5 Steps to Increase Revenue at your Pain Management Practice

The physician practice acquisition and optimization market continues in full force.  Pain management practices are also in great demand and it’s important to understand the unique dynamics of this market.  This is the first of a series of articles to discuss pain management.  In this first article, Dr. Mandyam, an expert in pain management practice, discusses tips to optimize a pain management practice.

1. Know where to take your cases (posting in an office vs. ASC).

If you are partnered or have equity in an HOPD (Hospital Outpatient Department) or an ASC (Ambulatory Surgical Center), it is important to know where to schedule your cases.  There can be a significant service differential in the fee schedule in an office based setting versus an ASC or HOPD.  For example, in 2015, a two-level thoracic percutaneous kyphoplasty pays approximately $12,000 if done in an office-based setting. If this same procedure is done in a surgery center, your professional fee drops to about $735.00. Furthermore, reimbursement for multiple levels is bundled into a single payment for HOPDs and ASCs.

2. Negotiate your contracts with commercial payors

You do not simply have to accept the rates a commercial payor initially offers. Everything is negotiable. You may improve your odds of receiving better rates by enlisting in the services of a professional contract negotiator.  Many of these professionals are former employees of commercial payers and have experience being on both sides of the table.

3. Focus on your return patient visits.

Although new patients are vital to practice growth, it is usually less expensive to retain an existing patient rather than seeing a new patient. If you calculate the cost of marketing, more overhead dollars are spent bringing in new patients rather than retaining existing ones. A healthy pain management practice should have a patient retention rate of above 75%. These patients may require monthly follow up visits especially if opioid medication management is offered. Use patient satisfaction surveys if needed to find out which areas of your practice are affecting patient retention and fix these issues ASAP. Please keep in mind return patient visits generate income for your ancillary services.

4. Don’t forget your existing referral sources.

When marketing in the community to secure new potential referral sources, do not forget to keep tabs on your existing referral base. Sometimes your referring physicians may want to provide you feedback from time to time, and the only way you will know is if you meet with them regularly. This also keeps your name fresh in their heads when they send out their pain management referral.

5. Establish a relationship with the local hospital system.

By taking a few of your procedures to the local hospital, you are effectively building your brand. The nurses and staff members who work with you will see for themselves the high level of care you provide your patients. The physician break room is also a great place to market your services to other referring physicians in between your cases. Many large hospital systems own primary care groups and can effectively “steer” their referrals to you based on how much revenue you generate for them in terms of facility charges for your cases and any incoming referrals for hospital ancillary services like imaging or labs. When starting a new practice, some hospital systems may offer you a physician support loan as well as free marketing services.
Sri Mandyam, M.D.

How To Get The Maximum Price For The Sale Of Your Anesthesiology Practice

The biggest mistake that anesthesiologists make is that they wait until negative trends or catastrophic events occur in their groups before they decide to sell.  In the article, Should I Sell My Anesthesia Practice, I demonstrated that timing is the most important factor when considering whether to sell your anesthesia practice. The first step is to calculate the current and future value of your group; otherwise,  you will get the timing wrong and you will be underpaid by a strategic buyer.

Money is one motivating factor why anesthesiologists are selling their practices and Wall Street backed companies are buying these practices.  It is not unheard of for partners to earn up $1-2 million each on a transaction and continue working for compensations that exceed the national averages.  But the reason why buyers are interested in purchasing your group is because they can make considerably more money than you can while providing the same exact services. You need to know how much before you ever consider selling your group.

Here is an example:

Considering the example we used in our previous article:

Our Client’s Current Revenues

Our Client’s Future Revenues with the AMC

Increase

Revenues

$25,046,566

$48,089,407

$23,042,841

Units

932,862

932,862

Percent Private Insurance

59.6%

59.6%

Average Units Collected

$25

$48

$23 per unit more per case

 Numbers were multiplied by a factor to comply with Non-Disclosure Agreement

Assuming that each partner earns $650,000 per year, the partners would agree to a future compensation and assign a profit he/she is willing to sell to the buyer.  So, let’s assume in our example that the partners agree to a future compensation of $350,000.  Thus $650,000 (current compensation) = $350,000 (future compensation) + $300,000 (profit). The buyer offers a purchasing price that is a multiple of 7 times the profit (EBITDA) and agrees to keep the partners employed for at least 5 years. Thus, the partners are offered $2.1 million cash each. Sound great, but not so fast.

In this example, Anesthesiastat calculated that the buyer’s existing third party payer contracts (Aetna, Cigna, Blue Cross Blue Shields, United Health Care, and Cigna) would double the group’s revenues.  That’s right, the buyer was so much larger than the groups they were buying that they negotiated lucrative third party insurance contracts; we’ve seen rates 250% higher. If nothing changes with staffing, the increased contract rates would be in the form of profits for the buyer.  Furthermore, in some cases the buyer improves staffing ratios, reduces the cost of benefits and billing expenses.  Thus, profits grow even further.

Here is what would happen: The buyer purchase the group for 7x EBITDA. However, in terms of their lucrative insurance contracts, they could potentially afford up to 14x EBITDA. That’s just the beginning.  Looking at current stock prices, many publicly traded anesthesia management companies are trading for as much as 40 times earnings.  In essence, they buy the groups for 7x and sell it to the public for 40x.  So, would a multiple of 7 be such a great deal if this was your group and you had multiple potential buyers?

Beyond money, groups have many reasons to sell.  As we have discussed at length before, they may wish to reduce future management, billing and reimbursement risk.  The cost of investments in updated billing, compliance and quality reporting software may be too big a burden for small groups.  Many simply wish to offload the business side of anesthesia and focus on patient care.

At Anesthesiastat we are anesthesiologists first and consultants second.  We want our colleagues to get the maximum possible sales price and compensation package in a transaction.  So, we help you assess your value to the buyer, determine the right timing for a sale and work with you for the highest value possible in the transaction.  Contact us today so we can provide you further details.