Full Service Ancillaries Add Revenues, Expand Services, Broaden Patient Rolls

Becoming a “full service” ancillary provider for primary care or for certain special ties can not only generate profitable revenues for a medical group but also bring new patients into a practice and existing patients back in for more services.

A “core package” of seven popular ancillaries — lab, X ray, ultrasound, bone densitometry, mammography, CT scan and physical therapy — is usually viable for a primary care practice running 25,000 patient visits or more per year, says Bob Vogt, executive vice president for development of PriCare in Nashville. That usually means a practice of at least five providers.

The “contribution margin” or rate of profit (profits divided by revenues) for this seven sided package has proven to be about 35% in several instances, Vogt says. (The expenses used in calculating the margin include non physician personnel and benefits, contract providers, supplies, lease expenses, rent and several other categories.) The largest revenues and profits are drawn from lab services, some of which are actually outsourced. Usually the larger the operation, the higher the contribution margin.

PriCare, formerly a physician practice management company (PPMC) for rural primary care groups, has itself broadened the menu of services it offers to practices: management for a fee (without investing in practice assets), consulting, and setting up and managing ancillary services for primary care and specialty groups. It still is an equity model PPMC (asset owner and manager) for three primary care practices, but no longer purchases practice assets.

Some Groups Break Even in Two Months

As an ancillary developer/manager, PriCare supplies essentially a turnkey operation for primary care groups, Vogt says. Its functions include:

* Due diligence. A market check to be sure the services are needed at the practice location.

* Talking to insurers to be sure they believe the ancillaries are needed and will cover the services.

* Equipment. Find it, rent it and have it installed. Then re rent it to the physicians.

* Hiring staff and making sure they have the needed clinical and business skills.

* Training billing staff to handle ancillary claims.

* Funding working capital needs until the ancillaries start making money. This can run as much as $50,000.

Each situation is different; often the “rampup” is phased, so that different ancillaries are started over several months. In larger practices (about 15 physicians), profit ability can be reached in about two months; in smaller ones (about five physicians), about six months is a common time frame. The group must repay PriCare for this working capital loan, but no interest is charged. Using this service means “not risking physicians’ incomes to get the ancillaries up and running,” says Vogt.

Once the ancillaries are profitable, PriCare is paid a percentage of the profits, which Vogt did not disclose.

PriCare has assisted some non primary single specialty groups improve their ancillary offerings. It helped an ENT group establish a sleep lab and a surgery center. And it helped orthopedists set up in house rehab set vices, CT and MRI scans, and a surgery center.

Helping Primary Care to Be the Linchpin

Vogt says this approach to ancillary services is a key part of PriCare’s concept of primary care: a kind of “Walmart” strategy that “helps primary care to be the linchpin of medical care in a small community” This strategy might be possible only in a rural area or small city because larger population areas will usually have well established ancillary vendors, as well as specialists doing procedures that family physicians in rural areas often perform. These procedures and functions include:

* Industrial medicine. This includes physicals for workers, screenings such as mammograms, preventive medicine like flu shots, and of course treating work injuries and illnesses.

* Specialist procedures such as obstetrical care, colonoscopies, and basic orthopedic care.

* Pediatric care if needed in the community.

* Making space available for specialist appointments even if the primary care practice derives little or no financial benefit, in order to underscore its practice as an important medical care center:

One group that PriCare has worked with over several years has gone from 18,000 annual visits to 33,000 by applying these strategies. For instance, offering lab work has attracted new patients for physician care.

Contact Vogt at (615) 370 6517 or bvogt@pricare.com.

COPYRIGHT 2001 Atlantic Information Services, Inc.

COPYRIGHT 2003 Gale Group

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