Hello, everybody, and welcome to the Medical Practice Operations Business Fundamentals 101. If you did not have the luxury of listening to Module 1, we are moving on to Module 2. These WebExes will be stored with the AOA, and you can access them at your leisure. So without further ado, I will again say thank you for joining me today, or wherever you may be and whatever time it is. We are going to take a walk through health care finance during the course of the next 30 to 45 minutes. Going through the perfunctory disclosure statement, I do not have anything to disclose, and please be advised this presentation does not offer legal advice, and the decisions involving any legal aspects of health care, whether that's a contract or a building to buy or anything of that nature, should be vetted by qualified legal counsel. These practice management modules are to be general assessments of health care delivery and medical practice management more specifically. There is no care guidance in here, and I do not offer clinical recommendations. This is purely to give folks a macro-level understanding of some of the drivers in practice management. You can read these AOA disclaimers at your leisure. A little bit about me and Whitley. Whitley is a CPA firm that has been around for over 100 years. We do work in a variety of different verticals, which are shown in this slide, and in those verticals, we perform a variety of different functions. So I am in the health care shop. I run our physician enterprise across the United States, and Whitley employs 3,800 people in 50 locations in the U.S. We do a variety of different things in health care, as we do in construction and agribusiness and with auto dealerships, et cetera. On a micro-level, in my bio, I've been in health care for 30-plus years. First half of my career, I spent running private practices, and the latter portion, I call myself a recovering practice administrator, and the latter portion, I've taken what I learned in the trenches and applied that nationally in different care delivery platforms on a consulting basis. So I've done work with academic med centers, I've done work in tribal health care, federally qualified health centers, health clinics, rural clinics, critical access hospitals, have done a variety of different things in different locations, and I will tell you what we cover in these practice management modules, for all intents and purposes, the operational piece, not the clinical piece or the care delivery piece, but the operations are fairly generic throughout the care delivery models, and we'll get into that throughout these modules. Today we are in, as I said earlier, module two, which is kind of a primer on finance, and finance is big and broad, even at a macro-level. I won't attempt to get into all of the nuts and bolts, that would be a fool's errand, but I thought this was big enough to break it down into kind of general, broad financial pieces, and then module 2A, we'll get again into finance, but on a more micro-level to really contemplate physician compensation, some of the drivers behind comp. We will get into, in this series, how revenue is generated on a micro-level, and then how those revenue pieces drive physician compensation, and interestingly enough, one of the articles that I've written recently, actually I wrote it two years ago, it's gotten over 55,000 hits on the search term physician compensation and or how physicians are paid, so I found that to be kind of fascinating, and that really elucidates, I think, the need for a little deeper dive into physician comp, and then you can see the remainder of the modules, and we will have a module 8 that will take place in mid-May, and I'll speak to that a little bit later in the presentation. So learning objectives for today in the general finances piece of practice management, we're going to look at the differences in finances, excuse me, and really how the revenue flows in and flows out, which would be your income statement or your P&L, profit and loss statement. We will get into some of the things that we noodled in module number 1, which we're going to private practices and health systems, and I hope to get into a little more detail on those in this half-hour, 45-minute session. Understand the recognition of revenue, which we did touch on in module 1. Understand the cost structure. We will start to really nibble at the edges of how clinicians are paid, and again, as with all of these modules and the overall 101 series that we are doing, I'm not advocating for anything particular, and certainly I'm not covering everything. We are in a country of 330 million people with over 900,000, 800,000, 900,000 physicians, and so one size never fits all, and I would tell you, as you look at these things, I would always look at them with an entrepreneur's eye. How could I change it? How could I make it different? I'm assuming there are some rate limiters with regard to the legal aspects of healthcare finances, but think, to use a trite business term, think outside the box on how these things can apply to you and what you can do to alter them to benefit you. Okay, onward and upward. In module 1, I did noodle the ecosystem again. You will see this slide more than once throughout the eight modules. This helps level set for folks who did not do module 1. Module 2, this will level set for you really a graphical representation of what clinic workflow looks like, whether you are in a tribal care delivery model, a rural clinic, academic medical center that's got a faculty practice, this is how the care delivery is going to go. Now, how it works is a different nut altogether, and what we contemplate are some of the goods and the bads during this one-on-one series on how positive impacts can help with the delivery of care, the operational delivery of care, and candidly, can help physicians in the trenches to better do their jobs, to make them more efficient, to hopefully reduce the burden and pain that goes along in the operational piece of delivery of care. So the P&L, we talked about in module 1 the profit and loss statement. We'll get into that a little bit more today. Some of this will be a little bit redundant, but it may be worth repeating, and if module 2 is your first foray into this series, this will be new to you. On your right, you have a sample profit and loss statement, otherwise known as an income statement, revenue. Those are the dollars that flow in in a private practice, again, cash-based accounting. You bill and collect money, and those dollars are recognized when they hit your books, not when you charge for them. So if I am running a private practice and I've got a 30-day revenue cycle, which means it takes me about 30 days to collect what I bill. If this is January 1st, and we're recognizing these revenues today, you see that P&L today, your practice administrator gave you a copy of that. Most of that revenue will have been billed out December 1st through December 15th, and it will be hitting now. Medicare pays clean claims within 14 days by statute, and other payers normally will pay between 15 and 30, depending. And then when we get into revenue cycle, as one of the modules, we will talk about denials of claims, how you can combat those, and how, in my general opinion, those can sometimes be used by insurance companies to delay payment or to really reduce payment altogether in hopes that the clinic won't follow up on the claims. That may be my Johnist cynical look, but in 30-plus years of working in this business, I have seen that, and I have the receipts with regard to how that does happen, and it does happen as a strategy. So in any event, getting back to your P&L, this practice, if you break this down, and I've done you a disservice, I should have broken down the percentages, because those do have value when you look at the P&L from an analytics perspective. What we see here is 70% of our revenue is driven by commercial, private payers. Commercial payers would be a better adjective. So Blue Cross Blue Shield, Aetna, Cigna, United. The other $30 or 30% we'll say is Medicare and or Medicaid. So you understand that your government payers are 30% of your business. That will change depending on your specialty, depending on your demographics in your community. Detroit saying that all health care is local is absolutely true, and provably so. And so if you are a cardiology group, and maybe you're in an underserved area, you may be 50-50 with regard to your commercial versus your Medicare. Or you may be 50% Medicare, 25% commercial, 25% self-pay. So those are all numbers to know, and we will get into those later to offer a better understanding of how to look at these data elements with an analytic eye. And then your expenses, again, this is January 1, let's say. We paid out $10 in equipment, $25 in salary, which means 25% of our revenue goes out the door in salary. And then you can see rent, med mal, and drugs. We've paid 50%. This medical practice is running what they, in business terms, they would call this a 50% overhead. That is, $0.50 of every dollar is going out the door in expenses, right? So if medical equipment goes down by $5, you're now running a 45% overhead on the same revenue. The profitability in the private practice goes out to the physician shareholders, who, as we discussed in Module 1, do not theoretically collect any pay unless all the bills are paid. And that's one of the hobgoblins of running a private practice. If you get into a situation where you're upside down on your bills for a month, theoretically, you will not get a check for that month. So as we discussed, this means charges submitted, revenues collected and posted, expenses paid as revenue flows in and allows shareholders, i.e. the owners, are paid last. In this health system, we talked a little bit in Module 1 about how health systems are accrual-based, so it's a recognition of the revenue. So if I charged out $130 in revenue December 1st, and I collected in the door January 1st $100 in revenues, what happens within the system is they take out these $30 in contractual allowances with their insurance companies and any other reductions appropriate to estimate the revenues that are supposed to come through the door. So I'm estimating I'm going to get $100 in the door. If I get $150, then my contractuals may be off. So then again, same math in terms of below the line. Physician salaries are here, and what you have is we are upside down in this model by $10. So what's happened here? Well, actually, I'll get into that in the next slide, as memory serves. So in any event, the physician salaries in this model are $60. So all these physicians are getting paid. Even if we generated $600, many of these physicians who are employed are going to have either fixed comp or compensation with a WorkRVU component, which we talked about in Module 1. In any event, these expenses will be prorated either on physician FTE count or, which is a little bit easier for the system to manage, especially if they're big, based on the cost to the model. So if this represents, this spreadsheet on the right represents a group of multiple practices. Let's call this the hospital physician operations. Let's call this 100 doctors, and this is the P&L. Well, we're going to parse out at a prorated rate either one per 100 or, depending on each group, what their size is, a piece of the medical malpractice cost to cover the physicians in the space for the clinicians, physicians and extenders, employee benefits, legal expenses to the entity, and any IT infrastructure, EMR, those types of things. So what I kind of jumped the shark and put this out a little too early, this health system, whether it's 50 docs or five docs or one doc or what have you, is what we call subsidizing or being subsidized by the health system. They have $100 in revenue. They paid out $110. They are upside down $10. So what this essentially means is they're paying more in cost in physician salaries than they're drawing in on this. Now, for the health system, maybe they make money on downstream modalities. So maybe they're making money on cardiovascular interventions or pacemaker installs. Sorry, install is a bad word in clinical care or electrophysiology procedures or they're doing open hearts or they're doing total knees. Those won't show up in this ambulatory finance model for the clinic. And so while they may be subsidizing and taking a loss on the clinic, they may be happy that they are making money on these ancillary procedures. So if we look at this and we talked about this in module one, this is a scosh redundant. The hospital says they get $130 in revenue when in reality they're going to collect $100. The private practice says we got $100 in revenue and they collected that much. I won't go through this, belabor the point. We talked about this earlier in this session and in module one. So the revenue flow, everything that drives the profit and loss, if you're in a private practice, you can impact the cost side. And I will say candidly, and this doesn't go for all private practices, but what I do see happening. So if you harken back to what we what we noodled on the P&L, every dollar that is not spent in the operations of the practice flows through to the shareholders. So we get to this model of the private practice. If I can cut expenses here and keep revenues the same, every other dollar is coming back to me in compensation. And so what I have seen, not everywhere, but what happens in many instances is the infrastructure, i.e. the operations to run the clinic, sometimes receive short shrift on investment. So where we should pay $100,000 for a really good practice administrator, maybe we pay $50,000 for an average one. And while that might make sense on the P&L, a good manager and a good management team is worth their weight in gold for efficiency and value they will bring to the clinic. Likewise, you know, using an M.A. where you really should use an R.N. as a clinic manager or something akin to that, you're going to spend more for a registered nurse. But they are going to deliver a broader scope of care, hopefully brought broader management tools. So the short version to that is you really need to invest in your infrastructure because that will help with the profitability of the practice. And I don't think I made a case for this during this one-on-one session, but I have made a case graphically before where you can invest and pay more and have high overhead and still have high dollar value, high dollars going to the shareholders. But that's another story for another time. And so on the revenue side, getting that really good administrator to get out there, work with the teams and make sure that they're checking patient eligibility. I will tell you, I went to my internal medicine doc for a visit recently and they asked for my insurance card. They wanted to see it. They wanted to make sure it was up to date. They collected the copay, good on them because that's part of the revenue cycle. And it saves the clinic from having to spend money to chase me down on the back end to collect what I otherwise should have paid on the front end. So I have dealt with clinics. I was doing a clinic visit not long ago where I just kind of performed a listening tour of the front desk and they simply asked the patients if their insurance had changed. That is a cardinal sin in practice management 101 because a lot of patients, they do change insurance, especially Medicare. They might get a Medicare Advantage plan or they might, you know, whatever the case is. So you're just asking that and relying on them to tell you the right thing. And it's not necessarily an overt way to avoid paying. It's just that, you know, maybe they forgot it, slipped their mind, whatever the case may be. The downside is you take their word for it and they don't have that insurance, it's going to kick out as a claim denial that was avoidable that will now have to be worked and you will have to go after them or bill their current insurance company. So that's problematic. And then other revenue drivers on the profit and loss, documentation and coding in the private practice and candidly in the whole ambulatory space, whether you're private practice, whether you're rural, whether you're FQ, academic, any of these places. And again, this gets back to this model really standing true in any care delivery platform. You really have to have coding education, documentation, understanding of how visits are coded, what the CPTs mean. Again, I had a friend who had a 10-minute phone call with a clinician and they had this enormous bill and they asked me about it. And I said, well, why would they bill you a level four for that? And she said, well, I was on the phone 10 minutes. I said, 10 minutes is not a level four code, but that happens a lot in the business. And it's, again, it's not wanton and it's not necessarily a disregard for coding. It could just be a lack of education. And Work Our Views are part of codes, which we'll get into later in the series. And we'll talk about the value of the higher level codes with regard to work and how those fit into compensation. The scrubbing of claims and claim submission, all part of the rev cycle, and then collecting revenue and assigned to patient account, making sure that you are on the private practice side and in the hospital side, you are going and collecting what is due. So expenses in the private practice, we talk about this. Generally speaking, back in the day, we used to run 50% overhead. So again, 50 cents on every dollar we would pay out in expenses. Generally, we used to run 25% of that in salaries. Right now, if you're anywhere in 50% or 50 to 60% overhead in a private practice, I would make the argument you're actually doing pretty good. So the revenue on the P&L, on the health and hospital, health system, hospital system side, same kind of flow, same kind of things. They, I would say 90%, 95% generic, and the other 5% are specific to the health system, or how they do things if they have a corporate umbrella, and they do things throughout the system. Those would be your only variations, excuse me, and how you're handling revenue cycle and patient visits. We talked about this, excuse me, on the expense side. And again, I won't belabor this. The hospital health system side, you're probably going to run higher overhead, candidly, especially if your group is being quote unquote subsidized. And one thing that's worth mentioning, we talked yesterday about employment opportunities and questions to ask or think about. If you're going in for an interview or changing jobs, ask the system, do they subsidize your practice or their whole healthcare, their whole ambulatory entity, whether it's an amalgamation of intermed, cardiology, ortho, OBGYN, et cetera. Ask them if the employed model is subsidized. That will probably knock their socks off because I don't think they'll expect that question. We did talk about the expense piece of it. I would suggest you most systems are going to prorate based on the number of clinics and or physicians, but maybe not necessarily to the number of physicians in each practice necessarily. We did speak to this earlier. One thing that's interesting, and I believe I touch on this in the revenue cycle module later, a lot of folks get hung up on charges. And generally speaking, and I know someone will want to split this and go down the middle and parse it out, and I would be happy to have that discussion, but charges are not indicative of revenue necessarily. And so you can look at this model and you can see, let's say they charge $10 million, but their adjustments, whether contractual, bad debt, or whatever, excuse me, leave actual revenue of $100,000. So you can see in that case, it's an absurd model, surely, but it shows you that what you charge is not what you're going to get. And you can have an overly inflated charge master. I had a physician come to me one time and he said, his buddy down the road, another physician, charged X, Y, and Z for whatever. First of all, physicians in the same community, specifically in the same specialty should not share charge master related data with one another directly. But secondly, what the doctor charges is not what he or she is going to get paid. Because first of all, Medicare pays you what they're going to pay you. It doesn't matter what you charge for it. So for instance, you can charge $10 million for a level three office visit. Medicare pays you 150 bucks. That's it. And you might charge $10 million for a level three to Blue Cross Blue Shield. Blue Cross Blue Shield may pay you 200 for that same visit. That's all. And you can't pump the remainder to the patient because the contracts will say you have agreed to accept that allowable revenue from Medicare or from Blue Cross Blue Shield. You can't, what we call balance bill, you can't bill out the difference on the charges. So charges are something, generally speaking, that are created in the ether. And they many times have no direct correlation to revenue. Certainly, if you charge $10 million versus a practice that charges a million, you should logically expect to collect more money. But my point being, no one charges 10 million and collects 10 million. That is to say, if you're in a three-doctor practice. But we'll get into that later and I can dig into the weeds. And maybe a question will come up on that when we get into module eight. The contracts are entered into between providers and insurance companies. That's private practice. So you will be in situations where you might have different allowables for Blue Cross Blue Shield, United, Cigna, Aetna. In fact, you might have different allowables in each one of those if they have different products. So BCBS might have a PPO model and then they might have a, I don't know, whatever general BCBS model. And they may pay totally different things. And that becomes a nightmare in terms of management. It requires very precise management on the revenue cycle side to ensure that you're collecting the money that is due. And we'll get into that later. It's pretty fascinating and can be a little bit mind-numbing. But what happens here is, as I said, you could charge $500 for an office visit. And if their contractual amount is 125, that's all you're going to get. So those are revenue drivers for the practices. Health systems, likewise. And I won't belabor this. This is the same type of logic. Although health systems many times are in a position, especially I alluded to the greater Atlanta area in module one when I spoke recently. Some of the larger health systems are in a position where they have more negotiating leverage because they own the market. In Atlanta, we have three large systems. So there is some give and take there. But when you get into other markets that maybe have one large system or two large systems, that becomes different altogether relative to leverage, contracting leverage. And we'll get into that on the rev cycle side later. And you can also learn a little bit more about that in module one. So private practices, the pluses, as we talked about pluses in module one, cash accounting is easier to understand. Depending on the practice, it's fairly clear and month. And it's easy to define what's available year end, generally, depending on the tax structure of the corporation. There are some tax structures where the physicians will clear out the books because they will get taxed on any money remaining. So could be you end up with five million dollars left at the end of the year with five physicians who are partners, and they decide they're going to clear the books out so they don't get taxed through the corporation on that money. They get bonused out. So each would get a million dollars in bonus. The minuses, when we speak about the underinvesting in infrastructure, some places where this happens or can happen is in the revenue cycle. And it's such an important thing. I mean, think about it. If you were running a widget making thing, but if you're working for Ford and you had no idea what it cost you to build the car or what it cost you to get your to build your vendors or any of those things, it's finance 101. It's understanding what you're charging, what you're collecting and who owes you what. Months of up and down. So if you have let's say you have a slow December, that can create financial havoc in flux because you're collecting cash money. You may have a slow end of November because of the holiday, and then things may not pick up until the second week in December. And so that lack of revenue can end up hitting you end of December or mid-January of the next year where your costs are still going to be there. You're going to have fixed and variable costs that are still there. You still have to pay rent regardless of the revenue, but you may have lower revenue that should pick up during the year. You will notice fluctuations. There are some seasonal fluctuations in revenue in private practices. Some of that depends on specialty and holidays and things of that nature. That would also create financial ups and downs for the shareholders. Do you have to borrow from the credit line to cover the bills and pay in January, then pay that off in February as revenue starts to roll in? Those are considerations. You're reliant on sound cash controls, revenue cycle, etc. on the cash end of things. And long are the stories that I have heard of medical practices who are managed, let's just say sub-optimally, or where somebody has been pilfering money and the controls aren't in place to monitor how the revenue... there are no checks and balances, basically. And I will tell you, I knew of a five-doctor practice where the practice administrator over 20 years stole a million dollars. And that's bad for a variety of reasons. The physicians then lose trust in everyone who's at the helm, and it's just all around bad. If there are new physicians coming into a private practice, unless you can get them subsidized by the health system and there are ways to do that, you will subsidize them as they begin to see patients. Remember, they're growing a practice. They may not be generating enough revenue to even cover their salaries for one to three to six months, depending on the specialty and depending on your need for a new physician in the practice. So those are the things to be considerate of. We consider in module one, and I would repeat that here, the relative safety of working in a health system. You have guaranteed comp, generally speaking. If you have work-or-view comp and you're not seeing enough patients, you're probably going to have to fall back on hopefully a fixed base in your comp. But nonetheless, you don't have to worry as much as we talked about the flow of revenue into the clinic. The minuses, loss of control, it's difficult to understand the pro rata. But again, ask about the subsidy. What does that mean and what will it mean to you? And there's a chance of inaccurate line item allocations, allocations back to the practice of expenses that don't align with the size of the group or the revenue or something akin to that. And then there may be a situation when you're an employee, when you're a cog in the machine, you don't have a say on revenue improvement or cost coding modalities. Again, we contemplated in module one, what is the seat at the table in a health system and are you allowed to opine on things? So that essentially ties up module two on finances. Module 2A, as I said at the beginning of today's conversation, will dig deeper into the finances, into compensation, and really start to set the table for what different comp plans can look like. And we'll be getting into the history of comp plans. We'll be getting into some of the newer models and what those look like. We'll talk about work RVUs, which as I said in module one, those will be here in your careers. And you need to at least have a facile macro understanding of what those mean and how they will impact you and where you work, whether it's private practice or an employed model with a health system. When we finish these modules one through seven, we are going to have a live WebEx. We're going to call that module eight. You've been asked to send any questions or thoughts to this link, physicianservicesatosteopathic.org. If you have questions that need some noodling prior to the live presentation, please get them in early. We will do the best that we can do to handle live questions, understanding that that will be shooting from the hip as we go. But what we would like to do is build out these questions, get module eight built out and have a deck similar to all of the other modules so that we can run through those and have a conversation. And the way I envision that also is probably open up, if the powers that be at AOA are okay with this, is open up for a dynamic Q&A and conversation. So that will happen May 10th. I invite you to listen to all of these modules when they are available and reach out so that we can get some of your questions answered. As ever, thank you for your time, thank you for your interest, and wish you well.

healthcare finance

medical practice

cash-based accounting

accrual accounting

revenue cycle management

financial pitfalls

physician compensation