAA) will be the single largest operational initiative of a radiology practice administrator’s career. Compliance is mandatory, and it is 75% administrative (only 25% technical). Documentation is one of the most frequently encountered words in the HIPAA regulations. HIPAA compliance can be built on the practice’s fraud and abuse compliance program, if it has one in place; those practices having such programs will see less extreme changes, but HIPAA will, nonetheless, represent major change for all US radiology practices.
HIPAA transaction standards are due in October, 2002; privacy standards, in April, 2003; and security standards, after that. HIPAA affects radiology practices throughout their businesses: in patient registration and flow (because of privacy issues); hiring and firing (in the granting, removal, and documentation of removal of access codes); training and its documentation; billing and collections, in terms of how information moves; how, where, and when people use equipment; formal disaster planning and its documentation; and communication with other providers, patients, health plans, nonmedical business associates, and regulatory agencies. Teleradiology audits and verification are required by HIPAA, along with formal teleradiology disaster planning. Downloads of hospital demographic information will be affected and must be made secure; some hospitals are already refusing to permit them.
Practices can prepare for the HIPAA transaction standards by talking to their billing-system vendors to determine their progress, in terms of formats and data sets. Vendors should be asked when they will begin testing the changes that they have made, and practices should now begin cleaning their databases in the same way that they would if they were about to undergo a computer conversion. HIPAA preparation may also call for leadership training and baseline assessment, along with gap analysis (to determine the distance between compliance and current procedures).
Formal planning does take time and discipline. The first time that the practice goes through the planning process will be the most difficult. A month spent on fairly intensive planning, however, will pay off for the entire year that follows, if not longer.
Patricia Kroken, FACMPE, is president of Healthcare Resource Providers, LLC, Albuquerque, NM, and immediate past president, Radiology Business Management Association. This article has been excerpted from Strategic Planning for the Radiology Group Practice, which she presented at eMed?s Business of Radiology seminar in Flushing, NY, on June 20, 2001.