practice management series 2004 - 2005
DESCRIPTION
ASCO Clinical Practice Series. Practice Management Series 2004 - 2005. Practice Management Curriculum. 1. Adapting to Changes in Medicare. 2. Generating Practice Efficiencies. 3. Organizing for Service Expansion. Who should attend. Physician Leader of the Practice - PowerPoint PPT PresentationTRANSCRIPT
Practice Management Series
2004 - 2005
ASCOClinical Practice
Series
1. Adapting to Changes in Medicare
2. Generating Practice Efficiencies
3. Organizing for Service Expansion
Practice Management Curriculum
Who should attend
Physician Leader of the Practice President of the PA, Founder
Practice Administrator CEO, Executive Director, COO
Contracting Officer Contract Administrator, Director of Billing
Clinical Manager Medical Director, Nursing Team Leader
After this session, you will be able to:
Express changes needed in the practiceUnderstand “investment mentality” and classify your practice in terms of investment potentialList the common characteristics of effective physician practice leadersUnderstand the relationship between the physician practice leader and the practice administratorApply simple self-assessment tools to position your group to take advantage of market changes today
The Old DaysMedian Per FTE Medical Oncologist
Compiled from MGMA Cost Survey through 2004 Report on 2003 Data. 2004 trending by third order polynomial by Oncology Metrics, LPW
hy Change?
R2 = 0.989
R2 = 0.9902
R2 = 0.9208
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Th
ou
sa
nd
s
Total Medical Revenue Total Operating Costs Rev. After Operating Costs
Eroding MarginsPer Oncologist with projections by Oncology Metrics
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
2000 2002 2003 2004 2005
Drug Cost Drug Revenue Drug Marginal Revenue
Why C
hange?
ThenNow
Why Change
Because we must change Population economics demand it
GDP growth can’t match Boomers’ march into SEER cohorts
Other sectors of medicine have done it DRGs, Cardiology, Radiology
Market dynamics support it“Everywhere the old order changes, and happy are those who can change with it.” Sir William Osler, 1895
Because it is wise to change
Developing Investment Mentality
Risin
g D
em
and
Increasing Market Share
?Problem Child Rising Star
Dog Mature Investment
Modified BCG Business Growth Matrix
$
Dog ? Problem Child
Practice sees a low % of new cancer cases in marketOverall market for cancer services is stagnant, shrinking, or being consumed by competitorsPresently failing, either rapidly or slowly and showing declining period-to-period revenueStagnation of capital investmentSusceptible to sudden closingsSmart dogs join up to form a dog pack
Typical of a new practice or outreach clinic in a new service areaOperations need investmentOffer the potential of rapid growthAlways have high costs initiallyMust be properly capitalized to keep from running out of money just before they take offShows real potentialHas a sustainable customer base
Mature Investment Rising Star
High market shareStable business with revenue growth driven by existing customers and productsWeak need or desire to innovate means low to no capital neededProfits are high and the contribution margin is also highMust maintain the strong market position as competition wants to enter and claim margin
Certain growth in demand for cancer servicesDeclining or stable number of providers able to meet increasing demandSignificant barriers to entry for new competitorsFinancing mechanism for many service buyersLegacy of inefficient operations offer significant process improvement opportunitiesPromising new technology offering significant opportunity for service line expansion
$
Evaluating Product and Service Lines for Additional Investment
1. In-house pharmacy is a Product Line2. Research is a Product Line3. Chemo. Admin. is a Service Line4. Patient E&M is a Service Line5. Laboratory is a Service Line6. RT is a Service Line7. CAT/PET is a Service Line
Investm
ent Mentality
??$
$
To execute growth, you must have Management
Physician Leader Seeing patients but on a reduced
schedule About .5 FTE physician One of the founders or otherwise senior
Active in hospital or community Can say “I don’t know, let me think
about that” Was (or is) the productivity leader Trusts the administrator
To execute growth, you must have Management
Administrator Trained – MBA, CPA, MHA Can read and write basic contracts Computer literate and analytically
proficient Can say “I don’t know, let me think
about that” Trusts the physician leader
To execute growth, you must have Patients
Counting the number of new patients that are seen in your practice is the starting point of most feasibility studiesNew patients are the denominator across which to leverage investment and costs1,500 new patients/yr. can generally support a CT and/or PET with reasonable margins
Investm
ent Mentality
New Patients / PhysicianAOHA/MGMA 2003 Report on 2002 Data
124
185
231
308345
442
0
50
100
150
200
250
300
350
400
450
10th %tile 25th %tile Median Mean 75th %tile 90th %tile
Building New Patient Flow:Physician Practice Leader’s Role
Promote and support the ability of the physician team to build and maintain a powerful referral system that will provide at least 400 new patients/year/physicianDesign clinical staffing pattern sufficient to support time for physicians to pay attention to referral patterns
Building New Patient Flow:Physician Practice Leader’s Role
Build partnership and pay policy that rewards individual and group efforts to build patient referralsRoutinely measure and discuss referral patterns.Support your administrator by not allowing staff to circumvent or undermine your joint initiatives
Building New Patient Flow:Administrator’s Role
Develop reliable ways to count new patients and their referral sourceMonitor and understand the insurance status of incoming patients looking for patterns by referral sourceReward front office staff for facilitating incoming calls from referrals sources to a physicianSupport your physician leader by not allowing staff to circumvent or undermine your joint initiatives
To plan for growth, you must have Managerial Measurement
Not for tax purposes You get to make estimates and judgments On an accrual basis Revenue is booked in the month it is generated Expenses are booked when they are incurred,
whether they are paid or not Example: malpractice insurance
Cash basis – paid in January, considered January expense
Accrual basis – paid in January, expensed 1/12 each month
To plan for growth, you must have Managerial Measurement
Balance sheet shows what you own and what you owe Profit & Loss Statement shows what you earned, (whether you have been paid or not) and what you bought (whether you have paid for it or not)
Sample Balance SheetAssets O-1 Q-2 Q-3 Q-4
Cash on hand $ 65,368
$ 45,633
$ 86,921
$ 98,211
Drugs on Hand $ 17,677
$ 21,543
$ 34,655
$ 38,121
Collectable Acc. $ 1,434,344
$1,355,677
$1,423,455
$1,435,677
Total Assets $ 1,517,389
$1,422,853
$1,545,031
$1,572,009
Liabilities
Owed for Drugs $ 4,596
$ 5,601
$ 9,010
$ 9,911
Notes Payable $ 26,544
$ 26,121
$ 25,698
$ 25,275
Payroll Liability $ 13,899
$ 14,522
$ 13,655
$ 13,775
Total Liabilities $ 45,039
$ 46,244
$ 48,363
$ 48,961
Practice Net Worth
$ 1,472,350
$1,376,609
$1,496,668
$1,523,048
Managerial measurements produce Financial Indicators that are:
Important to the bottom line
Easy and reliable Benchmarked on a FTE physician basis Tied to new patient accrual
Sample P&L Per Physician Revenue O-1 Q-2 Q-3 Q-4
Cash Collections $ 962,335 $ 921,566 $1,002,652 $ 978,522
Change in Coll. AR $ (54,211) $ (78,667) $ 67,778 $ 12,222
Total Revenue $ 908,124 $ 842,899 $1,070,430 $ 990,744
Cost
Drugs Used $ 553,644 $ 405,656 $ 668,388 $ 585,056
Labor Used $ 195,214 $ 214,735 $ 189,358 $ 212,783
Occupancy Costs $ 21,569 $ 23,726 $ 20,491 $ 21,353
Administration Cost $ 86,000 $ 94,600 $ 81,700 $ 85,140
Physician Labor $ 50,000 $ 50,000 $ 50,000 $ 50,000
Total Cost $ 906,427 $ 788,717 $1,009,936 $ 954,333
Revenue + or (-) Cost $ 1,697 $ 54,182 $ 60,494 $ 36,411
COGS
Beginning Inventory $ 105,622 $ 117,677 $ 211,543 $ 134,655
Purchases $ 565,699 $ 499,522 $ 591,500 $ 588,522
Ending Inventory $ (117,677) $ (211,543) $ (134,655) $ (138,121)
Drugs Used $ 553,644 $ 405,656 $ 668,388 $ 585,056
New Patients 35 36 49 51
Managerial Measurement:Physician Practice Leader’s Role
Learn to read your basic financial statements: Balance Sheet, P&L, Statement of Cash FlowsAfter you learn to read them, don’t insist that other physicians do the sameUnderstand how the basic financial statements inform your managerial measurements
Managerial Measurement: Physician Practice Leader’s Role
Be the one who reports managerial measures to the physicians of your groupOnly report the three managerial metrics you think are most important: for example New patients/FTE MD ytd. vs. goal vs. prior
period Revenue/FTE MD– ytd. vs. goal vs. prior period Cost/FTE MD - ytd. vs. goal vs. prior period
Support your administrator by not allowing staff to circumvent or undermine your joint initiatives
Managerial Measurement: Administrator’s Role
Learn to read your basic financial statements: Balance Sheet, P&L, Statement of Cash FlowsAfter you learn to read and understand them, review these regularly with your physician practice leaderUnderstand how the basic financial statements inform your managerial measurements
Managerial Measurement: Administrator’s Role
Be prepared to provide supporting details when the physician leader reports managerial measures to the physicians of your groupDouble check the managerial measures to make sure they agree with the basic financial statements and are consistent with past reportsSupport your physician leader by not allowing staff to circumvent or undermine your joint initiatives
To execute growth, you must have Capital
All business expansion requires capital investmentAll business expansion that is properly executed supports both the cost of capital and repayment of capitalROI means “Return on Investment”
To execute growth, you must have Capital
IRR means “Internal Rate of Return”Retained Earnings are the source of most business capitalDebt is a tool of expansion
Investment M
entality
Understand the clinical drivers behind all capital investmentsAssure yourself that new patient referrals are not threatened by capital projectsTalk to other physicians who have made similar decisions and learn from them
Capital Resources:Physician Practice Leader’s Role
Be the financial spokesperson to your groups’ physiciansExplain the need to create capital reserves and retain earningsBe willing to equitably shoulder capital riskSupport your administrator by not allowing staff to circumvent or undermine your joint initiatives
Capital Resources:Physician Practice Leader’s Role
Capital Resources: Administrator’s Role
Perform all analysis for new product line development Capital requirements, affect on referral
relationships, cash flow, and staffing needs
Development convincing managerial measurements that inform capital decisionsEstablish banking relationships and instruments that cushion practice from capital shocks
Capital Resources: Administrator’s Role
Plan a margin of safety into every capital projectEstablish an internal “Hurdle ROI” and only recommend projects that are above that rateBe willing to equitably shoulder capital riskSupport your physician leader by not allowing staff to circumvent or undermine your joint initiatives
“Risk comes from not knowing what you’re doing.”
Warren Edward Buffett (1930- ), Reasonably successful American financier, chairman of Berkshire Hathaway Inc.
Why do all of this?Why do all of this?