Operations Management
in
Healthcare Organizations
HCM-401 Week IV
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Group Project
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Progress So Far
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Week IV Topic Presentation by Kyle Bain
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Physician Compensation
Week IV Class Presentation by Kemal Erkan
CCHS 2010 Annual Financial Report
Case Studies
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Budget & Organizational Structure
Pay for Performance Challenge
Physician
Pay for Performance Analysis
Break Even Analysis
Physician Extender Analysis
Midterm
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55 Multiple choice questions
3 Essays
Changing the Behavior
Changing The Behavior
of
Responsible Parties
• No Copay
• No Deductible
• Fee For Service
• Length of Stay
Physicians
Patients
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Hospitals
• Medicare
• Medicaid
Government
Insurance
Companies
• Cost
• Profit
Changing the Behavior
BCBS Issue
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Chain of Command
Difficulties with people
Non responsiveness
Insisting on the business model
Changing the Behavior
Physician Payment
Presented by
Kyle Bain
For Kemal Erkan
HCM-401 Course
• Provider Salary
• Education and Liability
• Obligations
• Comparisons
• Free Market Value v. Salary Caps
• Potential Issues
Changing the Behavior
• Based on: Demand , Supply, & Quality
• Not all services are equal
1. Music
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Professional Artist versus Cover Band
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Same song, much different Quality
2. Lawn Care
• Licensed Company Versus Neighborhood Kid
– Same job, Quality is completely different.
– There needs to be incentives for better quality
Changing the Behavior
Education
Liabilities
• Roughly 10 Years of College
– $40,000 *10 Years = $400,000
– Room and Board + Misc Expenses
• ~$ ½ Million by graduating
• Not Guaranteed $ by graduation
• Residency Programs
• Top of their class
• Malpractice and Risk of losing
license.
– Permanently out of practice
• Responsible for your LIFE and
WELLBEING.
Changing the Behavior
• Service versus Human Principles – Healing
• Obligation to the society
• Law – “Duty of Rescue”
– “A Party can be liable for failing to come to the rescue of
another party in peril”
• Human Nature to help others in need.
– If we are capable, we should all help those in need.
Changing the Behavior
• Salaries range for different Specialties and
Countries
– Family Practice versus Industry’s Top Specialist
• Comparison of different professions
– Lawyer, CPA, County Executive, senator…
– How much Dr. Mehmet Oz makes…
Changing the Behavior
20%
Changing the Behavior
• Free market:
– Supply and Demand determine price of goods and
services. CUSTOMERS/PATIENTS determine
physicians value. Creates a “Fair Market Value”
• Low Demand, physicians must lower their prices
• Low Supply (# of Physicians) – They should charge a
premium.
• With Caps:
– Low Demand or Low Supply– Same Quality with no
incentive to provide anything other than minimal
Quality.
Changing the Behavior
• Competition Drives Innovation and Improved
Quality.
– With Caps, there is NO Competition. Without
Competition:
• No incentives to provide better quality product/service
• No incentive to improve technology or improve
customers experience
– Providers are going to receive the same benefit
whether they work extremely hard or just meet
minimal requirements.
– Small window of incentives between Normal Salary
and Industry Cap. No incentive for Top Quality
Changing the Behavior
• Ex. Students and College
– Let’s say every College is equally beneficial.
(Reputation, Education, Networking, Job
Prospecting) (Not cost, effort, or prestige)
– Everyone would go to easiest college possible.
• No incentive to go to more expensive school. (Harvard
V. Community College)
• No incentive to get 4.0 or 2.o GPA.
• No incentive to do extra research, ex curricular
activities, etc.
• Only produce minimal effort.
Changing the Behavior
• Roughly 10 years of Schooling
• Huge Debt after graduating
• Extreme Liability
• Free Market
– Competition drives innovation and improved patient
care
– Patients are determining their Value/Salary
Changing the Behavior
Questions?
Changing the Behavior
New Entity “SEC”
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15 different surgeons
8 different groups
Change of approach for the call responsibility
From “On Call” to “On Site”
Challenges from the “non-profit” insurance company on credentialing
– Angie started the process
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Rejected
– Hazel requested a meeting
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No response from the credentialing manager
Rejected by the Medical director
– KE requested a meeting
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Rejected
– KE broke the chain of command
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Went to the CEO
– KE got a phone call in 7 min of the email after his email to the CEO
– The meeting is setup for Nov-15-2011
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Changing the Behavior
Break Even Analysis
Changing the Behavior
Columbia Memorial Hospital
Break-Even Analysis
• Columbia Memorial Hospital is a highly profitable publicly
owned for-profit, 300 bed hospital, with an ER and a walkin clinic. It has 160 staff physicians. The question posed is
related to the walk-in clinic.
• At the present, the clinic physicians provide an average of
45 visits a day. It is believed that the clinic could handle up
to 85 visits a day. Patient charges range from $60-200, with
discounts for the uninsured. The co-payments are lower
than the ER. The clinic is not a big money maker. There
were 5 walk-in clinics in the area but 2 have closed.
Changing the Behavior
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Columbia Memorial Hospital
Break-Even Analysis
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Positive Considerations:
The clinic is not affected by a season utilization pattern
One of the recently closed clinics is nearby.
Incremental usage costs are $3.50 per visit ($3.00 med supplies, and $.50 administrative).
The expanded market needs no capital investment
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Negative Considerations:
Clinic has a long-term lease with a 3 months rental cancellation clause. The cost would be $37,500 to close.
The biggest competing hospital has just bought the largest primary care practice in the area and plans to buy
more.
Expanded treatment requires additional professional and administrative staff.
There would be additional advertising expenses (newspaper, TV, internet, brochures and handouts) and the need
to hire an assistant marketing director,
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Three possible options are under consideration:
Close the clinic
Run the clinic as is
Expand marketing to increase operations in the area of Occupational Health Services (OHS).
Changing the Behavior
• Problem:
• Using Break-Even Analysis and Exhibits 6.1 and 6.2, answer
the following questions:
• If the clinic continues at the current volume what is the
projected profit or loss for the year?
• How many additional visits per day would be required to
break even without a new marketing program?
• How many additional visits per day would be required to
break even with the new marketing program?
• How many additional visits would the new program have to
bring in to make it worthwhile, regardless of the profit or
loss of the clinic?
Changing the Behavior
Changing the Behavior
Changing the Behavior
Pay for Performance
Changing the Behavior
Maitland Family Physicians
Pay For Performance
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Maitland Family Physicians
Pay For Performance
Maitland Family Physicians is a medical group practice organized in 1996 as an equal share partnership. The
group consists of four family practice physicians and a medical support staff consisting of a practice manager, two
receptionists, four nurses, two medical assistants, two billing clerks, and one laboratory technician. In addition
the practice uses a local CPA to deal with financial matters.
At the present time the physicians receive equal compensation with a salary of $12,500 per month and an equal
share of the profits at the end of the year. Last year each partner received $30,000 bonus.
A recent survey by the Medical Group Management Association indicated that the majority of practices are
compensated on productivity and that less than 10% of practices currently operate on a straight salary basis.
The partners have agreed that compensation should consist of base salary plus some form of pay for performance.
The partners have all agreed that the proposed system should have the following characteristics:
Both the data and administration of the system must be trusted.
The system must be simple enough to be clearly understood.
The system must be perceived to be equitable.
The incentives offered must be large enough to encourage change
Implementation and administration of the system must be affordable.
Changing the Behavior
Maitland Family Physicians
Pay For Performance
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After researching several other practices the accountant proposed several potential measures:
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Productivity Measures:
Number of patient visits -regardless of time per visit or type of visit.
Work RVU’s (Relative Value Units)
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Physician work
Practice expense
Malpractice expense
Professional Procedures-count number of procedure codes regardless of time per procedure.
Financial Measures:
Gross charges-total gross charges (ignoring discounts, allowances and costs)
Net collection-total collected revenue (gross charged minus discounts and allowances but ignoring costs.
Net income-total net income (before physician compensation). With allocation of practice costs to individual
physicians.
Quality Measures:
Average Patient Satisfaction
Blood Pressure Control-Potential for quality payments if performance targets are met.
Breast cancer screening
Changing the Behavior
Maitland Family Physicians
Pay For Performance
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Positive Considerations:
Increased physician productivity increases billable visits by 10-15% and the average physician reimbursement by 510%.
Seeing the most patients is the easiest to calculate. More visits means more billable work.
The most procedures produce the highest revenue. Historically practices that do a lot of procedures do well
financially.
Performance based on quality will maintain the patient base.
Net income calculation holds the physician responsible for both revenues and cost.
The pay for quality approach that CMS is supporting for Medicare patients will improve physician experience and
generate quality payments.
Negative Considerations:
Elderly and Chronically ill patients take more time per visit than younger patients.
Rewarding procedures rewards a narrow part of clinical practice.
Gross charges do not reflect reimbursement amounts and charges generated at high cost do not help the group
financially.
It is difficult to calculate the cost allocation required to the calculation of net income.
Rewarding physicians for practicing good medicine is unacceptable. Physicians should not be paid to do what is
right.
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Changing the Behavior
Maitland Family Physicians
Pay For Performance
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Problem:
Using Exhibits 11.1, 11.2 and 11.3:
Determine if the physicians should adopt a pay for performance model and if so
follow the following guidelines:
Use the historical allocation between base salary and performance pay as a
starting point.
Assess the sensitivity of physician pay to the various performance measures.
Recommend the system you think is best for this group.
Should pay for performance be based on productivity, financial performance,
and/or quality or any combination?
What total dollar amount should be allocated to performance pay versus base
salary?
What amount of net income (after physician compensation) should the group
target?
Changing the Behavior
Pay for Performance
Changing the Behavior
Changing the Behavior
PHYSICIAN EXTENDER ANALYSIS
Changing the Behavior
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University Faculty Practice
Physician Extender Analysis
University Faculty Practice is a not-for-profit corporation that controls the clinical operations of the medical faculty at Shasta University. At present, the University Faculty Practice
controls 6 hospitals, several outpatient clinics and a Long Term Care Facility.
The question posed is the financial impact of possibly utilizing physician extenders (ARNP’s, NP’s, or PA’s) in 3 different types of clinics:
1. An out patient surgery pre-op and post-op clinic
2. An internal medicine (Family Practice) clinic
3. An eldercare clinic.
Currently in medical practices using physician extenders, they perform more than 80% of the primary care patient duties such as taking histories, performing the physical exam,
diagnosing and treating illnesses, ordering and interpreting lab tests and in most cases prescribing medicines. This allows the physician to treat more and higher acuity patients, which
expedites the flow and increases revenue.
Positive Considerations:
Physician Extenders spend more time with patients and increase patient satisfaction
Patient Extenders are paid $60,000 –80,000 per year while physicians are paid $137,000-$194,000 per year. Cost per patient visit can be lowered.
Increased physician productivity increases billable visits by 10-15% and the average physician reimbursement by 5-10%.
If the Physician Extender and the Physician both see the patient on the same visit, Medicare reimbursement is at 100% of the physician rate.
Physician Extenders can be reimbursed at 100% of services “incident to” a previous service provided by a physician in an office or a clinic.
Negative Considerations:
Some private practice physicians view Physician Extenders as a threat to their gatekeeper position within the healthcare system. Since the 1997 Balanced Budget Act, Physician Extenders
can operate without the immediate availability of a physician.
Physician Extenders see 10-20% fewer patients than the physician.
If the patient is seen by both the extender and the physician the billable credit goes to the physician.
NP’s and PA’s operate under a different philosophy of care. NP’s follow a nursing model of care (patient health, education and welfare) and PA’s follow a medical model of care
(diagnosis and treatment).
NP’s function under their own license and can operate independently of a physician and may prescribe medication independent of physician supervision.
PA’s are attached to a physician’s license.
Changing the Behavior
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Problem:
Using Exhibit 25.1:
Using anecdotal evidence (speculation) of future demand.
The best estimate is that the patient volume at the surgery pre-op and post-op clinic is increasing
at 15% annually.
At the internal medicine clinic there is a several month backlog in current scheduling.
The volume at the eldercare clinic is sporadic and growing slowly.
Estimate the financial impact of using one physician extender at each clinic.
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How many additional visits might be generated at each clinic if one extender is employed?
Is it possible for an extender to reduce the number of physician FTE’s rather than increase volume?
What is the impact on cost and revenue?
Recommend the type of extender appropriate for each setting.
Cases in Healthcare Finance, 4th Ed. (Chapter 25)
Changing the Behavior
Changing the Behavior