Oates and Company Blog

Multi-physician practices seem like a slam dunk in terms of logistics, billing, and other administrative considerations. Once the overheads are in place, theoretically it should be easy for practices to add additional physicians. Yet many practices struggle to manage multiple physicians and/or clinical teams.

Multi-site medical practices have unique challenges when it comes to accounting. Because services are spread out over several sites as well as several physicians, it is necessary to capture the costs and revenues in a timely manner. Capturing this information is only the first step, however. What comes next – allocating it to the correct accounts and departments – can often be the real challenge.

Revenue allocation for multi-site, multi-physician practices can be done in a number of different ways. When collecting the revenue, it is very important to have it assigned to the site as well as to the physician that was responsible for generating the income. The accounting software must be able to assign the revenue no matter where the doctor is working when he charges the fee. In many practices with more than one site, doctors may, for example, work two days a week at one location and three days a week at another. Each site will need to be capable of correctly accounting for that doctor's work and revenue generated regardless of where the work was performed.

Cost centers help when dealing with multi-site practices. A cost center will track expenses for each location and each physician that is part of the medical practice. Overhead costs for each location can vary greatly and cost centers will clearly let the partners of a multi-site practice know where the costs are being generated and if they are in line with expectations. For example, if one site's costs are considerably higher than another site’s for any reason, the administrator will have the information to check into the problem.

Some expenses affect single locations – for example, a facility that handles x-rays would need to purchase x-ray equipment and hire an x-ray technician, whereas another facility would not – and some expenses affect all the locations of a medical practice – such as software or tax preparation. Determining what these costs are and allocating them to the correct site is important.

When a medical practice has the correct data from its multiple sites, it becomes easy to create a realistic budget based on the costs of the previous year. An accounting system should be used to collect all the information from each site and integrate it into a useable financial statement. This involves having a chart of accounts that will, when correctly set up, allow the reporting of profit and loss for each location and each physician as well as an overall income statement. Without an accounting system that covers all the sites, there is way to be positive that all bases are being covered.

Competition is useful because it can encourage practitioners to push past their perceived limits and reach higher levels of achievement. Over time, sustained competition will make practitioners better at providing medical services; the desire to succeed will encourage them to work on new skills and gain new qualifications. 

Internal competition, however, can be a double-edged sword. Even though encouraging competition is simple, encouraging the right kind of competition is not. Some forms of competition can strengthen multi-physician practices, but others can cause stress and strife among fellow physicians. Uncorrected, these forms of competition can lead to physician burn-out, which, if not addressed, will lead to serious problems with their performance.

To combat these potential problems, managers of multi-physician practices must learn to use the right methods of encouragement. For example, the threat or use of punishment can be used to encourage competition, but it’s an ineffective way to do so – punishment is counter-productive because of its negative impact on morale. Managers should instead use rewards because it positively impacts performance and, mostly importantly, a physician’s belief that he/she can try new things without fear of recrimination.

Rewards need not be expensive. In fact, one of the most popular rewards is verbal praise, particularly in front of others. Managers of multi-physician practices must make sure, of course, that their verbal praise toward one physician doesn’t also serve to belittle another physician – the goal is to encourage cooperative competition between their physicians rather than causing them to dislike and distrust one another. Certain rewards, like financial compensation, are almost guaranteed to inspire hostile interactions between participants. On the other hand, if a manager chooses to offer a financial bonus to all participants who exceed a certain level of achievement, a competitive spirit can be encouraged without sacrificing the cooperation that is essential to multi-physician practices.

The reward structure should be made clear to the all participants at the multi-physician practice. Physicians should understand both the nature of the reward and how to receive the reward. Furthermore, physicians should receive regular updates on their progress toward the goals. However, too much emphasis on the rewards can cause physicians to become stressed out, meaning that it is best for managers to keep the competition as light-hearted as possible.

Revenue sharing in a multi-physician practice is often done on a production based system. Production based pay gives the harder working physicians a larger slice of the earnings. Revenue allocation is also sometimes done based on a percentage of the revenue regardless of an individual's production. Both of these methods have pros and cons.

If the group is a single specialty group, both systems can often be used – a flat, smaller percentage divided equally and another portion based on production. This can depend on the type of specialty; if two doctors share the same specialty, equal payment can encourage them to back each other up; if one doctor is out sick or on vacation, the other doctor willingly steps up to help cover the workload.

In practices with multiples specialties, production based revenue allocation is an often used method. A large number of groups use receipts to measure productivity, where the direct costs are subtracted from the revenue and overhead costs are assigned. This system may seem fair but in areas of the country where most patients have low billable amounts, some physicians will be at  a disadvantage. This will require the group to find a way to balance the mix.

How expenses of the practice itself are divided among the group can have a huge effect on income distributions. If expenses are to be divided evenly, it would be best if all the doctors’ revenue is somewhat equal. The other option is to charge all expenses that can be tracked to the doctor who uses them. This, however, could cause physicians to start taking shortcuts to save money and could affect the quality of care given to patients.

Regardless of how the revenue allocation is decided, an accurate and understandable system must be in place. All members of the group need to feel that they are getting a fair share and no one should feel as if they are carrying the bulk of the load.

The challenges of running a private medical practice are numerous. Add multiple physicians to the mix, and the challenges multiply exponentially. Many doctors cite paperwork and administrative tasks as their biggest stressor and the largest drain on their time. As medical science has advanced, so has everything else involved with a medical practice – accounting, record keeping, and other paperwork.