Understanding Business Profitability With Changing Models of Wound Care Reimbursement

If wound care providers are going to successfully navigate the U.S. healthcare’s current transition they must ask themselves, “What’s the true impact on my business?” 

Understanding finances related to the reimbursement of chronic wound care was at one time fairly easy, whether we were working in private practice or a hospital system. We’d simply calculate revenue or income collected through a simple formula: Revenues = Price x Volume — meaning the more services or procedures we performed, the more money we collected. When we wanted to increase income, we could look at increasing the price of an item or service and/or increase the volume or the number of services we performed.   

As we move forward and transition from a fee-for-service model to value-based reimbursement, we as healthcare providers may all need to consider business courses in order to understand how we can remain financially viable and know how it might be best to thrive within this arena. What does profitability look like and what are the factors we should include when calculating the bottom line for our businesses?

With any service industry, one’s budget is going to be based on the fees they can charge for their products and/or services in relation to all the expenses they incur in order to maintain their business — such as costs needed to produce and deliver goods/services (eg, materials, staff members’ salaries) as well as costs needed to maintain the actual business (eg, insurance policies, property utilities/rent, maintenance of facility, cleaning services). Included in these costs are expenses that can be fixed or variable. However, with the transition this country’s healthcare system is undergoing — by which the most successful healthcare businesses will be determined by how well their patients are clinically — providers will not be able to determine what they should be charging for products/services based on what will best help them to meet their expenses, as can be said in many other lines of business that raise profits on the delivery of goods, products, and/or services. 

The purpose of this article is not to teach a class in finance but to help wound care providers ask themselves the appropriate questions in order to provide a self-assessment of their practice as clinicians as well as to gauge the potential profitability of their business given the standards imposed by the volume-to-quality shift in healthcare.

Efforts Toward Efficiency

The one constant that all providers in the healthcare industry know we need to do immediately is ensure that we’re determining where and how we can reduce our costs while continuing to provide high-quality patient care. Hospitals and physician practices must become more efficient by improving operational costs. Just as with the transition to ICD-10-CM — where coding had to become much more granular, more precise, and more detailed – our documentation has to contain laterality. We all need to know exactly what all our costs are in order to control our budgets and improve our financial margins. This includes taking into consideration what the use of a particular product, therapy, or modality costs and how each clinician’s practice pattern contributes to the overall margin throughout the process of care delivery? A clinician may appear to have a great volume of a particular resource, however if the utilization of said resource is not properly managed and tracked during inventory the use of that resource may not provide a positive contribution margin per case and will thus negatively impact net revenue.  

Weighing Outcomes on the Value Scale

Our healthcare system’s push toward value-based care also requires us to look at outcomes in relation to tracking quality measures. We all have the opportunity to work within a framework laid out by the Centers for Medicare & Medicaid Services (and other payers) to track quality measures that should be reported for the purposes of meeting required benchmark targets. Payers and employers are expecting clinicians and facilities to provide quality service at efficient costs. The penalty phase of the Physician Quality Reporting System (PQRS) is now in effect. There is a finite (or one) bucket of money from which we are all paid. This is essentially a fixed income. The system in place will use this fixed amount to reward those who are performing optimally by not imposing fines or penalties on these businesses. Those who are not meeting the standards set will have their income reduced by 2%, 4%, and 6%-9% as time moves on. Some providers may be telling themselves “PQRS is going to go away,” but before popping the cork on that imaginary celebration, consider the truth: Quality reporting is being rolled into the Merit-based Incentive Program (MIPS). Reporting and financial consequences appear to be intensifying and may likely remove those who are low performers from being able to participate in certain offered plans, or some clinicians may see that they are excluded from certain panels. It is unlikely, however, that any one entity can be head of the class for an extended period of time, so those who during a given year are at the middle or bottom of their class may see a change in order the following year. We all appear to be a moving target trying to hit a moving target, so wound care providers should take some enjoyment in learning the rules of this new “game” and take this time as an opportunity to really get to know and understand their business. 

Barbara Aung is a medical auditor and a surgical foot and ankle coder certified by the AAPC. She’s a member of the American Podiatric Medical Association’s coding committee and is a published author and national lecturer on topics related to documentation, coding, and billing. She has maintained a private practice located in Tucson, AZ, for more than 20 years and is a panel physician at St. Mary’s Wound Center - a Healogics facility - in Tucson.