Accounting Advice for Radiology Practices

April 23, 2015

This edition of the Business of Radiology series focuses on accounting in radiology.

Editor's Note: It’s no longer enough for radiologists to be imaging experts. Health care is becoming big business and radiologists need to understand how to navigate the system. Diagnostic Imaging’s Business of Radiology series provides radiologists with the business education they need to succeed.

Throughout radiology, there’s no shortage of hand-wringing about slashed reimbursements and shrinking bottom lines. New requirements and regulations on the horizon could further endanger your balance sheet.[[{"type":"media","view_mode":"media_crop","fid":"34506","attributes":{"alt":"Business of Radiology","class":"media-image media-image-right","id":"media_crop_5038510797859","media_crop_h":"0","media_crop_image_style":"-1","media_crop_instance":"3676","media_crop_rotate":"0","media_crop_scale_h":"0","media_crop_scale_w":"0","media_crop_w":"0","media_crop_x":"0","media_crop_y":"0","style":"float: right;","title":" ","typeof":"foaf:Image"}}]]

But, according to industry experts, proactive, thorough accounting strategies and choices can help keep your group or practice afloat.

“Accounting procedures are important because profit margins are declining every year due to Medicare cuts and strategies that payers are employing,” said David Yousem, MD, neuroradiology director, program development vice chairman, and radiology professor at Johns Hopkins Medical Institution. “Mind your Ps and Qs or else you won’t have a profit margin.”

Studying your expenditures and income might frequently take a back seat to your concerns over patient care and quality, but it isn’t something you can ignore, he said. Knowing how to categorize your financial activities and your business model, as well as taking a close look at your daily activities can make the difference in your practice’s monetary health and growth.

Accounts
To keep your balance sheet up-to-date and accurate, the Radiology Business Management Association (RBMA) recommends tracking your various expense accounts.

Physician expenses: These include salaries, benefits, and other expenses that relate to individual physicians in the practice. They can be either partners or employees. These expenses can also include bonuses, continuing education, cell phone expenses, professional liability insurance, meals, and entertainment.

• Operating expenses: This account should contain expenses that operate the non-imaging center portion of your practice – those that aren’t related to physician or general administrative expenditures. Expenses for this account could include physician secretary salaries, courier expenses for outside reads, and marketing or promotion costs for advertising the practice’s professional component.

• Billing department expenses: These entries are related to the practice’s professional and technical component services, including salaries and benefits for the employees who perform billing functions, clearinghouse fees for transmittal of claims and fees for bank lockbox charges. If you contract any outside billing company services, record those expenses on this account as “billing fees.”

• Imaging center/other site expenses: This cost center should include expenses for operating your imaging center(s) and any other clinical service site, such as salaries and benefits for technologists, contrast, medical equipment leases, and imaging center marketing and promotion. Vascular, pain management, or other service sites that don’t traditionally fall into an imaging center category can be included here.

• Administrative expenses: This account catches the general administration expenses that don’t fit into the other expense accounts. Put accounting services, payroll service fees, and non-lockbox bank service charges here, along with the salaries and benefits for your general administrative employees.

Accounting Entities
The type of entity your practice or group opts to be can be a highly individual decision. In some cases, said Yousem, who has presented on radiology accounting practices, the choice will depend on the size of your organization. In other instances, your decisions about taxes might weigh more heavily.

• C Corporation: This is a regular corporation through which you file annual income taxes and pay taxes on taxable income. Any stockholders would pay an additional tax on dividend distributions.

• Partnership/Pass-Through Entity: With this choice, your group will file annual tax returns, but it won’t pay income taxes. Investors receive a Form K-1 that reports the percentage share of each income and deduction per investor. Investors must, then, report their share of income and deductions on their respective tax returns.

• S Corporation: To qualify as an S Corporation, you must have 75 or fewer stockholders, and you can only have a single class of stock – no common or preferred stock. Your shareholders will have limited liability, investing at their own risk. In the case of any medical malpractice cases, the corporation’s assets – not those of the investors – would be available for collection.

• General/Limited Partnership: In general partnerships, any number and type of partners are allowed. They are fully liable for partnership debts, and they may have to contribute additional assets to satisfy any debts. In limited partnerships, there can be one main partner and several limited partners. The limited partners are only liable for debts up to the amount of their investments.

• Limited Liability Companies (LLC): This type of entity is a mix between a C Corporation and a partnership. If it contains more than one partner, it can be taxed as either. If only one partner exists, the entity can be taxed as a C Corporation or as a “disregarded entity” – one that can either be treated as separate from or a part of its owner. Income and deductions are reported on personal tax returns, and members are liable only for the amount of their individual investments. There’s no requirement that members have general liability for LLC debts.

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If you don’t do it already, it’s time to take a deep dive into your billing and coding data at the CPT code level, said Melody Mulaik, president of Atlanta-based Coding Strategies, Inc. Taking a look at your activities in this detail will give you a clear idea of where any problems or aberrations exist.

“You have to do these internal reviews,” she said. “If you expect to see more of something, but you don’t, you can figure out whether you’re not doing those studies or whether you are without coding it properly.”

Mulaik suggested taking 10 to 15 monthly encounters and following them through your entire billing and coding process – from the ordering process to the receipt of payment. Focus on your higher paying modalities – CT, MRI, PET. Not only is a higher dollar amount attached to these studies, but they’re also more likely to present any medical necessity issues you should address.

“You have to be willing to have a look at your data and make an honest assessment of what it means,” she said. “Then, you have to have an honest discussion about it.”

Although your big-ticket scans bring in significant revenue, Yousem said, don’t forget about the less profitable studies. In some cases, they can be equally or even more important. For example, mammography is typically considered to be a loss-leader in radiology. But, it frequently leads to other, more highly-reimbursed tests, including breast ultrasound, MRI, or tomosynthesis.

Talk to Referring Physicians
It’s never been more important to have open communication with your referring physicians, Mulaik said, especially with ICD-10 looming in the near distance. If you don’t already have an open dialogue with them, get one started. Identify any challenges with the relationship and devise a plan for improvement, including forgoing working with them in the future.

“You don’t want business just for business sake. You want good business,” she said. “You might be fearful of losing physician business, but if you aren’t getting paid for what you do for them, do you really want to hold on to that?”

You also have to ensure your referring physicians are proficient with clinical decision support (CDS). If not, you’re going to lose money. As of Jan. 1, 2017, under the Protecting Access to Medicare Act, you won’t be paid for outpatient, non-emergent services rendered if your claims don’t include a number that proves the referring physician consulted a CDS tool.

Equipment
Whenever possible, Yousem said, avoid conducting studies on equipment owned by your referring physicians. In doing so, you’ll collect only the professional fee – the technical fee will go the clinician. The quality of your work will also improve, he said, if you’re using your own machines.

“Existing studies show when radiologists own and operate their own equipment that image quality is better, radiation safety is better, and radiation dose is improved,” he said.

ICD-10 and Cash Flow
The latest coding version has been long-talked-about, and implementation is just around the corner. As of Oct. 1, the Centers for Medicare & Medicaid Services (CMS) will require you to submit claims under the more-detailed, documentation-heavy ICD-10 system. You will likely experience a temporary drop in revenue, said Sandy Coffta, a practice manager at Pennsylvania-based radiology billing management company Healthcare Administrative Partners, and you must be prepared to absorb that loss.

“When the industry converts, you’ll see a drop in production to meet the increase in documentation requirements, and you’re likely to see delayed revenue,” she said. “You should look ahead at increasing your cash reserves in preparation for implementation.”

Currently, most practices see a 3% claims denial via CMS for medical necessity and diagnosis issues. Under ICD-10, the agency predicts that number could spike to between 6% and 10%, so you should look closely at your current denials and calculate what the potential lost or delayed revenue could be. Your biggest problems will come from private payers who aren’t as prepared for the switch as Medicare will be, she said.

To cushion yourself, Coffta said, avoid any large expenditures in July or August, and watch for when your medical malpractice payments come due. Try to maintain at least one-to-two months of cash on-hand. Yousem echoed this measure – having the money available, he said, can help you meet payroll during times when reimbursements are sluggish.

Examine Your Contracts
The size of your practice might determine how well this strategy works for you. But, if you conclude you’re receiving reimbursements lower than Medicare standards from private payers, ask for a contract renegotiation, Coffta said. Smaller and independent groups will have greater difficulty in negotiations than will larger, hospital-based practices.

Examine your top 50% of claims and compare what your private payers send you versus Medicare. If they’re paying you less, consider requesting a contract negotiation. Don’t worry that a nearby competitor might undercut you by accepting a lower reimbursement rate, she said.

“It doesn’t hurt to ask because sometimes you don’t realize that you’re already the person getting reimbursed the least,” Coffta said. “Maybe you won’t get a fee increase. But, you might be able to negotiate better terms for dealing with complicated pre-authorizations or claims submission periods.”

Never accept an aggregate fee increase, however, she said. Any reimbursement bumps will likely be on codes you rarely or never use, and the rest will stay stagnant or fall. It’s possible, she said, for a 5%  aggregate increase to work out to an overall 3% dip in payment.

Take PQRS Seriously
For nearly a decade, the Physician Quality Reporting System (PQRS) has been an incentive program designed to get providers to coordinate care in ways that improve both care quality and patient safety. As of 2017, though, CMS will begin enforcing a penalty on practices and providers who don’t report their activities.

“PQRS penalties are getting bigger. What used to be an incentive is now all stick and no carrot,” Coffta said. “If you’re not tracking and reporting your quality measures in 2015, you face a possible 6% pay decrease from Medicare in 2017.”

Talk to an outside billing company or your hospital partners if you aren’t sure how to effectively participate. Remember that PQRS data is published and is publicly-available on Medicare’s Physician Compare website. Failing to comply with the program could put your hospital contracts in jeopardy and subject you to audits.

Be Proactive
Taking all these steps can be time-consuming, especially for small practices that are already juggling financial, patient care, and other practice management concerns, Mulaik said. But, making time for strategic planning is imperative.

Ultimately, she said, your practice will be on more secure financial footing if you are proactive about understanding and complying with all upcoming governmental regulations.

“Practices harm themselves when it comes to compliance because many people aren’t focused on it. Compliance is good business because you’re making sure you have all documentation for your services,” she said. “Radiology has to become more aware and involved in the business side of things.”