What Are You Worth? The Basics of Business in Health Care

Dana, an adult nurse practitioner, has been working for two years at a large, suburban primary care practice owned by the regional hospital system. She sees too many patients per day, never has enough time to chart properly, and is concerned by the expanding role of the medical assistants. She sees salary postings on social media and feels she is underpaid. She fantasizes about owning her own practice but would settle for making more money. She’s heard that some NPs have profit-sharing, but she’s not exactly sure what that means.

Kelsey, a PA, is looking for his first job out of school. He’s been offered a full-time, salaried position with benefits at an urgent care center, but he doesn’t know if this is a good deal for him or not. The family physicians there make $85,000 more per year than the PAs, although the roles are quite similar.

DOWN TO BUSINESS

The US health care crisis is, fundamentally, a financial crisis; our system is comprised of both for-profit and not-for-profit (NFP) businesses. Every day, NPs and PAs are making decisions that affect their job satisfaction, performance, and retention. Many lack confidence in their ability to make good decisions about their salaries, because they don’t understand the business of health care.1 To survive and thrive, NPs and PAs must understand the basics of the business end.2

So, what qualifies as a business? Any commercial, retail, or professional entity that earns and spends money. It doesn’t matter if it is a for-profit or NFP organization; it can’t survive unless it makes more money than it spends. How that money is earned varies, from selling services and/or goods to receiving grants, income from interest or rentals, or government subsidies.

The major difference between a for-profit and a NFP organization is who controls the money.3 The owners of a for-profit company control the profits, which may be split among the owners or reinvested in the company. A NFP business may use its profits to provide charity care, offset losses of other programs, or invest in capital improvements (eg, new building, equipment). How the profits are to be used is outlined in the business goals or the mission statement of the entity. There are also federal and state regulations for both types of businesses; visit the Internal Revenue Service website for details (www.irs.gov/charities-non-profits; www.irs.gov/businesses/small-businesses-self-employed).

HOW YOU GET PAID FOR SERVICES

As a PA or NP, you generate income for your employer regardless of whether you work for a for-profit or NFP business. Your patients are billed for services rendered.

If you work for a direct-pay practice, you collect what you bill directly from the patient, often at the time of the visit. A direct-pay practice does not have insurance contracts and does not bill insurers for patients who have insurance; rather, they provide a billing statement with procedure and diagnostic codes and NPI numbers to the patient, who can submit it directly to their insurer. If the insurer accepts out-of-network providers (those with whom they have no contract), they will reimburse the patient directly.

If you work in a fee-for-service or NFP practice, you may see patients who do not have insurance or who have very high deductibles and pay cash for their services. This does not make it a direct-pay practice. Also, by law, fee-for-service and NFP practices can only have one fee schedule for the entire practice. So, you can’t charge one patient $55 for a flu shot and another patient $25. These practices can offer discounts for cash payments at the time of service, to help reduce the set fees, if they choose.

TALKIN’ ’BOUT YOUR (REVENUE) GENERATION

To know how much you can negotiate for your salary and benefits—your total compensation package (of which benefits is often about 30%)—it is critical to know how much revenue you can generate for your employer.4 How can you figure this out?

If you are already working, you can ask your practice manager for some data. In some practices, this information is readily shared, perhaps as a means to boost productivity and even allow comparison between employees. If your practice manager is not forthcoming, you can collect the relevant information yourself. It may be challenging, but it is vital information to have. You need to know how many patients you see per day (keep a log for a month), what their payment source is (specific insurer or self-pay), and what the reimbursement rates are. Although reimbursement rates are deemed confidential per your insurance contract and therefore can’t be shared, you can find Medicare and Medicaid rates online. You can also call the provider representative from each insurer and ask for your reimbursement rates for your five or so most commonly used codes.

Another consideration is payment received (ie, not just what you charge). Do all patients pay everything they owe? Not always. Understand the difference between what you bill, what is allowed, and what you collect. The percentage of what is not collected is called the uncollectable rate. Factor that in.

Furthermore, how much do you contribute to the organization by testing? Dana works for a primary care clinic within a hospital system. Let’s assume her practice doesn’t offer colonoscopies or mammograms; how many referrals does she make to the hospital system for these tests? While she may not know the hospital’s profit margin on them, she can figure out how many she orders in a year. And what about the PA who works for a surgeon? Does he or she do the post-surgical checks? How much time does that save the surgeon, who can be providing higher revenue–producing services with the time saved? That contributes to the income of the practice, too! These are points you can make to justify your salary.

MIX IT UP

There is another major consideration for computing your financial contribution to the practice: understanding case mix. Let’s say your most common visit is billed as a 99213 and you charge $100 for this visit. You use this code 50 times in a week. Do you collect $100 x 50 or $5,000 per week? If you have a direct-pay practice and you collect all of it, yes, you will. If your practice accepts insurance, the number of patients you see with different insurers is called your case mix.

Let’s look at the impact of case mix on what you generate. ­Remember, it will take you about the same amount of time and effort to see these patients regardless of their insurer. Ask your practice manager what your case mix is. If he/she is not willing to share this information, you can get an estimate by looking at the demographics of your patient community. How many are older than 65? How many are on public assistance? Community needs assessments will provide you with this data; you can also check the patient’s chart or ask what insurance they have and add this to your log.

Now let’s explore how case mix impacts revenue, with three different scenarios (see charts). In Scenario 1, 50% of your patients have Medicare, 30% have Medicaid, 16% have third-party private insurance, and 4% pay cash (self-pay). In Scenario 2, 26% have Medicare, 0% have Medicaid, 64% have private insurance, and 10% self-pay. In Scenario 3, your practice is a direct-pay practice with 100% self-payers and a 0% uncollectable rate.

In Scenario 1, with a case mix of 80% of your patient payments from Medicare or Medicaid, you generate $3,006 per week. If you see patients 48 weeks per year, you generate $144,288. In Scenario 2, with a case mix of 74% of your patient payments from private insurance, you generate $3,969 per week. In a year, you generate $190,512. And in Scenario 3, with 100% direct-pay patients, you generate $5,000 per week or $240,000 per year.