An IPA for independent practitioners and licensed care providers needs to contribute to the membership’s understanding and skills for increasing both their practice capacity and operating margins.
The capacity objective is an exciting opportunity for generating more income. Each practice has a capacity to perform a volume of services. Setting aside for the moment the task of increasing volume capacity (another topic for a future post), let us take a hard look at the fixed and variable costs to operate the practice. That calls for determining the break-even point, where net billings equal the total operational cost. The billings that occur beyond the break-even point generally do not require additional fixed costs, but new variable costs will definitely be incurred with new patients. Additional revenues actually provide a high gross profit contribution as the fixed expense of staff, office and equipment, etc. has already been covered by the break-even volume of net charges. Every patient service thereafter is then “incrementally” more profitable than the first. So, practitioners who manage “availability” to provide the capacity for new services are handsomely rewarded. For example, an additional increase in capacity can drop new profit dollars to the bottom line.
A dynamic practice is understanding and tracking profit margins. This is done by dividing daily profitability by net billings to indicate a profit expressed as a percentage, and that is the financial measure of all the combined practitioners’ effort, risk, financial investment, time in education, etc. Profit is a necessity for viability, and it must be nurtured, increased, and understood.
This is important as your Management Services Organization (MSO) is confronting from the insurance companies new utilization management requests, new delivery formats, and reduced fee reimbursement. Together, we need to be on top of what we can control, especially our capacity and margins. For 2016, this is a critical factor to our shared expectations of success.
If you would like to learn more about PDA’s managed care contracting process for 2016, call 972-484-5888.
More to come…