The Bottom Line Medicine Clinic Gregory J. Gepner, MD, Asst. Professor Dept. of Family Practice, Univ. of Minnesota
Abstract: The financial experience of an actual medical practice was used to develop a spreadsheet model of the business of medicine. The model is designed to provide reasonably accurate predictions of the financial outcome of business decisions affecting the practice. It has been used very successfully to teach practice management to senior residents in Family Practice training at the University of Minnesota. Students are placed in the role of a managing partner presented with afinancially ailing practice, and asked to suggest business decisions which might salvage the situation. The model instantly and convincingly presents the impact of such decisions on the "bottom line". The entertaining and interactive format have made this one of the most popular offerings in our practice management
curriculum. The Need: How to teach practice management skills to residents? Medical practitioners newly fledged from their training programs are highly skilled in the management of the medical problems of their patients. Unfortunately, they are quite lacking in skills needed to manage the business of private medical practice. Few new physicians "hang out their shingle" and start a new practice. But even if they choose to enter an established practice in which management expertise already exists, their naivete about the business of medicine may make them prey to partners, managers, insurers, consultants, and others.
The Tool: When is a financial statement not a financial statement? (Answer - When it is a model.) Until 1984, the author was the managing partner of a small practice, which provided a decade of experience in making correct and mistaken business decisions. Certain potentially modifiable features in the structure and setting of this practice were apparent which powerfully influenced the practice's financial health. Such features include: the number and types of
practitioners, the complement of non-practitioner clinic staff, the mix of insurance payors, and the charge for office visits and other services. In turn, specific sources of income and expense could be calculated from these controlling variables by means of formulas derived empirically through the experience of operating the clinic. Such formulas may be extremely simple or more complex, e.g: - Accountant Expense= 180 - Liability Insurance = #MDs x 500 - Postage = 0.29 x (patients/nio) x (1- fx HMOpts) - Salaried MD Wage = MAX (3000, .4 x Charges) - Visits=488x(#MDs x %active + #NPs x %active)
Many medical specialty organizations have recognized this need and have begun to develop curriculum for teaching residents something of the business of medicine. The American Board of Family Practice, for example, requires 60 hours of practice management education.
This topic area has been challenging for the teacher. One effective way to teach might be to involve residents in the management of their own training clinics. However, many specialties provide relatively little of their training in the outpatient setting. Even where this does occur, such clinics by their very nature as training programs, operate with a style of practice and under financial constraints very different from private practice. In addition, residents are often focussed on acquiring medical knowledge and view business skills as irrelevant to their needs. Faculty who teach this subject have learned the necessity of convincing their students that managing a practice is one of the things that "real" doctors must do.
0195-4210/91/$5.00 ©) 1992 AMIA, Inc.
897
As in spreadsheets generally, formulas build upon one another, creating a network of interrelated calculated variables whose results comprise the lipe items on the financial statement. Expressing line items as formulas rather than fixed numbers is what allows "BOTTOMLINE" to function as a model: when one of the controlling variables changes, a new value is instantly recalculated for all the dependent income and expense items.
Figures 1 and 2 describe the Bottom Line Medical Clinic as it is presented to students. "Practice Characteristics" (Fig.1) describes the MD and nonMD staff of the clinic, their full- or part-time status, salaries and, in the case of the practitioners, the rate at which they charge for their services. Also shown is the clinic's payor mix, the part of total charges attributable to each payor, and the clinic's collection ratio (i.e. percent of charges collected) for that payor.
"Financial Statement"(Fig.2) has the format of an Operating Statement (aka "Income and Expense Statement") such as partners would review monthly to assess the financial health of their practice. It shows statistics on the practice's activity, income generated fom that activity, and expenses which must be paid out of generated income. Whatever money is left after the expenses are paid is what the partners get to take home, the "bottom line".
The Lesson: Can this practice be saved? 1. A brief introduction is given, suggesting that business decision-making skills may be as important to a physician's practice as medical decision-making.
2. Students are introduced to the BottomLine Medical Clinic, a small but dynamic practice in a lovely rual Pacific Northwest setting. The features of this practice such as might interest one of our residents looking to join it are outlined, per Fig.1.
7. A final scenario is run in which proposed solutions are not taken singly, but rather the thee or four best proposals are all implemented. Students have the satisfaction of seeing that they have indeed accomplished their "mission impossible" and saved this practice. They have become successful business decision-makers. In addition, they have learned something of the running of a practice and something about spreadsheet modelling and the potential usefulness of computer tools in the business of
medicme. 3. The financial statement of the BLMC is shown, per Fig.2, with discussion of the sources of income and categories of expense which determine the financial success of a practice. This particular practice is doing very poorly, the partners taking home barely enough to meet their peronal expenses. 4. Using a microcomputer running a standard spreadsheet, and a computer projector to allow the entire group to view the display, students are shown the financial statement identical to Fig.2, but with an important difference: line item values are not numbers but rather the product of formulas which lie hidden beneath the surface of the spreadsheet. Samples of such formulas are shown in order to demonstrate how the spreadsheet works, and more importantly to convince the students that the formulas make sense, at least for this practice.
5. To demonstrate how the spreadsheet can model changes in the practice, a sample scenario is run: "What if one of the partners gets fed up and leaves"? The single change of decreasing from 2 physicians to 1 produces a cascade of changes in income and expense items which directly or indirectly depend on this variable. These changes add up to a new "bottom line", which proves to be even more disastrous than before.
6. The students are now presented with their "Mission Impossible": what business decisions might be made to save this practice from its current sad state? With regularity, the students suggest ideas such as hiring another MD or nurse practitioner, cutting staff salaries and other expenses to the bone, raising charges, discontinuing care for Medicare and MA patients, working the doctors harder, or buying equipment to increase efficiency (such as a billing computer) or equipment to generate more charges, such as lab equipment, a colposcope, etc. Each such solution is run on the spreadsheet and evaluated in terms of its impact on specific income and expense items and its impact on the bottom line. The plan's impact on intangibles such as patient satisfaction, physician reputation, and physician lifestyle also receive some discussion.
The Outcome: Student perceptions This exercise will not produce experts at practice management. The intent is more modest than to render our residents able to swim with the sharks. Rather, it is hoped that they will have learned of the existence of the ocean, and the beginnings of the navigational skills needed to avoid reefs and shoals. We have made no attempt to assess business knowledge or skills or to look at the success of residents after they enter practice. We have tried to evaluate residents' comfort with practice management issues, and have assessed the extent to which they find this curriculum worthwhile.
Our residents have told us that this material is relevant to their needs. Though the numbers of physicians in small group entrepreneurial practice may be shrinking, the complex market forces and new constraints on practice make business knowledge more, not less, important. Even those residents who expect to work in settings employing professional non-physician managers recognize the danger of abdicating these decisions to others, and acknowledge the need for close, informed supervision. That the simulation is rooted in the problems facing a real practice gatly enhanced its feeling of relevance. Our residents have told us that this presentation is eniorable. The fascinating high-tech tools, the challenge of coming up with solutions to a real problem, and above all the interactive style of presentation, all combined to make this one of the most popular segments of the practice management course.
Finally, residents tell us that this presentation is empowring. It gives a stimulating glimpse of other worlds to conquer: residents have gone on to do projects on computer modelling, business-related issues, etc. More important, they return to their own residency clinics feeling newly capable of assessing and solving problems in their own setting. Later, when they begin to evaluate and select their future practice, it is with clearer expectations and more confidence in their own abilities to exercise a role in the practice's running.
898
Fig.l - Bottom Line Medicine Clinic Practice Characteristics
STAFFING MD Partners MD Salaried
Nurse Practitioner
Eig2 - Bottom Line Medicine Clinic Financial Statement
ACTIVITY Outpatient Visits / mo Inpatient Visits / mo Lab & X-ray Procedures / mo OB Deliveries / mo
# FrEs
2 % Schedule full 100%
0 #FrEs % Schedule full 100% Wage/mo (ea) $3000
INCOME Gross Charges Collection ratio Net Income from Services Other Income TOTAL INCOME
# FrEs 1 % Schedule full 100%
Wage/mo (ea) $2100 Staff
4 #FrEs Wage/mo (tot) $4900 Wage Adjuster 100%
EXPENSE Pesonnel MD Salaries NP Salaries Staff Salaries Employee Benefits Liability Insurance Building Rent Custoda Services Utilities & Phone Premises Insurance Equipment X-ray machine Loan Equipment Leases Repair & Maintenance
PAYMENT SOURCES
Private Insurance
charges: collections: 50% 85%
HMO & PPO
30%
75%
Medicare/MA
15%
50%
No Insurance
5%
90%
100%
7 7%
CHARGES MD limited (15min) visit, clinic
S20
Tot
MD limited (15min) visit, hospital
Depreciation
Supplies Office Supplies
$ S25
Postage NP limited (15min) visit, clinic
Medical & Lab Supplies 732 Services Outside Laboatory Answering Service Transcription
3 15
Charge Adjuster 1( 06 HOURS regular hours (M-F 9:00-12:00AM,1:30-4:30PM)
15
extended hours
0
day off hours (each doctor)
3
Total clinic hours weekly (per doctor)
Accountant Othe Tax / Licenses / Dues Marketing TOTAL EXPENSES
27
899
1464 46 586 10
31,116 .77 23,959 200 24,159
0 2100 4900 910 1000
3000 300 750 140
900 150 150 1380 366 161
1713 80 439 180
190 60 19,601
NET PRACTICE INCOME
4358
PARTNER'S SHARE (/FE)
2179
Abstract: The financial experience of an actual medical practice was used to develop a spreadsheet model of the business of medicine. The model is designed to provide reasonably accurate predictions of the financial outcome of business decisions affecting the practice. It has been used very successfully to teach practice management to senior residents in Family Practice training at the University of Minnesota. Students are placed in the role of a managing partner presented with afinancially ailing practice, and asked to suggest business decisions which might salvage the situation. The model instantly and convincingly presents the impact of such decisions on the "bottom line". The entertaining and interactive format have made this one of the most popular offerings in our practice management
curriculum. The Need: How to teach practice management skills to residents? Medical practitioners newly fledged from their training programs are highly skilled in the management of the medical problems of their patients. Unfortunately, they are quite lacking in skills needed to manage the business of private medical practice. Few new physicians "hang out their shingle" and start a new practice. But even if they choose to enter an established practice in which management expertise already exists, their naivete about the business of medicine may make them prey to partners, managers, insurers, consultants, and others.
The Tool: When is a financial statement not a financial statement? (Answer - When it is a model.) Until 1984, the author was the managing partner of a small practice, which provided a decade of experience in making correct and mistaken business decisions. Certain potentially modifiable features in the structure and setting of this practice were apparent which powerfully influenced the practice's financial health. Such features include: the number and types of
practitioners, the complement of non-practitioner clinic staff, the mix of insurance payors, and the charge for office visits and other services. In turn, specific sources of income and expense could be calculated from these controlling variables by means of formulas derived empirically through the experience of operating the clinic. Such formulas may be extremely simple or more complex, e.g: - Accountant Expense= 180 - Liability Insurance = #MDs x 500 - Postage = 0.29 x (patients/nio) x (1- fx HMOpts) - Salaried MD Wage = MAX (3000, .4 x Charges) - Visits=488x(#MDs x %active + #NPs x %active)
Many medical specialty organizations have recognized this need and have begun to develop curriculum for teaching residents something of the business of medicine. The American Board of Family Practice, for example, requires 60 hours of practice management education.
This topic area has been challenging for the teacher. One effective way to teach might be to involve residents in the management of their own training clinics. However, many specialties provide relatively little of their training in the outpatient setting. Even where this does occur, such clinics by their very nature as training programs, operate with a style of practice and under financial constraints very different from private practice. In addition, residents are often focussed on acquiring medical knowledge and view business skills as irrelevant to their needs. Faculty who teach this subject have learned the necessity of convincing their students that managing a practice is one of the things that "real" doctors must do.
0195-4210/91/$5.00 ©) 1992 AMIA, Inc.
897
As in spreadsheets generally, formulas build upon one another, creating a network of interrelated calculated variables whose results comprise the lipe items on the financial statement. Expressing line items as formulas rather than fixed numbers is what allows "BOTTOMLINE" to function as a model: when one of the controlling variables changes, a new value is instantly recalculated for all the dependent income and expense items.
Figures 1 and 2 describe the Bottom Line Medical Clinic as it is presented to students. "Practice Characteristics" (Fig.1) describes the MD and nonMD staff of the clinic, their full- or part-time status, salaries and, in the case of the practitioners, the rate at which they charge for their services. Also shown is the clinic's payor mix, the part of total charges attributable to each payor, and the clinic's collection ratio (i.e. percent of charges collected) for that payor.
"Financial Statement"(Fig.2) has the format of an Operating Statement (aka "Income and Expense Statement") such as partners would review monthly to assess the financial health of their practice. It shows statistics on the practice's activity, income generated fom that activity, and expenses which must be paid out of generated income. Whatever money is left after the expenses are paid is what the partners get to take home, the "bottom line".
The Lesson: Can this practice be saved? 1. A brief introduction is given, suggesting that business decision-making skills may be as important to a physician's practice as medical decision-making.
2. Students are introduced to the BottomLine Medical Clinic, a small but dynamic practice in a lovely rual Pacific Northwest setting. The features of this practice such as might interest one of our residents looking to join it are outlined, per Fig.1.
7. A final scenario is run in which proposed solutions are not taken singly, but rather the thee or four best proposals are all implemented. Students have the satisfaction of seeing that they have indeed accomplished their "mission impossible" and saved this practice. They have become successful business decision-makers. In addition, they have learned something of the running of a practice and something about spreadsheet modelling and the potential usefulness of computer tools in the business of
medicme. 3. The financial statement of the BLMC is shown, per Fig.2, with discussion of the sources of income and categories of expense which determine the financial success of a practice. This particular practice is doing very poorly, the partners taking home barely enough to meet their peronal expenses. 4. Using a microcomputer running a standard spreadsheet, and a computer projector to allow the entire group to view the display, students are shown the financial statement identical to Fig.2, but with an important difference: line item values are not numbers but rather the product of formulas which lie hidden beneath the surface of the spreadsheet. Samples of such formulas are shown in order to demonstrate how the spreadsheet works, and more importantly to convince the students that the formulas make sense, at least for this practice.
5. To demonstrate how the spreadsheet can model changes in the practice, a sample scenario is run: "What if one of the partners gets fed up and leaves"? The single change of decreasing from 2 physicians to 1 produces a cascade of changes in income and expense items which directly or indirectly depend on this variable. These changes add up to a new "bottom line", which proves to be even more disastrous than before.
6. The students are now presented with their "Mission Impossible": what business decisions might be made to save this practice from its current sad state? With regularity, the students suggest ideas such as hiring another MD or nurse practitioner, cutting staff salaries and other expenses to the bone, raising charges, discontinuing care for Medicare and MA patients, working the doctors harder, or buying equipment to increase efficiency (such as a billing computer) or equipment to generate more charges, such as lab equipment, a colposcope, etc. Each such solution is run on the spreadsheet and evaluated in terms of its impact on specific income and expense items and its impact on the bottom line. The plan's impact on intangibles such as patient satisfaction, physician reputation, and physician lifestyle also receive some discussion.
The Outcome: Student perceptions This exercise will not produce experts at practice management. The intent is more modest than to render our residents able to swim with the sharks. Rather, it is hoped that they will have learned of the existence of the ocean, and the beginnings of the navigational skills needed to avoid reefs and shoals. We have made no attempt to assess business knowledge or skills or to look at the success of residents after they enter practice. We have tried to evaluate residents' comfort with practice management issues, and have assessed the extent to which they find this curriculum worthwhile.
Our residents have told us that this material is relevant to their needs. Though the numbers of physicians in small group entrepreneurial practice may be shrinking, the complex market forces and new constraints on practice make business knowledge more, not less, important. Even those residents who expect to work in settings employing professional non-physician managers recognize the danger of abdicating these decisions to others, and acknowledge the need for close, informed supervision. That the simulation is rooted in the problems facing a real practice gatly enhanced its feeling of relevance. Our residents have told us that this presentation is eniorable. The fascinating high-tech tools, the challenge of coming up with solutions to a real problem, and above all the interactive style of presentation, all combined to make this one of the most popular segments of the practice management course.
Finally, residents tell us that this presentation is empowring. It gives a stimulating glimpse of other worlds to conquer: residents have gone on to do projects on computer modelling, business-related issues, etc. More important, they return to their own residency clinics feeling newly capable of assessing and solving problems in their own setting. Later, when they begin to evaluate and select their future practice, it is with clearer expectations and more confidence in their own abilities to exercise a role in the practice's running.
898
Fig.l - Bottom Line Medicine Clinic Practice Characteristics
STAFFING MD Partners MD Salaried
Nurse Practitioner
Eig2 - Bottom Line Medicine Clinic Financial Statement
ACTIVITY Outpatient Visits / mo Inpatient Visits / mo Lab & X-ray Procedures / mo OB Deliveries / mo
# FrEs
2 % Schedule full 100%
0 #FrEs % Schedule full 100% Wage/mo (ea) $3000
INCOME Gross Charges Collection ratio Net Income from Services Other Income TOTAL INCOME
# FrEs 1 % Schedule full 100%
Wage/mo (ea) $2100 Staff
4 #FrEs Wage/mo (tot) $4900 Wage Adjuster 100%
EXPENSE Pesonnel MD Salaries NP Salaries Staff Salaries Employee Benefits Liability Insurance Building Rent Custoda Services Utilities & Phone Premises Insurance Equipment X-ray machine Loan Equipment Leases Repair & Maintenance
PAYMENT SOURCES
Private Insurance
charges: collections: 50% 85%
HMO & PPO
30%
75%
Medicare/MA
15%
50%
No Insurance
5%
90%
100%
7 7%
CHARGES MD limited (15min) visit, clinic
S20
Tot
MD limited (15min) visit, hospital
Depreciation
Supplies Office Supplies
$ S25
Postage NP limited (15min) visit, clinic
Medical & Lab Supplies 732 Services Outside Laboatory Answering Service Transcription
3 15
Charge Adjuster 1( 06 HOURS regular hours (M-F 9:00-12:00AM,1:30-4:30PM)
15
extended hours
0
day off hours (each doctor)
3
Total clinic hours weekly (per doctor)
Accountant Othe Tax / Licenses / Dues Marketing TOTAL EXPENSES
27
899
1464 46 586 10
31,116 .77 23,959 200 24,159
0 2100 4900 910 1000
3000 300 750 140
900 150 150 1380 366 161
1713 80 439 180
190 60 19,601
NET PRACTICE INCOME
4358
PARTNER'S SHARE (/FE)
2179
