Cases and Comments on Contracts

Practice Expenses: Now to See Thru the Smoke and Mirrors

by Robert V. West, MD JD FAAEM

Recent "public information" regarding EM practice expenses is derived from the Austin, Texas and Third Coast Emergency physicians as the result of their organized labor efforts. This data was released by the Seton Third Coast Emergency Physician's Association to breakout productivity and the costs of EM practice so that reimbursement could be equitably apportioned between management and labor. Considerable time and effort was spent procuring these numbers. The data appended here sheds some revealing light on the profits garnered and fees that are generated by EPs labors.

August 16, 2000
SETON THIRD COAST EMERGENCY PHYSICIANS ASSOCIATION'S ESTIMATE OF TCEP's PROFITS
March 1999 through February 2000

This is a revised Profit Estimate based on data obtained by the Seton Third Coast Emergency Physician's Association (TCEPA) from Third Coast Emergency Physicians (TCEP) and public records as of August 12, 2000. The numbers are for a rolling 12-month period between March 1999 and February 2000. Most of the calculations are based on actual data. Because TCEP has either refused to prove or obscured the data necessary to determine an exact profit number, some estimates were used in making the calculations. These estimates have been clearly stated and should be considered when reviewing the data. The Seton Third Coast Emergency Physician's Association can provide more information if requested. As far as TCEPA can determine, the data has been compiled accurately. Given TCEP's decision to white out summations and other important information on the data that they provided, TCEPA had to enter the data on a spreadsheet and use formulas to add the numbers. However, some quality assurance techniques were performed to attempt to assure the data was accurate.

As you can see, it is clearly possible to come up with a reasonable estimate of their profit. The business model and expenses are not complicated. Some of the assumptions are quite conservative. While open books would be nice, it is clear a substantial profit is being made off TCEPAs, patient care. This estimate is remarkably close to what TCEPAs other estimates have been using less accurate data and to which TCEP has only responded with comments such as "interesting numbers", "fascinating set of projections", "wildly speculative" and refused to correct the estimates with actual data.

 Excluding costs for billing at 10% of collections, malpractice office expense, and physician salaries as noted above. Based on aggregate collection rate of 57.72% extrapolated from collections for Jan 99 (See Note 6).

 Represents about $100,000/year/for 20 physicians or $8,333/month.

TCEP's estimated profit represents 28% of the gross collected revenue; physicians receive of collected revenue so they would be receiving 48.5% of what the working physicians receive.

Plus $102,000 In Payments For Directors Fees

Consider adding $300,000 for better billing rate of $7/chart; possible overstatement of malpractice insurance. In addition, two of the months in this 12-month average were at TCEPAs lower fee rate.

Note 1. The patient charges and average billings are actual numbers. The average billing is less than what it should be because the first two months are under the old fee schedule where the average charge was about 25% lower than the new fees. Therefore, the total billed would actually be higher.

Note 2. TCEPA excluded billings and revenue numbers from mid-level providers and also payments to physicians for this service. TCEPA also excluded TCEP's contribution for Medicare tax for these amounts. TCEPA would have had to make too many assumptions since TCEP whited out figures on PA salaries and their "administrative fee" for this service. TCEPA has to take their word for it that they are not receiving a profit for this and are passing it all to TCEPA.

Note 3. Payouts to physicians include bonuses, cafeteria plan, TCEP payments for social security, Medicare, workmen's comp, 401K.

Note 4. Malpractice. - TCEP stated that they paid $272,000 for Seton and Seton Northwest for the period January 1999 to May 2000; if prorated for 12 months it would be $192,000.

Note 5. Billing. - TCEPA was provided with two contracts from the billing company, a 1995 and 1999 contract. The 1995 contract had a fee of 13.5% of collections (was it inadvertently left or deceptively included?). The 1999 contract was supposed to have a better rate, however, TCEP conveniently whited that out. In addition, Term Billing has been instructed not to give us any information regarding TCEPA collections. TCEPA contacted a billing company that AAEM referred to us. This company offered essentially the same services for $7 a chart! TCEPA assigned a billing rate of 10% on our calculation. With revenue of 7.9 million, it comes to $790,000 dollars or $11.38 a chart based on 69,445 patients. At $7/chart or about 6.15% of collections or total cost of $490,000 we would save $300,000 or about $15,000 per physician. Unfortunately this information has been classified as "proprietary information" and TCEPA felt liberal in giving them 10%.

Note 6. Collection Rates. Using actual collections from seven physicians that provided us with data. The total collected for the month of January 2000 as of the end of June was 48.56% for Seton and 57.59% for Seton Northwest. 1995 collection data revealed that at the end of 6 months of collection efforts, 92.86% of total collections were received at Seton and 91.95% at Seton Northwest. Using this information, TCEPA extrapolated the eventual total collections at Seton to be 52.31% and 62.63% at Seton Northwest. These numbers may very well be less than the actual amount because TCEPA noted that at least for some physicians, significant late charges were added to the January billings many months later. In addition, the collection percent is based on the new fee schedule which reflects a decrease in percent billings collected versus the prior fee schedule. Given that the total billed was based on two months using the prior fee schedule, this would also cause an underestimation of the true amount collected.

Note 7. Office Expense. - In 1992 and 1993, when TCEP was only managing Seton and Seton Northwest, expenses were less than $60,000. There were no salaried non-physician employees. The extra costs of running TCEPs business in 2000 are related to expansion and running a large multi-hospital group. $60,000 is a liberal sum to run the group.

Despite "contract holders" denials that their management group skims usurious profits from the contract revenues and your fees, just look at the numbers and your charges. As in Austin, the only precise way to "solve the puzzle" would be for management "to open the books." AAEM has been making that challenge since its inception. The labor union in Austin has clearly made some inroads from which we can all learn. Emergency Medicine does not have to be a "flat rate" profession, it is only that way because of the reimbursement scheme that is imposed on us by most contract holders.