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    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; as well as Oglethorpe University and Emory University in Georgia, the Atlanta Hospital & Medical Center; Kellogg-Keller Graduate School of Business and Management in Chicago, and the Aachen City University Hospital, Koln-Germany. He became one of the most innovative global thought leaders in medical business entrepreneurship today by leveraging and adding value with strategies to grow revenues and EBITDA while reducing non-essential expenditures and improving dated operational in-efficiencies.

    Professor David Marcinko was a board certified surgical fellow, hospital medical staff President, public and population health advocate, and Chief Executive & Education Officer with more than 425 published papers; 5,150 op-ed pieces and over 135+ domestic / international presentations to his credit; including the top ten [10] biggest drug, DME and pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published academic text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

    Dr. David E. Marcinko is past Editor-in-Chief of the prestigious “Journal of Health Care Finance”, and a former Certified Financial Planner® who was named “Health Economist of the Year” in 2010. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, economics trade journals and publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician’s Money Digest and MD News] etc.

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    As a state licensed life, P&C and health insurance agent; and dual SEC registered investment advisor and representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® chartered professional designation education program; as well as Chief Editor of the three print format HEALTH DICTIONARY SERIES® and online Wiki Project.

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Family Gifting and Physician Loans

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Physician Gift and Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™ 

The annual gift tax exclusion allows the physician, and others, to give any individual $13,000 per year [$26,000 per couple in 2009] without paying or filing a gift tax return. 

There is no limit on the number of individuals who might benefit from your generosity.  

Marrieds 

If you are married, then you and your spouse together may gift to any number of individuals.  The recipients do not owe any tax on the money either.   

Excess Gifts 

Gifts in excess of $12,000 are subject to current gift tax.  A gift tax return must be filed by April 15th of the year following the gift.  Gifts to qualified charities are subject to a different set of income tax rules. 

Lifetime Gifting 

Gifting assets to family members or others during your lifetime can be an effective estate planning technique.  A gift of money or stock to your children automatically reduces your estate. 

If your taxable estate is in excess of $2 million, then you are in the [45] percent estate tax bracket; indexed at $3,500,000 in 2009, with repeal of the estate tax and generation-skipping tax scheduled for 2010. 

This means that each dollar you can remove from your estate, and allow to appreciate in your children’s estate can help reduce a significant potential estate tax liability.   

However, if the sole purpose of gifting is to reduce estate taxes, then the Economic Growth and Tax Relief Reconciliation Act [EGTRRA] of 2001’s reduction, and ultimate elimination of estate taxes, will nullify this technique.   

You must remember that tax laws are always subject to change and EGTRRA has a Sunset provision in 2011, which in some form may not totally eliminate estate taxes.  

Gifting strategies may still be appropriate depending on your expectation of law changes and where the estate is large and life expectancy is limited.  There are gifting traps in these situations, so consult proper counsel. 

Stock Gifting 

When you gift stock you also give the recipient your cost basis. 

For example, if you have low basis stock that you are thinking about selling but are concerned about paying 20 percent in capital gains tax, you could gift portions of the stock to your children (or anyone in the 15 percent income tax bracket) and sell just enough to pay the 10 percent capital gains tax in their bracket.

The gift value is the market price of the stock on date of gift.  We are talking about an outright gift, so before you really do it, make sure you can afford to give up the cash or the asset forever. 

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Top 10 Diagnostic Related Groups

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High Volume Medicare DRGs

[Staff Writers]

The ten highest volume Medicare DRGs represent about 30% of total Medicare patients. Each of these higher volume DRGs represent from about 2% to 6% of total Medicare volume. 

***

  DRG DRG Description % Total Rel Wt
1 127 Heart Failure & Shock 5.99 1.0234
2 089 Simple Pneumonia & Pleurisy Age>17 w/CC1 3.85 1.1447
3 014 Specific Cerebrovascular Disorders except TIA 3.18 1.2056
4 430 Psychoses 3.18 0.9153
5 088 Chronic Obstructive Pulmonary Disease 3.11 1.0067
6 209 Major Joint & Limb Reattachment Procedures, Lower Extremity 2.78 2.3491
7 140 Angina Pectoris 2.33 0.6241
8 182 Esophagitis, Gastroent & Misc Digest Disorders Age>17 w/CC1 2.09 0.7617
9 174 G.I. Hemorrhage w/CC1 2.07 0.9657
10 296 Nutritional & Misc Metabolic Disorders Age>17w/CC1 1.93 0.9313

Source: Health Care Financing Administration [CMS] 2005

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Cash Based Compensation Medical Practices

Business Model Related to Concierge Medicine

Staff Writers 

A Cash Based Compensation (CBC) medical practice business model attracts patients who pay cash for desirable services, such as surgeons who dispense scar reducers or in areas such as pain relief, weight loss, aesthetic procedures, and natural health. 

Model Parameters 

According to consultant Michael Wallerstein, any well-rounded CBC program should include these parameters: 

  • existing patient demand;
  • low entry cost;
  • little marketing costs;
  • existing employees to administer the program;
  • office capacity; and an
  • operating plan. 

All Specialties Included

Even dentists and podiatrists who perform cosmetic and elective image enhancing services like teeth bleaching, veneer applications, vein reductions, toe shortenings and shoe appliances are amenable to CBC practices.  

Assessment 

With time and effort, profit for physician compensation may increase 10-20% annually by providing “wants”; rather than medical “needs.” 

Conclusion 

And so, what is your opinion of these new CBC medical practitioners; ethical physicians or medical merchants?  

Book Info: http://www.springerpub.com/prod.aspx?prod_id=23759

Institutional: www.HealthcareFinancials.com 

Linguistics: www.HealthDictionarySeries.com

 

Unlimited Marital Deduction

Understanding Physician Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™
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Under the unlimited marital deduction, virtually all transfers to a spouse, whether made during lifetime or at death, are tax-free.   

Tax Consequences 

However there is a tax consequence for leaving your entire estate to your spouse. 

Leaving everything to your spouse does not utilize your exclusion amount, which was $1,000,000 in 2003.   

However, under the Economic Growth and Tax Relief Reconciliation Act [EGTRRA] of 2001, the increased exclusion amount, formerly $1,000,000 is scheduled to increase to $3,500,000 in 2009 and expire in 2011. 

Assessment 

This has no effect after the first death, but when your spouse dies, the estate of the spouse will pay higher taxes.   

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result? 

Book info: http://www.jbpub.com/catalog/0763745790/ 

Institutional: www.HealthcareFinancials.com 

Linguistics: www.HealthDictionarySeries.com

IRC §2032A Special-Use Valuation

Understanding Physician Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™
fp-book3

Suppose you are a physician or other individual who own a farm that for many years was located well outside the city limits of a growing community, and now the farm is in the path of this growth?   

The dynamics of determining the fair market value of your farm have changed.  You might be inclined to value it as a farm and your estate would make the argument that it is a farm.

 

“Highest and Best Use” 

The IRS would argue the property should be valued at its highest and best use.  Unfortunately for your estate the “highest and best use” might be as a mega mall, apartment buildings, or a high-rise office building.  

All considerably more valuable than the farm might be worth.  

Enter Internal Revenue Code Section §2032A 

Valuation of a property at the highest and best use might force the survivors to sell the land to pay a large estate tax. 

On the other hand, valuation at its present use might enable the survivors to carry on the farm business.   

IRC Section 2032A permits qualifying estates to value at least a portion of the real property at its “qualified use.”  The section applies to farms or other trades or businesses.  

Major Requirements 

Five major requirements and conditions must be satisfied.  Ultimately, the maximum amount by which the value of the special use real estate can be reduced is $800,000 – or other amount indexed for inflation – after Y2000.  

Assessment 

While this is not an insignificant amount, if there is a large disparity between “highest and best use” and present use value, then planning to avoid the potential liquidity deficit is imperative. 

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result? 

Book info: http://www.jbpub.com/catalog/0763745790/ 

Linguistics: www.HealthDictionarySeries.com 

Related: http://www.aicpa.org/PUBS/jofa/jan98/sbtaxsol.htm

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Hospital-Based Home Care

Agency Count Declines

Staff Writers 

ho-journal2 

Over the past decade, the home care industry has evolved away from agencies that are affiliated with hospitals and toward independent, non-facility-based agencies.  

Review 

For example, in a recent study it was reported that the number of home care agencies in the U.S. fell nearly 10% in this period, to 13,313 in 2005 from 14,670 in 1996.  

But, as the total number of home care agencies slipped over these 10 years, the number of agencies that were hospital-based plunged by more than one-third, to 1,636 from 2,563 in 1997. Hospital-based home care agencies accounted for just 12.3% of all agencies in 2005, down notably from 17.0% in 1997.  

Assessment 

Spurred by an aging U.S. population, demand for home care is growing. Generally less costly than hospital-based care, home care has benefited from government and third-party initiatives aimed at containing costs at non-hospital sites.  

In the years to come, these government and third-party payer cost management efforts are expected to put increased pressure on hospital-based home care agencies. 

Conclusion 

As medical practitioners, physicians and/or nurse executives, or healthcare administrators; how will the above findings affect you and your institution? Your comments are appreciated. 

Institutional: www.HealthcareFinancials.com 

Terms: www.HealthDictionarySeries.com 

Acknowledgements: We recognize Richard L Frye PhD and Verispan LLC, Yardley, Pa., as the research and reporting source for this information, reprinted with permission and based on information gathered by mail and telephone surveys gathered and effective as of December 31, 2007.  It was commissioned, sponsored and underwritten in an arm’s length fashion by the Managed Care Digest Series of sanofi-aventis, Bridgewater, NJ, and developed and produced by Forte Information Resources, LLC, Denver, Colorado, USA

IRC Section §6166 Extensions

Understanding Physician Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™

fp-book3

A benefit the IRS allows on the death of a doctor or qualifying small business owner is Internal Revenue Code § 6166.  This provides for the extension of the payment of estate taxes over a period of 14 years.  

Levels of Qualification 

Recent legislation has made it more difficult to qualify; there are now three levels of qualification:

  1. The first is the same as for § 303. 
  2. The second adds a strict definition of a closely held business. 
  3. The third requires that the business must have been actually engaged in carrying on a trade, medical practice, or business at the time of death.   

The first four annual payments are interest only and then the next 10 annual payments are principal and interest.  The interest rate on the first $484,000 – or currently indexed amount – of tax due is at 2 percent.   

Assessment 

Calculating the tax that qualifies for the extension requires applying the percentage of the adjusted gross estate attributed to the small business, multiplied by the total federal estate tax. 

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result? 

Book info: http://www.jbpub.com/catalog/0763745790/ 

Linguistics: www.HealthDictionarySeries.com 

Related Opinion: Why IRC Section 6166 Is Outmoded By Joseph E. Godfrey III, CLU and Steven M. Schanker Esq. http://www.nysscpa.org/cpajournal/2003/0403/nv/nv3a.htm

The Qualified Terminal Interest Property Trust

Understanding the QTIP in Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™ 
  

A qualified terminal interest property trust (QTIP) was designed for physicians and those who have children from a prior marriage.   

QTIP Rules 

The QTIP rules are complicated and deal with legal rights to assets and in whose estate the assets are titled.  Suffice it to say that Congress has allowed a qualification to be put on the normal terminal interest rules to provide for this situation.   

The result provides assets that qualify for the unlimited marital deduction, but your spouse does not control where the assets go upon the spouses death.  The spouse is entitled to the income generated from the trust for life and is also entitled to the use of tangible property, like the home and contents.   

Assessment 

In addition to the above, these trusts provide the surviving spouse a limited power to access principal for health, education, maintenance and/or support [HEMS]. 

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result? 

Book info: http://www.jbpub.com/catalog/0763745790/ 

Linguistics: www.HealthDictionarySeries.com

Monte Carlo Simulation

Combining Portfolio Asset Classes

By Dr. David Edward Marcinko; MBA, CMP™

Publisher-in-Chief 

dem2

Combining the disparate information of a physician’s investment portfolio, into a workable asset allocation strategy, is as much art as it is science; perhaps even more so.  

Most doctors, investors or endowment fund managers will use a combination of quantitative and qualitative analyses to develop their allocations.  

The quantitative portion of the analyses generally uses a variety of statistical techniques to develop a top-down approach to the general allocation.  

After developing a general sense of their desired range of returns, many doctors and investors will then use one of several “optimizer” techniques to assist in constructing such an allocation.  

Commonly used optimization techniques include Mean Portfolio Variance Optimization (MPVO) – discussed elsewhere in the Executive Post – and Monte Carlo Simulation (MCS). 

Monte Carlo Simulation [MCS] 

Named after Monte Carlo, Monaco, which is famous for its games of chance, MCS is a technique that randomly changes a portfolio variable over numerous iterations in order to simulate an outcome and develop a probability forecast of successfully achieving an outcome. 

In institutional and individual portfolio management, MCS is used to demonstrate the probability of “success” as defined by achieving the endowment’s asset growth and payout goals. 

In other words, MCS can provide the physician, investor or endowment fund manager with a comfort level that a given payout policy and asset allocation success will not deplete the real value of the endowment. 

Beware the Divorce from Judgment 

Nevertheless, the problem with many quantitative tools is the divorce of judgment from their use. And, although useful, both MPVO and MCS have limitations that make it so they should not supplant physician insight, investor experience, or portfolio manager judgment.  

For example, MPVO generates an efficient frontier by relying on several inputs, like expected rate-of-return, expected volatility and correlation coefficients. These variables are commonly input using historical measures as proxies for estimated future performance; which is not ascertainable.  

Assessment 

These facts alone may present a variety of problems:  

  1. First, the MPVO will generally assume that returns are normally distributed and that this distribution is stationary. As such, asset classes with high historical returns are assumed to have high future returns; and this may or may not be true.  
  2. Second, an MPVO optimizer is not generally time sensitive. In other words, the optimizer may ignore current environmental conditions that would cause a secular shift in a given asset class returns.  
  3. Finally, an MPVO optimizer may be subject to selection bias for certain asset classes. For example, private equity firms that fail, as was prominently noted in 2007 and 2008, will no longer report results and will be eliminated from the index used to provide the optimizer’s historical data-base.  

Conclusion 

And so, do you consider MPVO and Monte Carlo Simulation [MCS] when constructing your own investment portfolio? Why or why not? 

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA – Editor and Publisher-in-Chief – is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com

Your thoughts are appreciated.

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IRC Section §6161 Extensions

Understanding Physician Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™ 
  

The IRS has discretion under Internal Revenue Code § 6161 to grant an extension to a physician, or any estate, for up to 10 years to pay estate tax upon a showing of “reasonable cause.”  

Interest Still Charged 

The IRS charges interest of course, but if the estate does not have the money to pay all the estate taxes when initially due, then § 6161 is a potential opportunity to reduce the immediate payment burden on the estate.   

Assessment 

Unfortunately, this extension does keep the estate open for the duration of the payment plan and will incur additional accounting and administrative costs. 

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result? 

Book info: http://www.jbpub.com/catalog/0763745790/ 

Linguistics: www.HealthDictionarySeries.com

Mean Portfolio Variance Optimization

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MPT and the Efficient Frontier

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

fp-book3Mean Portfolio Variance Optimization [MPVO] has at its core Modern Portfolio Theory (MPT), which seeks to find the “efficient frontier” that defines the minimum risk for any given level of investment portfolio rate-of-return.  

Efficient Frontier 

In order to find the efficient frontier, MPVO will consider the expected returns, standard deviations (i.e., volatility) and correlation coefficient of individual asset classes within a physician or other investor’s portfolio. 

All things being equal, the physician or endowment fund manager would generally choose investments with the highest expected long-term return.  

However, the current funding needs placed upon endowments, or in personal portfolios, may require that they be sensitive to the volatility of asset classes. These restrictions are the stuff of MPVO. 

Risk of Expected Volatility 

Expected portfolio volatility is often defined as “risk” and measured by the standard deviation of investment returns around an expected average return for that same investment.  

In other words, an asset class with an expected return of 10% and standard deviation of 5% would have its returns range from 5% to 15% approximately two-thirds of the time. 

Two MPVO Types 

  • In conventional single period MPVO, a doctor will make his portfolio allocation for a single upcoming period [time-certain], and the goal will be to maximize expected arithmetic return subject to a selected level of risk.  
  • In multi-period MPVO, a doctor will be concerned with strategies in which the portfolio is rebalanced to a specified allocation at the end of each period.

Such a strategy is sometimes called Constant Proportion (CP), or Constant Ratio Asset Allocation (CRAAL).  The goal is to maximize the true multi-period (geometric mean) return for a given level of fluctuation.  

Assessment 

MPVO is the quantitative assessment which facilitates portfolio asset allocation by considering the trade-off between risk [expected volatility] versus return [arithmetic or geometric]*. 

* Geometric mean is the n-th root of the product of n numbers – unlike an arithmetic mean – it tends to dampen the effect of very high or low values which might bias the mean if a straight average (arithmetic mean) were calculated.

And so, do you consider MPT and MPVO [which type] when constructing your own investment portfolio? Why or why not? 

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Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Medical Care and Tuition Payments

Understanding Direct Payments

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™
fp-book

Medical care and tuition payments are either direct payments to a health care provider for the medical care of another person; or direct payments of tuition to an educational institution for another person and are not transfers for gift tax purposes.   

For instance, parents may pay all the college tuition for their grandchildren free of gift tax.  This is limited to tuition, so room and board and other personal expenses are not included. 

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result?

Book info: http://www.jbpub.com/catalog/0763745790/ 

Linguistics: www.HealthDictionarySeries.com

 

IRC Section §529 College Plans

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Understanding Funding Options

[By Lawrence E. Howes; CFP™]
[By Joel B. Javer; CFP™]

Internal Revenue Code Section 529 Plans are for college education funding.  

These plans allow assets to grow tax-free if the money is used to pay for qualified higher education expenses.  Costs include tuition, room and board, books, and some miscellaneous expenses. 

But, there are penalties if the money is not used for qualified higher education expenses. 

State Pre-Paid Plans 

Some states have what they call pre-paid tuition plans and they vary dramatically from state to state.

Contributions qualify for the $12,000 annual exclusion and the annual gift of $12,000 may be aggregated – X5 years – into one payment of $60,000.   

Assessment 

However, the right to use the $12,000 gift is eliminated for the subsequent four years. 

The maximum amount per beneficiary was $235,000 until recently. The account may be structured so that the proceeds will be part of the child’s estate versus the UTMA where the account is included in the custodian’s estate. 

Some states permit contributions to be income tax deductible.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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IRC Section §303 Stock Redemptions

Understanding Physician Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™

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A family business or medical practice may make up the majority of a physician’s estate. Unfortunately, although the practice does have value, it may have very little cash.   

Recognizing the Dilemma 

In recognition of the closely held business owner, the IRS allows stock in the company to be redeemed to pay federal and state death taxes, generation-skipping transfer taxes, and funeral and administration expenses.  

There are few tax-deductible ways of getting money out of a corporation and salaries and business expenses head the list.

Example:

For example the IRS maintains that, if a business is at least 35 percent of your adjusted gross estate, the business owner can redeem stock to pay for approved expenses. Since you get a step-up in basis at death, the shares redeemed should not generate a capital gain. 

The transaction is deemed a sale of a capital asset, and not a dividend.  (A dividend is not deductible so it is taxable to the corporation as well as taxed to you personally upon receipt). 

Assessment 

The strategy of an Internal Revenue Code § 303 redemption is prudent.  However, there must be cash available to redeem the stock. Typically, a life insurance policy is purchased to provide the cash for the redemption. 

Conclusion 

Please opine and comment if you have ever considered or used this strategy; and what was the result? 

Book info: http://www.jbpub.com/catalog/0763745790/ 

Linguistics: www.HealthDictionarySeries.com 

Related: Funding IRC Section 303 to Pay Estate Taxes and Expenses

http://www.nysscpa.org/cpajournal/1997/0597/depts/pfp.htm

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Introduction to Healthcare Economics

White-Paper: healthcare_economics

From the Public Health Management and Policy Department

By Ben Hagopian

By Matt Wilson

To understand health economics, it is first critical to understand the basics of economics; or the “dismal-science.”  

At its most basic level economics can be defined as the study of choices, made by individuals or groups, when resources are limited. The concept is better known as “scarcity” and is the backbone of all economic thinking. 

This white-paper on healthcare economics is a basic dissertation by two Master’s of Public Health [MPH] students from Case-Western Reserve University. 

Although theoretical in nature, it is a good review of fundamental principles with recent domestic policy changes; complete with illustrative figures. 

The one disappointment was its failure to mention or reference, Kenneth J. Arrow PhD – the youngest Nobel Prize winning economist – of 1972. For more than fifty years he has been one of the most listened to of all practicing economists and is arguably known as the father of “health economics.”  

And, for a more pragmatic approach to augment this primer – with real world case models – the listed resources are suggested. 

Nevertheless, all readers and ‘”Executive-Post” subscribers are encouraged to review this understandable treatise. It will be well worth your time. 

Hope Rachel Hetico; RN, MHA, Certified Medical Planner

iMBA, Inc – Atlanta, Georgia USA

www.MedicalBusinessAdvisors.com 

More: http://www.springerpub.com/prod.aspx?prod_id=23759 

Individual: http://www.jbpub.com/catalog/0763745790/ 

Risk Management: www.jbpub.com/catalog/9780763733421/ 

Institutional: www.HealthcareFinancials.com 

Terms: www.HealthDictionarySeries.com

Opinions of Medical Practice Value

Sample iMBA Inc., Engagements

Understanding FMV Methodology

Dr. David Edward Marcinko; MBA, CMP™dem21

[Publisher-in-Chief]

For doctors, buying or selling a practice may be the biggest financial transaction of their lives.  Reasons for appraising practice worth include: succession, retirement and estate planning; partnership disputes and divorce; or as an important tool for organic growth and strategic planning.  

However, the transaction is fraught with many pitfalls to avoid and no medical specialty seems immune; especially when it comes to contentious fair market value [FMV] appraisals.   

“Rule-of-Thumb” Formulas – Now Considered Archaic  

As readers of the Executive-Post know, in the stable past, physicians occasionally used “rule-of-thumb” formulas to value their medical practices.

“Rules” typically were expressed as benchmark calculations, formulas or multipliers (e.g. “one times revenues” or “five times cash flow”).  

Today, because of the economic volatility in the healthcare industrial complex, “rules of thumb” should not be used to value any medical practice (other than as general internal managerial sanity checks).  

Moreover, they are fraught with legal liability should the deal sour, as such benchmarks general hold little to no weight with the IRS.  

Yet, Thumbs Still Used 

Yet, thumb-rules are still used by misguided physicians because of their simplicity and price; as the cost of a “rule-of-thumb” valuation is hard to beat; $0. Keep in mind that in most cases, you will want to ensure the value determination will stand up to IRS scrutiny, so the $0 rule-of-thumb is not really an option   

And so, a reasonable inquiry is: How is a proper Uniform Standards of Professional Appraisal Practice [USPAP] styled Opinion-of-Value crafted, and what is contained in the report? 

Opinions of Value – Often Proprietary 

For obvious reasons, an Opinion of Value structure is both standardized, yet inherently different for each valuation firm and often a proprietary and carefully guarded secrete; not unlike legal work-products. 

However, according to Hope Rachel Hetico; RN, MHA – and a Certified Medical Planner from the Institute of Medical Business Advisors Inc, in Atlanta GA [www.MedicalBusinessAdvisors.com] – a typical modern opinion might contain the following information; more or less depending on the client and nature of engagement.   

Sample Table of Contents* 

Part I—Planning the Medical Practice Valuation

  • Purpose of the Appraisal
  • Goals and Objectives of the Appraisal
  • Source Data and Fact Gathering
  • Due Diligence Preparation
  • Professional Practice Comparative Information
  • Sources of Professional Practice Industry Financial Data
  • Selecting the Valuation Method of Choice 

Part 2—Professional Practice Valuation Approaches

  • Income Approach
  • Market Approach
  • Asset-Based Approach
  • The Excess Earnings Method 

Part 3—Fractional Practice Ownership Interests and Estimated Value

  • Reasons to Appraise a Fractional Ownership Interest
  • Approaches to the Valuation of Percentage Ownership Interests
  • Percentage Ownership Interest Valuation Discounts and Premiums
  • Discount/Premium for Lack/Mandate of Control (Minority versus Majority) 
  • Discount/Premium for Lack/Mandate of Marketability and Sale
  • Discounts and Premiums for Other Nonsystematic Risk Factors
  • Sequencing of Discounts and Premiums
  • Medical Practice Capitalization Rate Construction
  • The Reconciliation and Review Process
  • Relationship of Review Valuation Process
  • Reconciliation Criteria
  • Final Value Estimate
  • Valuation Conclusion
  • Presentation of Valuation Conclusion
  • Independence Statement
  • Opinion of Value Range
  • Summary Report to Principals 

Part 4—Reporting the Professional Practice Valuation Results

  • Introduction to Valuation Reporting Standards
  • Appraisal Reporting Standards
  • Elements of the Appraisal
  • Retention of Appraisal Reports and Files
  • USPAP Format and Style
  • Confidentiality Provisions
  • Glossary of Terms
  • Summary and Conclusion 

Part 5—Appendices

  • Appendix: Bibliography of Principle Valuators
  • Appendix: Standards of the American Society of Appraisers; etc
  • Appendix: Standards of the Institute of Business Appraisers; etc     

* TOC and acuity subject to engagement specificity 

Assessment 

Legalistically, a landmark legal case in business valuation was the Estate of Edgar A. Berg v. Commissioner (T. C. Memo 1991-279).

The Court criticized the CPAs as not being qualified to perform valuations, failing to provide analysis of an appropriate discount rate, and making only general references to justify their “Opinion of Value.”  

In rejecting these experts, the Court accepted the IRS’s expert because he possessed the background, education and training; and developed discounts, and demonstrating how reproducible evidence applied to the assets being examined.   

The Berg decision marked the beginning of the Tax Court leaning toward the side with the most comprehensive appraisal. Previously, it had a tendency to “split the difference.”   

Now, some feel the Berg case launched the business valuation profession. 

Conclusion  

And so, is the Opinion of Value another reason why you should retain a fiduciary health economist to appraise your medical practice at arms-length; rather than seek a broker, agent or commissioned-salesman? Please comment and opine?   

More info: http://www.springerpub.com/prod.aspx?prod_id=23759 

Institutional: www.HealthcareFinancials.com 

Terms: www.HealthDictionarySeries.com 

Engagements: Above is the link for an abbreviated list of several sample engagements completed by the Institute of Medical Business Advisors, Inc www.MedicalBusinessAdvisors.com

Its purpose is to demonstrate the protean diversity and vast nature of similar medical client engagements. 

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA – Editor and Publisher-in-Chief – is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com or Bio: http://www.stpub.com/pubs/authors/MARCINKO.htm

Medical Building Facility Fees

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Surcharging Startled Patients

[By Staff Writers]skyscraper 

As all print subscribers to Healthcare Organizations [Financial Management Strategies], and regular readers of the “Medical Executive-Post” are aware, medical billing is complex enough without throwing another factor into the mix. 

Medical Facility Fees?

Increasingly, however, it seems that patients are being caught off guard by a new “facility fee” for visiting doctors who are based in a hospital-owned building. The issue is not exactly new, but it is expected to become more contentious as patients use high deductibles imposed by consumer directed health care plans [HD-HCPs]; according to a report by FireceHealthcare. 

Those facilities, like Milwaukee’s Froedtert & Community Health who charge the fees, usually post warning signs although their patients often end up arguing with insurance companies over payment.

Making the financial sting even worse, some insurance companies treat the facilities fee at the doctor’s office as the first dollar of what can be a high hospital deductible, rather than applying it to a physician deductible. 

And, the fees vary widely, from a relatively small $20 or $30 to a few hundred dollars.

Assessment

What’s even more insidious is that some hospitals are already charging patients not only for professional medical services, but also a facilities fee for physical use of the building.

Conclusion

This historical review paper provides a retrospective review of IRs and implications for modernity.

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Of Financial Footnotes and Fine-Print

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Financial Statements Review for Physicians

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

Of course, it is important to read the fine-print and understand the footnotes when reviewing all four consolidated financial statements or studying an annual business report.  

And, these four consolidated statements are:  

 

  1. Balance sheet
  2. Net-income statement
  3. Cash Flow Statement
  4. Statement of Retained Earnings 

However, it is seldom done by the physician, financial manager or healthcare executive. Yet, the footnotes to financial statements and fine print of annual reports are often packed with meaningful information. 

Footnote Highlights 

The following are some usual footnote highlights for healthcare entities: 

  • Significant accounting policies and practices – Public healthcare companies are required to disclose the accounting policies that are most important to the portrayal of the company’s financial condition and results. These often require management’s most difficult, subjective or complex judgments.
  • Income taxes – The footnotes provide detailed information about the healthcare company’s current and deferred income taxes. The information is broken down by level – federal, state, local and/or foreign, and the main items that affect the company’s effective tax rate are described.
  • Pension plans and other retirement programs – The footnotes discuss the healthcare company’s pension plans and other retirement or post-employment benefit programs. The notes contain specific information about the assets and costs of these programs, and indicate whether, and by how much, the plans are over-or-under funded.
  • Stock options – The notes also contain information about stock options granted to officers and employees, including the method of accounting.

Conclusion

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Statement of Retained Earnings [Shareholder’s Equity]

Financial Statement Review for Physicians

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Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]DEM Thinking

The Statement of Retained Earnings or Shareholder’s Equity [Statement of Changes in Unrestricted Net Assets] is only one of four financial statements. 

The four consolidated financial statements are:  

  1. Balance sheet,
  2. Net-income statement,
  3. Cash flow statement, and
  4. Statement of retained earnings. 

The Statement of Shareholder’s Equity is the newest statement that lists changes that occurred the previous year.  

The major elements of stockholders’ equity include capital stock, paid-in capital, retained earnings, treasury stock, unrealized loss on long-term investments, and foreign currency translation gains and losses. 

Assessment 

Shareholders equity sometimes called capital or net worth. It represents money that would be left if a company sold all of its assets and paid off all of its liabilities.  

This leftover money belongs to the shareholders or the owners of the hospital, clinic, practice or other healthcare entity. 

Conclusion 

And so, do you understand and review your financial statements regularly; why or why not?

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Statement of Cash Flows [SCFs]

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Financial Statement Review for Physicians

Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief ]

Did you know that the Statement of Cash Flows [SCFs] is only one of four financial statements? Yep; it is true. 

 

The four consolidated statements are: 

  1. Balance sheet,
  2. Net-income statement,
  3. Cash flow statement and,
  4. Statement of retained earnings. 

The SCF summarizes the affects of a medical practice or health entity on cash balances and/or liquidity from these three activities:

  • Operating activities: Including cash inflows (ARs, receipts, donations, accrued expenses, interest, and dividends) and outflows (inventory, prepaids, supplies, and loans) – this is where the majority of hospitals or medical practices generate most of their revenues from patient services and to a lesser degree from grants or other contributions, etc; 
  • Investing activities: Including the disposal or acquisition of non-current assets, such as equipment, loans or marketable securities; and,
  • Financial activities:  Generally including the cash inflow or outflow effects of transactions and other events, such as issuing capital stock or notes involving creditors, owners, or shareholders. 

Assessment 

Prior to 1988, the formal SCF was known as a Statement of Changes in Financial Position and projected estimated cash flows by month, quarter, and year, along with the anticipated timing of cash receipts and disbursements.  

Conclusion

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Federal Drug Detailing Program

New Proposal for “Academic” Detailing

[By Staff Writers]

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A bill will soon be introduced in the United States Senate that would offer physicians an alternative source for the latest information about new drugs, instead of relying on pharmaceutical manufacturers and retail drug representatives.  

The Proposal 

The legislation, sponsored by Senators Herb Kohl (D-Wisconsin) and Dick Durbin (D-Ill.) would create a federal “academic” detailing program to produce independent educational materials for physicians and medical professionals on the safety and comparative effectiveness of prescription drugs.

This would include generic and over-the-counter products, based on research at pharmacy and medical schools, according to Modern Physician.  

Assessment 

Now, some academic detailing services have already been implemented at the state level and by integrated health systems such as Kaiser Permanente, while preliminary results suggest that these programs have effectively changed prescribing behavior while reducing health care costs. 

Conclusion 

And so, what are your thoughts on the matter; please comment and opine? 

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Fixed Annuity Tax Query?

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Dear Medical Executive-Post,

I purchased a fixed contract annuity for $50,000 in 2004.

This was a guaranteed principle annuity with MetLife. I used money from a CD. This was not an IRA. I withdrew interest monthly and withdrew the allowed 10% per year.

In January 2007, the interest was so low (2%), that I decided to withdraw all funds. I was charged a 6% early withdrawal penalty (approx. $2,300).

  • How is this treated for taxes?
  • Early withdrawal penalty on Line 33?
  • Loss on investment?

This does not show on the 1099, but it is on the remittance advice.

Thank you.
Linda

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

“Rules-of-Thumb” and Medical Practice Valuation Benchmarks

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Busting another Myth of Medical Practice Appraisal

[By Dr. David Edward Marcinko; MBA, CMP™]

[Publisher-in-Chiefdr-david-marcinko]

For doctors, buying or selling a practice may be the biggest financial transaction of their lives. 

Reasons for appraising practice worth include: succession, retirement and estate planning; partnership disputes and divorce; or as an important tool for organic growth and strategic planning.

However, the transaction is fraught with many pitfalls to avoid and no medical specialty seems immune. 

Valuation Difficulties 

For example, we recall the MD who asked her accountant for the “value” of her practice and was correctly given its lower “book value”, rather than its higher “fair-market-value” as a profitable ongoing-concern. The doctor lost tens-of-thousands-of-dollars in a subsequent attorney-driven sales transaction.

Although her CPA produced correct figures for exactly what was requested, the doctor and attorney did not differentiate between the two terms-of-art.  Later legal mediation determined that neither was responsible for the linguistic error, as both parties acted in good-faith.

Of course, it was the doctor who paid dearly for her mistake in communication and business acumen.  

“Rules-of-Thumb” [aka: benchmark formulas or calculations] 

And so, in the stable distant past, physicians occasionally used “rules of thumb” formulas to value their medical practices. 

“Rules” typically were expressed as benchmark calculations, formulas or multipliers (e.g. “one times revenues” or “five times cash flow”).  

Today, because of the economic volatility in the healthcare industrial complex, “rules of thumb” should not be used to value any medical practice (other than as general internal managerial sanity checks).  

Moreover, they are fraught with legal liability should the deal sour, and such benchmarks general hold little to no weight with the IRS. 

Case example [the tale of two identical medical practices] 

Economically, for example, consider two medical offices, each earning $1 million in gross revenues; both worth $1.5 million (according to a “rule of thumb” that a medical practice is worth 1½ times annual revenues).  Yet, in reality Medical Office #1 is worth twice Medical Office #2.   

How is this possible?   

The answer is because Medical Office #1 is a newer practice in a hot neighborhood that did $500,000 last year, $1 million this year; and projects to do even more next year.  Its property, instruments, HIT and medical equipment is new; aggressive young physician-executive management and medical training is excellent.   

Medical Office #2 is an older practice located in a low-income area, revenues were $2 million a few years ago and have fallen to the current level; the practice has a leaky roof, old equipment and lots of deferred maintenance, etc.  HMO patients abound, with declining reimbursement rates and an older practitioner.  

Assessment 

So, although much more complicated than the above simple example, we can now see how “rule-of-thumbs” can mislead more often than inform. 

Yet, we might also ask why they are still used by some misinformed doctors?  

Simplicity and inertia is the answer, according to Hope Rachel Hetico; RN, MHA a valuation professional and Certified Medical Planner™ from the Institute of Medical Business Advisors Inc, in Atlanta GA www.MedicalBusinessAdvisors.com 

And, the cost of a benchmark “rule-of-thumb” valuation is hard to beat; $0. Keep in mind that in most cases, you will want to ensure the value determination will stand up to IRS scrutiny, so the $0 rule-of-thumb is not really an option  

The Case of Edgar versus Berg 

Legalistically, a landmark legal case in business valuation was the Estate of Edgar A. Berg v. Commissioner (T. C. Memo 1991-279). The Court criticized the CPAs as not being qualified to perform valuations, failing to provide analysis of an appropriate discount rate, and making only general references to justify their “Opinion of Value.”  

In rejecting these experts, the Court accepted the IRS’s expert because he possessed the background, education and training; and developed discounts, and demonstrating how reproducible evidence applied to the assets being examined.  

Assessment 

The Berg decision marked the beginning of the Tax Court leaning toward the side with the most comprehensive appraisal. Previously, it had a tendency to “split the difference.”  

Now, some feel the Berg case launched the business valuation profession.

MORE: https://medicalexecutivepost.com/2017/11/03/traditional-reasons-for-a-medical-practice-valuation/

Conclusion

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Invite Dr. Marcinko

Net Income [P&L] Statements

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Financial Statements [A Review for Physicians]

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]biz-book

The Net Income [Profit-and-Loss Statement] Statement [NIS] is only one of four financial statements. 

The four consolidated statements are: balance sheet, net-income, cash flow and retained earnings. 

The NIS reflects the following in a medical practice or healthcare business entity: 

  • Income from patient services, plus revenue from research grants, educational programs, gift and cafeteria sales, office space and parking lot rental, and investment income; and,
  • Expenses including general overhead, non-operating expenses like salaries and wages, fringe benefits, supplies, interest, professional fees, bad debts, depreciation, and amortization.  

Increases in working capital, current assets, the retirement of debt, and investment in new fixed assets are not considered in the Net Income Statement [NIS]. 

Assessment of Accounting Differences 

Definitional differences do occur, however, in the income statement. 

For example, the NIS may report physician compensation and benefits in the expense category, during a period of time.

Small physician practices, on the other hand, may report income and expenses on a “cash accounting” basis reflecting income actually received and expenses actually paid.  

The “accrual method” of accounting records expenses when they are incurred and income when earned, not when paid or received as in the cash method.

The cash method is easier, but the accrual method is more accurate and most healthcare entities use this method. Accrual accounting will increase going forward because of the nature of discounted contracts, capitated contracts, or other fixed reimbursement arrangements.  

Conclusion

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Balance Sheet [Statement of Financial Position]

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By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

biz-book1The Balance Sheet [BS] is one of four financial statements that report a medical practice or healthcare entities financial position in terms of its assets, liabilities, and shareholder/owner equity, at a specified point in time.  

The four consolidated statements are: balance sheet, net-income, cash flow and retained earnings. 

Included on the Balance Sheet are the following line items:

  • Fixed assets include property, buildings, furniture, and equipment. 
  • Current assets include those that can be converted into cash within a short period of time, typically within a year; such as Accounts Receivable (AR), checking accounts, cash equivalents and investments, money funds, inventory and pre-paid expenses; other long term assets like intangibles (and goodwill). 
  • Current liabilities and Accounts Payable (AP) are to be paid within the fiscal year, and include short-term debts, salaries and wages, accrued expenses and other notes. 
  • Short-term liabilities are loans repaid over one year.
  • Long-term liabilities are loans repaid over many years. 

Assessment 

Ownership is shown in the form of retained earnings or medical practice equity and represents the difference between the total assets and total liabilities of the unit. 

Working Capital is a key concept in cash flow analysis. Working Capital is the difference between current assets and current liabilities [WC = CA – CL].  

An increase in working capital implies (-) cash flow; a decrease implies (+) cash flow.

Cash position, or liquidity, is measured by changes in working capital, not the level of working capital.

Conclusion

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Hospital Acquired Conditions

Clarifying “Never-Events” Terminology

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

dr-david-marcinko1Did you know that “never-events” are also being called “hospital acquired conditions”; in some cases? 

Of Terms and Definitions 

Below is the list of conditions that the Centers for Medicare and Medicaid Services (CMS) selected in its FY 2008 final rule: 

  • Serious Preventable Event — Object Left in Surgery
  • Serious Preventable Event — Air Embolism
  • Serious Preventable Event — Blood Incompatibility
  • Catherther-associated Urinary Tract Infections
  • Pressure Ulcers (Decubitus Ulcers)
  • Vascular Catheter-Associated Infection
  • Surgical Site Infection — Mediastinitis After Coronary Artery Bypass Graft (CABG) Surgery
  • Hospital-Acquired Injuries — Fractures, Dislocations, Intracranial Injury, Crushing Injury, Burn and Other Unspecified Effects of External Causes

Assessment 

IOW: You might say “nosocomial”; but I may say “hospital-acquired” when it comes to infections? 

And so, is this a linguistic technique to take some of the legal-liability and “sting” out of “never-events” terminology?

Does a term-of-art really matter to the affected patient? Suppose you were the patient? 

Conclusion 

Please comment and opine? 

Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA – Editor and Publisher-in-Chief – is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com 

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On CPT® and HCPCS Codes

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Understanding Cost Drivers

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]dem2

Currently, there are more than 10,000 physician services designated by the Current Procedural Terminology® (CPT) or Healthcare Common Procedure Coding System® (HCPCS) codes. 

Types of Cost Drivers 

Each reflects the three major cost drivers of a particular procedure:

1) Physician work: or the Relative Value Unit (RVUw) of medical providers’ work efforts, pre-service, intra-service and post-service time. 

Patients may exhibit anxiety when examined orduring procedures resulting in the need for additional timeand effort by the physician to respond to and prepare for the examination or procedure. This uniformly adds moretime and stress to the pre-service and intra-service period as doctors respond to constantly changing behavior, questionsand level of cooperation in varying specialties. 

Follow-up communicationwith employers, family, friends and concerned others requires increased post-service times. 

2) Practice expenses (RVUpe): including non-physician costs but excluding medical malpractice coverage premiums 

The practice expense component of the RBRVS includes clinicalstaff time, medical supplies and medical equipment. Often, the costsof supplies and equipment are not proportional to practicesize.

Major factorsaffecting practice expense are the volume of telephone, cell or internet management services, and the casemanagement and administrative work required.

For example,high patient turnover requires more examination rooms to maintain physician efficiency.

High volume requires moreclerical staff to deal with larger patient-flow volume and resulting phone calls, difficultiesdressing and undressing patients, and is marked by increasedcomplexity and time in collecting laboratory specimens. 

Thesefactors must be accounted for in any resource-based practiceexpense study and in the resulting practice expense calculationsfor medical services; and 

3) Malpractice (RVUm): representing the cost of liability insurance.

The RBRVS system assigns RVUs to cover the malpractice expensesincurred by physicians.  

These malpractice RVUs, originally calculatedfor office-based physicians, may systematically undervaluethe practice liability costs for some specialties.The prolonged statutes of limitation on some legalactions may result in increased malpracticerisk exposure for physicians providing such services [i.e., pediatricians]. 

Assessment 

The differences in exposure may not be calculated in theRBRVS system, and were not included in initial studies. Specialty specific survey data for malpractice expenseshould be used for this component when assigning final RVU valuations. 

Of course, without specialty specific CPT® codes, however, there is no wayto do this objectively. 

Conclusion

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INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

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MS-DRG Classification System

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Upgrading the DRG Scheme of the Mid-Nineties

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

Dr. DEMThe Centers for Medicare and Medicaid Services [CMS] just adopted as final its proposal to restructure the older 538 Diagnosis-Related Groups (DRGs) to 745 new MS-DRGs (Medicare Severity-adjusted Diagnosis Related Groups) to better recognize severity of patient illness. 

According to the CMS and the consulting RAND corporation, the newer MS-DRGs more accurately capture resource utilization by splitting the large number of former DRGs into three different categories based on the presence or absence of diagnoses classified as “major complication or co-morbidities” (MCC), “complications or co-morbidities” (CC), or “without MCC/CC” (Non-CC). 

Phase-In Period 

The MS-DRGs will be phased in over a two-year period, rather than at one time, as originally proposed.  

  • For the first year of the transition (FY 2008) half of the relative weight for each MS-DRG will be based on the current DRG relative weight and half will be based on the new MS-DRG relative weight.
  • For the second year (FY 2009), the relative weights will be based entirely on the MS-DRG relative weight.  

IPPS and Budget Neutrality

CMS adopted its proposal to reduce the In-Patient Prospective Payment System [IPPS] standardized amounts by 4.8% to maintain budget neutrality and account for expected changes in coding and documentation.  

Instead of applying a 2.4% adjustment over a two year period as proposed, CMS will apply an adjustment of -1.2% for FY 2008 and based on current projections will apply adjustments of -1.8% each year to the IPPS standardized amounts for FYs 2009 and 2010. 

Assessment 

The final rule will implement Section 5001(c) of the Deficit Reduction Act of 2005 (DRA), which requires the secretary to select at least two conditions that are (a) high cost or high volume or both, (b) result in the assignment of a case to a DRG that has a higher payment when present as a secondary diagnosis, and (c) could reasonably have been prevented through the application of evidence-based guidelines by October 1, 2007.

Conclusion

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Thomas E. Getzen; PhD

ABOUT

Dictionary of Healthcare Economics and Finance   

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Why the Dictionary of Healthcare Economics and Finance?  

Every business and healthcare administration student I’ve ever taught over the last three decades has struggled to decipher the alphabet soup of medical economics (i.e., OPHCOO, ALOS, DRG, RBRVS, behavioral health, acuity, etc), while those coming from clinical medicine struggled to internalize the lingo of finance (i.e., call premium, cost benefit ratios, IGARCH, aacpd, IBNR ABCM, internal rate of return, accounts receivable days outstanding, etc.).  

Until we have a common language however, medical and business professionals cannot possess a shared vision, nor can we communicate successfully to create healthcare entities that provide quality care to patients and reasonable profits to medical practitioners.  

Of course, no single tool can meet all needs and there are many fine books on healthcare economics and finance, along with a legion of consulting firms, management associations and university programs.

Yet, to effectively use these resources, one needs to have the right words, and to use seemingly everyday terms in a way that economists and healthcare financial experts speak. 

Unfortunately, healthcare service costs continued to rise more rapidly than wages during the last decade, and consumed an ever-larger share of Gross Domestic Product (GDP), creating hardships for both employers and employees.  

For example, health spending accounted for 15.3 percent of the nation’s economy or $2.05 trillion in 2006, averaging $6,175 for every American. Health insurance premiums rose 8.8% to more than $14,500 for family coverage, and by 2013, the US government forecasts health spending will reach 18.4 percent of gross domestic product.

It is no wonder that controlling costs is the top concern of fringe benefit specialists, according to Deloitte Consulting and the International Society of Certified Employee Benefit Specialists.

More than one-third of the rise was due to a 13.6% increase in outpatient spending. Higher utilization rates accounted for 43% of the increase, fueled by increased demand, more intense medical treatment and defensive medicine, according to PricewaterhouseCooper.

And, let us not forget that one in seven Americans lack health insurance; that’s 46 million people or 15.7 percent.

At the same time, medical professionals struggled to maintain adequate income levels. While some specialties flourished, others like primary care barely moved forward, not even incrementally keeping up with inflation.  

In the words of Atul Gawande, MD, a surgical resident at Brigham and Women’s Hospital in Boston, and one of the best young medical writers in America, “Doctors quickly learn that how much they make has little to do with how good they are. It largely depends on how they handle the business side of their practice”. 

Increasing, some physicians have become more aggressive in seeking out business opportunities. For example, Neurosurgeon Larry Teuber MD, built a specialty hospital in Rapid City SD, and earned $9 million dollars in a single year.  Investors also became wealthy, and the hospital where he previously practiced and some former colleagues were not so fortunate or happy; even suggesting that he stepped “over the line.” 

While it is difficult to fully understand a complex situation from a brief overview, it is vital for medical professionals to have definitions that clarify “the line,” and for businesses to define the forces and implicit understandings that underlie medical ethics. 

Alas, the Dictionary of Healthcare Economics and Finance cannot solve these problems, just as the rule-of-law cannot answer the question of whether or not Dr. Teuber did “the right thing.”

What the Dictionary can do however, is set the context, and clarify the terms of debate. Consumers also need to know what these terms and conditions mean.  If this was not evident until now, passage of Medicare Part D has made it painfully obvious that clarity is needed, and that continuing education in the economic and financial terminology of healthcare is a lifetime task. 

Once drug co-payments, corridor deductibles and exclusions are mastered, one can begin to sort out the limits on long-term care insurance, homecare and hospice benefits, and the ever-changing levels of hospital and physician reimbursement dictated by SGA (sustainable growth adjustments) … and there is still much more to study and learn. It takes knowledge to practice medicine and to earn capital, assume risk and invest in emerging healthcare entities.

And, none of us can escape the responsibility of knowing what the terms of engagement are.  In times of great flux, such as the revolution in reimbursement and payment systems occurring today, codified information protects us all.

The Dictionary of Healthcare Economics and Finance provides that protection by bringing stability to the nomenclature of healthcare fiscal and economic concerns.

With 10,000 definitions, acronyms, illustrations, cliometric equations and industry notables, the Dictionary is an authoritative and comprehensive guide to better healthcare administration transactions. 

Dr. David Edward Marcinko, Academic Provost for the Institute of Medical Business Advisors, Inc, and a Certified Medical Planner© should be complimented for conceiving and completing this ambitious project.  

The Dictionary of Healthcare Economics and Finance spells out the terms of reference and the principle players in the contemporaneous healthcare industrial complex.  Having such a compendium readily at hand and sharing it with others, is a way for patients, accountants, financial planners and insurance agents, medical practitioners, nurse managers and healthcare executives to improve economic efficiency and clinical quality. 

Of course, it may even help restore fiscal enterprise-wide sanity, as well.  

Simply put, my suggestion is to refer to the Dictionary of Healthcare Economics and Finance frequently, and “reap”.  

  1. The New Yorker, April 4, p.47, 2005.
  2. Wall St. Journal, Aug 2, 2005.
  3. Reuters, Jan 31, 2006.
  4. Modern Healthcare Jan 31, 2006.

Thomas E. Getzen, PhD

Executive Director, International Health Economics Association

Professor of Risk, Insurance and Healthcare Management

The Fox School of Business – Temple University

Philadelphia, Pennsylvania, USA 19122 

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Job_Index_Inforgraphic

***

MGMA Reimbursement Report

Charting Medicare Uncertainty in 2008

Staff Writers 

 

According to the Medical Group Management Association [MGMA], physician group practices nationwide are reacting to an uncertain reimbursement environment and the failure of Medicare physician payments to keep pace with the cost of delivering care.

Uncertain Economics 

As a result of a six-month adjustment to Medicare payments, the looming 10.6 percent cut scheduled for July 1 2008 – and an additional 5.4 percent cut to physician reimbursement scheduled for January 2009 – physicians and medical practices are considering reducing beneficiary access further and making operational sacrifices.  

Assessment 

Nearly 24 percent of respondents indicated that as a result of the financial uncertainty created by the temporary adjustment to Medicare physician payments – and pending 10.6% reductions scheduled for July 2008 – they had either begun limiting or not accepting new Medicare patients. 

And, nearly half (46 percent) of respondents said they would have to stop accepting and/or limit the number of Medicare beneficiaries their practices treat.  

Conclusion 

And so, how will you deal with the diminishing reimbursement environment in a changing regulatory and economic milieu; please be specific with your comments? 

 

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AMGA Physician Supply Study

Cejka Suggests Economic Disparities to Increase

Staff Reporters 

 

According to a new report by the American Medical Group Association (AMGA) and Cejka Search, the economic imbalance in supply and demand for physicians will intensify as the U.S. population continues to grow faster than the physician workforce.

Moreover, added pressure will come with the increasing number of physicians practicing medicine on a part-time basis. 

Findings 

In the recently released survey, responding groups reported an increase in the percentage of physicians practicing part-time from 13 percent in 2005 to 19 percent in 2007, while males increased from 5 percent to 7 percent, and females increased from 8 percent to 12 percent.  

The age group with the greatest number of physicians practicing part-time is between 35 and 39; the gender split among part-time physicians in that age group is 15 percent male and 85 percent female. 

Of the physicians practicing part-time, 83 percent practice more than half of a workweek and 45 percent practice at least three-quarters of a work-week.  

And, eighty-six percent of respondents reported that they hired hospitalists or engaged with a hospitalist organization in the past year, while the likelihood of the group doing so increased with the size of the group and if it was owned by a hospital or an integrated delivery system.  

Conclusion: 

And so, is there a solution to this conundrum; please comment? 

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Managed Care Contract De-Selection Risks

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Origins of Medical Practice Patient Flow

[By Dr. Charles F. Fenton III; Esq]

fentonIn the current medical environment a physician’s practice does not consist of a collection of individual patients, or even of the “charts.”  

Rather, a physician’s practice consists of a number of managed care contracts that allows the physician to be a member of a panel and listed in the individual subscriber’s insurance book-of-business.  

Practice Cash Flow 

Today, patients merely flow from managed care contracts. Without managed care contracts, there are few patients and little cash flow. 

Therefore, the physician may face the risk of being de-selected from an individual, or several, managed care panels as contractual issues change, morph or are otherwise altered during each enrollment period. 

Assessment 

Each de-selection will have an adverse effect on the physician’s practice.  In actuality, the revenue lost from de-selection will come disproportionally from the net revenue of the practice.

Often one de-selection will snowball into several de-selections, until the physician barely has a practice remaining. 

Conclusion

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Frank A. Cappiello; MBA

About:

Financial Planning for Physicians and Advisors [second edition] 

fp-book3

Financial Planning for Physicians and Advisors is essentially a “how-to book” on finance, financial planning and related topics for healthcare providers. 

Fortunately for patients, medicine requires a high degree of professional training, both in terms of science and technology. Unfortunately for providers, it affords little time for acquiring medical practice management skills, or learning about the financial aspects of business or investment planning. 

More to the point, this is an unusual textbook on financial planning for two reasons:

  1. First, it is a detailed guide for physician’s seeking the complex road to success and profit in the confusing healthcare industrial complex.  Rarely does one see such clarity of presentation, without the usual jargon that often discourages those trying to learn such a foreign and forbidding subject, as finance.  
  2. Second, the subject matter is focused for medical providers who work in one of the fastest growing industries in the United States.

The contributors hope that by integrating both disciplines of finance and medical management, they will help foster affordable and profitable healthcare for our nation, which is so entrepreneurial, yet aging. I

In my thirty-five years on Wall Street, I have observed that physicians are particularly disadvantaged when it comes to anything regarding finance. 

Most medical professionals have enough on their mind practicing their specialty and keeping up with healthcare technology and practice trends, that planning for their financial future is often forgotten. 

Financial planning and good investment practices require a solid background of how companies work in the “real world”, and an awareness of how they function within the economy. These economic essentials are vital to understanding business, as principles like budgeting, risk management, cash flow analysis, fiscal benchmarking and rudimentary accounting are presented in this book. 

Furthermore, the necessity of keeping up with state and federal insurance legislation, the Health Insurance Portability and Accountability Act and other complex managed care contracting issues, places a continual burden on the individual practitioner, group or medical network seeking to stay abreast of current developments.  

But, the text focuses on financial planning and how the healthcare professional can increase personal knowledge and skills in this area. The coverage is both broad and yet detailed, ranging from basic macroeconomic factors that affect our national economy, such as the Gross Domestic Product (a single figure that summarize the business activity of the US), to the more mundane activities of maintaining cash flow, tax reduction strategies, home mortgages and even correcting credit card reporting errors. 

More sophisticated topics include: debt and equity investment vehicles, derivatives, mutual fund and hedge fund investing, portfolio management and risk analysis, and the new laws on tax, retirement and estate planning.

The book rightly concludes with practice succession planning for doctors, and begins with a chapter on the psychological meaning of money itself.

It seems to me that all those in healthcare are well-served by reading this book with its format and step-by-step setup process for financial success, in terms of starting and ultimately surviving in a complicated business full of pitfalls and misinformation.  

Most useful will be the extremely detailed table of contents that allows the user to quickly pinpoint an area of interest, and get started answering a problem. 

Simply put, my recommendation is to read: Financial Planning for Physicians and Advisors, and “reap”

Frank A. Cappiello; MBA
President, McCullough, Andrews & Cappiello, Inc
10751 Falls Road Suite 250
Lutherville, MD  21093
Distinguished Visiting Professor of Finance
Loyola College, Maryland

Former Wall $treet Week with Louis Rukeyser Guest and Host

Conclusion

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Medical Management Services Organizations

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Understanding MSOs

By Dr. David Edward Marcinko; MBA CMP™

[Publisher-in-Chief]dem23 

Most medical practice management services organizations [MSOs] for doctors are organized as IPAs.

Under such plans, doctors make the rules, regulations and medical care guidelines while MSO executives (MBAs, CPAs, CFAs, PhDs and JDs) administer those policies. Centralized data is collected and the organization is responsible for utilization review, quality control, and eligibility verification and payment. 

Definition 

The MSO is more of a broker, who works for the physicians in the plan, marketing, selling and running it on a daily basis. This leaves the MD’s unfettered to provide patient care; for a price that is typically 10-18% of net patient revenues, per month. 

Practitioner Candidates? 

A medical practitioner may be a candidate for a MSO organization if s/he possesses most of the following characteristics: 

  • excellent medical education,
  • good business background,
  • honed management and leadership skills,
  • practices in a large multi-doctor group with rising net income,
  • uses current HIT systems,
  • has gross margins exceeding fifty percent,
  • provides ancillary services such as a wound care or ambulatory surgery center,
  • is under 45 years of age, and;
  • desirous of practicing medicine in the future.  

Assessment 

Finally, the provider should have some business savvy and practice in an area with relatively weak MCO market penetration.  

Any provider should also consider joining a MSO if his future professional outlook is optimistic and positive.

Conclusion

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Managed Medical Care Contract Risks

More than Malpractice Liability

By Dr. Charles F. Fenton III; Esq 

 

Attorneys are becoming more aggressive in suing HMOs and other managed care companies.  

A Review 

Historic bars to such suits are declining simultaneously with recent Federal ERISA protection erosion. The upshot is that more litigation against managed care companies, their affiliates, and their health care providers are likely.  

Doctor Awareness 

The health care provider needs to be aware of these trends, needs to evaluate his/her own situation, and may need to take certain steps to limit these new evolving risks and potential liabilities. 

For example, the usual method of protection for the practicing physician, the use of the corporate form of business, is usually no benefit when signing managed care contracts.

Most managed care companies credential the individual physician and hence require that the individual physician and not the professional corporation sign the contract.  

Assessment 

This may put all of the physician’s personal assets at risk! 

Conclusion 

Your comments are appreciated? 

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Office Based EMR Cost Report

A Preliminary BC/BS Cost-Benefit Analysis

By Staff Reporters  Stethoscope

BlueCross-BlueShield of Massachusetts recently announced that it will not require physicians to install or use electronic medical records [EMRs] to participate in its new bonus program. The health plan came to the conclusion that the financial benefits of office-based electronic medical records systems are just not worth the cost to doctors.  

Little Office-Based Value 

Relying on information from past studies, the American Medical Association [AMA] estimated that office-based doctors see only 11 cents of every dollar saved through the use of information technology, according to AMNews reports. 

More Hospital Value 

But, the Massachusetts Blues did find value in health information technology [HIT] that physicians would need to use, as its own cost-benefit analysis concluded that computerized physician order entry makes financial sense in the hospital and enterprise-wide healthcare setting. 

Assessment 

The MA-Blues will require hospitals and health systems to install computerized physician order entry systems [CPOEs] by 2012, in order to participate in the bonus program.

Conclusion

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Lloyd M. Krieger; MD, MBA

FROM THE PREFACE

Risk Management, Liability Insurance and Asset Protection Strategies for Doctors and Advisors  

Insurance is an important part of all our lives. This is especially true for physicians, medical and healthcare executives.

For example, I currently have no fewer than 10 separate insurance policies associated with my plastic surgery practice. I understand very little about the policies other than that somebody at some point told me I needed each and every one of them, and each made sense when I bought it.   

  • Am I over-insured and thus wasting money? 
  • Am I under-insured and thus at risk for a liability disaster? 

I never really had the means of answering these questions, until now. 

Risk Management, Liability Insurance and Asset Protection Strategies for Doctors and Advisors is an essential textbook because it explains to physicians and insurance professionals the background, theory, and practicalities of medical risk management and insurance planning.  The insurance haze is lifted by-dual degreed editor, and Certified Medical PlannerDr. David Edward Marcinko MBA, and his team of contributing authors. 

Doctors, like most people, tend to experience losses more intensely than gains, and evaluate risks in isolation.  So it’s no surprise that goaded physicians might prefer vehicles like the guaranteed minimum death benefit of variable annuities, or the assurance that comes with disability or long term care insurance, or traditional cash value life insurance policies, despite their decidedly higher costs and commissions.  

Similarly, physicians may enter denial mode and eschew the potential business impact of HIPAA and Balanced Budget Act risks; self referral risks; OSHA, DEA, EPA, OCR, P&C or managed care risks; managed care contract capitulation risks; employee, expert witness, peer review and on-call risks; and even educational debt load risks, among so many others. 

For real insurance professionals on the other hand, this is an exciting time to be practicing medical risk management, because there is much research and creative enlightenment occurring in academic and practitioner communities.  

But, one must be willing to abandon ancient thoughts and remain open to new ideas that identify and provide solutions to the contemporaneous problems of physicians.  

As an example of this epiphany, the economist Christian Gollier revisits the raison detra’ of insurance, by asking: should one even buy insurance since the industry itself is so skilled at exploiting human foibles? Although this emerging work is descriptive, it is not yet time tested since some of it aspires to be normative, as developing modern models of savings and consumption hint that insurance may deserve a smaller role in personal risk management than previously believed.

Risk Management, Liability Insurance and Asset Protection Strategies for Doctors and Advisors  fulfill its promise as a peerless tool for physicians wanting to make good decisions about the risks they face.  

It is also ideal for financial planners, insurance agents and healthcare business advisors wishing to re-educate and help doctors by adding lasting value to their client relationships.  

With time at a premium for all, and so much information packed into one well-organized resource, this book should be on the desk of every physician, or financial advisor serving the healthcare space.   

Simply stated, if you read this compelling text with a mind focused on the future, the time you spend will be amply rewarded. 

Lloyd M. Krieger; MD, MBA

Rodeo Drive Plastic Surgery

The Rodeo Collection

421 North Rodeo Drive

Beverly Hills, CA  90210

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Bars to Managed Care Lawsuits

A Historic Review

 By Dr. Charles F. Fenton III; Esq.insurance-book1 

Historically, managed care companies have been afforded immunity from negligence and malpractice lawsuits. Several state and federal bars, including ERISA (Employee Retirement Income Security Act of 1974), have insulated managed care companies from liability relating to the treatment of patients.  

Likewise, managed care companies have historically been immune from malpractice committed by a health care member of its panel of providers.  

State Arena 

On a state laws basis, the Corporate Practice of Law often insulated managed care companies from such liability.

The theory underlying this protection was essentially uncomplicated; since corporations are prohibited under the Corporate Practice of Law Doctrine from practicing medicine, they should not be held liable for medical negligence and malpractice.  

Recent Updates 

However, in recent years, it has become apparent that managed care companies do in fact “practice medicine.”  These companies tell their panel of providers how to practice, whether it is in a generalized or specific field of medicine.

For example:  

  • They establish a formulary of approved drugs, limiting those medications available to their subscribers.
  • They review and then approve or deny needed medical care.
  • They create economic incentives for patients to be under treated or treated in a predetermined manner.
  • They effectively minimize referrals to specialists, often at the peril of the patient subscriber and the health care provider seeking that consultation.  

Federal Arena 

In the Federal arena, ERISA has been the primary deterrent to suits against managed care companies.  

Under the theory of Federal preemption, even the lowest Federal regulation takes precedence over any and all state laws. ERISA has however been described as possessing “Super-preemption.”

This term was coined to evince the special deference that courts have displayed to potential defendants who allege defensive protection based upon ERISA.  

In the past, most providers ran into the ERISA preemption when a health plan governed by ERISA was contrary to a state law, such as state anti-discrimination law (i.e., a state law prohibiting insurance payment discrimination based on degree).  

Assessment 

In this context, physicians should understand that liability claims, such as medical malpractice claims, are state law causes of action.  Since the Federal ERISA law trumps state laws, bringing a medical malpractice action against an ERISA entity is almost impossible. 

 Conclusion 

 Have you ever been involved in such an issue; and what was the outcome? Please comment.  

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Edwin P. Morrow; CFP, ChFC, CLU, RFC

About:

Financial Planner’s Library on CD-ROM [third edition] 

fp-book3

The financial planner is a like juggler, trying to keep a variety of balls simultaneously in the air.  Each aspect of practice becomes critical, just as action is needed. 

Some of the activities of operating a successful financial planning practice generally attract more attention than others, such as marketing and advertising, closing engagements, and office administration.  Because product review, selection and implementation are often related to advisor compensation, they attract a great deal of the financial juggler’s concentration. 

The heart of financial planning, advice, often receives little attention.  Not because it is unimportant, it just doesn’t seem immediately and predictably urgent.  That ball does not seem to be dropping so rapidly. 

However, retaining clients and receiving referrals from other professionals is very dependent on the quality of the advice delivered.  And, the first line of protection from practitioner liability exposure is to not deliver incorrect or incomplete advice. 

But, where does the advisor turn for ideas and organized research? 

There are many sources. Perhaps there was treatment of a critical topic at a prior conference?  But, which one?  Were the ideas in the presentation, or the handout?  Where is the workbook, white paper or cassette?  And, how can the professional advisor instantly search, retrieve, review and use the knowledge of experts? 

That’s what the Financial Planner’s Library on CD-ROM is all about.  It represents the collected wisdom of 40 noted experts, in 30 chapters.  Their vast experience, research and application techniques are assembled for quick access and easy use.   

Find the references you need from among 3,000 pages almost instantly.  Read the well-written discourse.  Discard what is not applicable.  Copy and retain that which is helpful, and paste it right into your analysis. There is nothing as valuable as a tool that is handy and right for the job.  The mechanic who left a critical tool back in the shop can’t fix a car on the road. 

Likewise the financial planner that suddenly recognizes the need for expert opinion to suggest an idea or confirm a suspicion cannot suddenly order the tool required, Financial Planner’s Library on CD-ROM.  It must be at hand, installed in your computer and tested. Every tool requires a bit of experience to be used effectively. 

The best time to learn is not under the urgency of a plan to be delivered to the client within a few hours.  The planner needs to reach into the toolbox, grasp the proper instrument, apply it correctly and voila – the problem is solved! 

Now that you have acquired a very powerful toolbox, you need to take a few moments while you are not under pressure, to learn how to use it. This will be most valuable for your business: 

  • You’ll be amazed at the learning you will be able to acquire by leisurely reading those sections most relevant to your practice; and also wander intellectually in the fields you’ve never explored, but would like to know more about.
  • You’ll know how to perform searches to instantly find the documents you need, and how to read and extract this information when it is required.

It only makes sense to practice with your new Financial Planner’s Library with CD-ROM.  If you are a prior user, quickly review the new features that have been added, and check out the revised and more efficient procedures.

By acquiring the Financial Planner’s Library on CD-ROM, you have equipped yourself with an entire box of very effective tools.  With only 10 to 15 minutes of practice you will know how to use it efficiently.  Then, just when you suddenly need the resources of great minds and endless experience – here it is at the click of your mouse! 

Edwin P. Morrow; CFPTM, CLU, ChFC, RFC

Middletown, Ohio, USA 

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Patterns of Medical Practice Risks

Applied Statistics and Large Numbers

By Dr. Charles F. Fenton III; Esq  

One of the next big areas of medical practice risk management that will surface in the near future is the Pattern of Practice Risk.   

Pattern of Practice refers to the way that a particular physician practices medicine. With computers, standardized diagnosis and treatment codes – and the budgetary restraints inherent in medical practice – it is becoming easy to statistically analyze a physician’s method of practice. 

Outliers – Can Lie 

The treatment and diagnosis codes that a physician uses and submits to third party payers can be quantified and compared colleagues in the same or similar specialties. Statistical outliers can be identified.  

Assessment 

These outliers are then further audited and required to justify their treatments. If no rational basis exists for the statistical differences, the outlier may find himself the subject of a fraud investigation. 

Conclusion 

Have you ever been involved in a patterns-of-medical-practice audit? If so, please comment on your experience.

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Independent Physician Associations

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Understanding Medical Networks and IPA’s

By Dr. David Edward Marcinko; MBA CMP™

[Publisher-in-Chief] 

DEM blueIn an attempt to increase market share and augment  profits, some doctors contemplate forming Independent Physician Associations (IPAs). 

IPA Benefits 

Some of the benefits of IPAs include: 

  • Marketing, advertising and purchase advantages through economies of scale 
  • Network pays the MD/DO directly
  • No need for individual MCO contract negotiations
  • Patients and their cash flow streams are quickly available
  • Collective group autonomy exists. 

IPA Risks 

On the other hand, IPA potential risks include:  

The MD/DO is not capitated but the physician pool likely will be. This merely means that the per unit price of each medical intervention will likely decrease as individual doctors in the pool competed for its limited resources (managed competition).

Other risks include:  

  • Variable income due to the managed competition
  • High 10-20% administrative fees payable in cash to IPA managers
  • Reduced and discounted fee schedules
  • Lost personal autonomy.   

Insolvent IPAs 

Obviously, signs of insolvent IPAs and related medical networks include:

  • Delayed data entry
  • Telephone or facsimile delays
  • Slow payment schedules
  • Poor expense tracking.
  • Insufficient HIT, security and related software
  • Sparse interest statements or financial information. 

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Controlled Substance Risks in Medical Practice

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Understanding DEA Perils

[By Dr. Charles F. Fenton III; Esq]

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The Drug Enforcement Agency (DEA) controls the issuance of DEA numbers that permit the physician to prescribe controlled substances to their patients.

The use of controlled substances is important to almost all medical specialties. 

Family practitioners use codeine to treat coughs and surgeons use narcotics to manage pain. The spectrum-of-use is wide. 

The Dilemma 

Unfortunately, there will always be a rogue physician willing to sell narcotic prescriptions. These physicians cause the DEA to cast a jaundiced eye towards all physicians.  

However, the dilemma may be that there are simply too many stories of physicians who “over-use” controlled substances in a practice designed to ease the suffering of their patients; or not?

And, how do we differentiate among them all? 

Assessment 

The physician never knows when a patient coming into the office complaining of pain and asking for pain medication – whether that patient is truly in pain or not – is an undercover agent for the DEA.

Has it come to prescriber beware? 

Conclusion 

This peril and paranoia (combined with the risk of a malpractice claim of “hooking” the patient) causes some physicians to actually under prescribe pain medication. So, your thoughts on this ME-P are appreciated.

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Richard D. Helppie; CEO

FORWORD

Financial Planning for Physicians and Advisors

fp-book

Medical management is already one of the most complex businesses, with advances in science, technology, and consumer awareness often eclipsed by regulation, rights, and financial restrictions.

Navigating a course where sound practice management is intertwined with personal financial security requires a blue print designed by subject matter experts. Financial Planning for Physicians and Healthcare Executives [third edition] provides that blueprint.

The timeliness of this book is underscored by the current state of the health care industry in the United States. Healthcare in the United States is, by design, a system of independent and interrelated organizations. Demand for health care services is escalating due to the demographics of an aging population, advances in medical technology and new courses of treatment. Concurrently, financial resources allocated to health care services are not rising as rapidly as the demand for services.

As a consequence of the unusual economics of today’s health care industry, physicians and health care professionals must plan financially successful professional practices and construct financial security in a manner that is markedly different from that of other businesspersons and professionals.

Financial planning for physicians and health care professionals is not intuitive, nor is it a logical extension of professional pursuits. Physicians are usually motivated by a need to serve humankind and by scientific and intellectual curiosity. Economics and finance are secondary to the pursuits of clinical excellence, service and scientific expansion.

Consider some of the financial aspects unique to health care providers: unlike most other businesses or professions, doing more does not necessarily translate into earning more; providing superior quality service does not necessarily translate into better prices for those services; and abandoning service lines or “markets” with inferior financial yield is anathema to the health care professional’s commitment to patients.

Peak earning years may also be shorter for health care providers than other professionals. Consider that physicians typically enter careers at later ages, often with larger debts from training. Some specialties may not lead a case until 10 years of practice, and many specialties have limited longevity. Financial survival skills are paramount for converting the limited earnings time period to personal financial security.

Financial Planning for Physicians and Healthcare Executives confronts the reality that business management in health care is decidedly more complex than most other businesses or professions. To illustrate, in what other industry can participants debate the simple question, “who is the customer?”

The same business management intricacy gives rise to an information model that is exclusive in its complexity. The fragmented-by-design health care delivery system, rising consumer expectations, and rampaging information technology advances all serve to compound the degree of difficulty in effective use of information technology.

The industry’s track record regarding information systems in terms of increased efficiency, ease-of-use and improved margins has been short of expectations. Information systems aimed at improving workflows, connecting to trading partners and taking advantage of new technologies are still in development. The opportunity remains attractive to information technology providers, as evidenced by a near-continual flow of business venture announcements from technology companies and various industry participants. While the information systems puzzle remains unsolved, the need for skillful management of information systems is an immediate imperative.

This book provides a description of communication systems, data storage and retrieval systems, and health care-specific data sets. Chapters declare that patient safety and quality of care depend on accurate, complete information. Moreover, information systems must reflect that the real-world events that are digitally stored are longitudinal in nature and that privacy and security requirements are paramount.

Government and payer-led initiatives to control health care costs and manage care have resulted in a multifarious regulatory environment. New legislation under consideration covering such areas as patient rights could create new liabilities for physicians and other health care providers. This book describes a medical office compliance program to help avoid the perils of non-compliance.

Of particular note is the new section on HIPAA. When fully implemented, HIPAA will require standard transaction sets, as well as privacy and security mandates. HIPAA legislation is rife with penalties for non-compliance. This book enlightens and instructs by providing a framework for operating in the expected HIPAA world.

Selecting a personal financial strategy requires contracting with other professionals. Just as patients are becoming more informed about a growing range of diagnosis and treatment options, physician providers are learning of a growing range of financial vehicles available to them.

In medicine, the “right” course of diagnosis and treatment is one that balances the risk, cost, time horizon, outcome and personal preferences of the patient. In the world of personal finance, the physician plays the role of patient to the professional advisor who may be from one of many sub-disciplines in the financial world – advisor, broker, insurance agent, attorney or accountant.

The physician must be more informed about the growing range of analysis and investment options in order to choose the “right” course that balances risk, cost, time horizon, outcome and his or her own personal style.

Richard D. Helppie
Former: CEO and Founder
Superior Consultant Company, Inc.
[SUPC-NASD]

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Anthony Silva MD MBA

About:

The Business of Medical Practice [first edition]

In the current healthcare insurance crisis, THE BUSINESS OF MEDICAL PRACTICE (Profit Maximization for Savvy Doctors) is a first edition textbook of specific value to all medical practitioners, since declining re-imbursements, increasing expenses, federal regulations, and even Wall Street are all raising havoc with physician income and patient care.   

Contrary to conventional wisdom, we do not believe that draconian free market competition will dramatically reduce healthcare costs, for three reasons.

  • First, it is difficult to define medical quality.
  • Second, a perfectly competitive marketplace does not exist.
  • Thirdly, American society is not ready for the brutally rational efficiencies of the business world.
  • “Above all else”, medicine is a uniquely personal experience.  

On the other hand, we are pragmatic and realize that practicing healthcare providers of all independent degree designations (allopathic, osteopathic and podiatric physicians, dentists, optometrists, chiropractors, psychologists, physician assistant’s, physical therapists and nurse practitioners), must learn to better compete in the next decade. Ultimately, practitioners who seek to be clinically and economically responsible are the wave of future. It is the physician-executive with MBA or managerial training, who can best direct future systems of autonomous care, with improved outcomes for patient, payer and physician alike. 

The information in this text will help achieve this goal and is most applicable to the solo or small group practice; or for those who aspire to be decision makers.  

For the employed physician or resident, it will also serve as a blueprint for what can still be achieved. And, for the practice administrator, it will serve as a guide to the next generation of medical networks, IPAs or more complex large group management endeavors. 

THE BUSINESS OF MEDICAL PRACTICE (Profit Maximization for Savvy Doctors) is written in prose form, using non-technical jargon, without the need to document every statement with a citation from the literature. This allows a large amount of information to be condensed into a single and practical volume. It also allows the reader to comprehend an important concept in a single reading session, with a deliberate effort to include germane examples with updated information. The interested reader is then able to research selected topics. Overlap of material has also been reduced, but important concepts are reviewed for increased understanding.  

The textbook itself is divided into major three major sections, written by 20 contributing authors, and with the concepts developed in Section II (quantitative) and Section III (contemporary), building on those of Section I (qualitative). Each section is then divided into multiple parts, for a total of 25 logically progressive, yet stand-alone, chapters. 

Chapter 1 briefly reviews the history of healthcare economics in the United States; from the days of private pay, to indemnity insurance and the “golden era of medicine”, to contemporary managed care. Chapter 2 discusses the uses and abuses of restrictive covenants in physician employment contracts, since more than 40% of the nations’ contemporary physicians are now employees rather than independent practitioners. Chapter 3 focuses on office labor cost reduction tactics through permanent outsourcing and employee leasing options, as human resource management is the major expense driver of any medical practice. Chapter 4 surveys the management information technology (hardware and software) required for the modern digital office, while Chapter 5 extols nuances of proper CPT coding and documentation in a skeptical payer climate. The basics of capitation contracting econometrics are examined in Chapter 6. Chapter 7 provides strategies for effective managed care relations by understanding, obtaining, negotiating and servicing managed care contracts, and Chapter 8 represents a legal discourse on non-clinical risk management issues, as Section I is concluded. 

Section II begins the quantitative aspects of the book, as Chapter 9 investigates the perils of indiscriminate cash flow control in rising, declining and neutral growth environments. Chapter 10 presents basic concepts of fixed and variable office cost behavior, among others, while Chapter 11 reviews activity-based-costing as a watershed concept to most physicians that has become the costing method of choice in the hyper competitive environment. Chapter 12 explores advanced cost-volume accounting techniques, emphasizing the non-traditional contribution margin approach to the income statement, with numerous spreadsheet examples to enhance understanding. Chapter 13 introduces vital financial methods to calculate and augment return on office investment and its resulting residual income. Chapter 14 on financial ratio analysis represents the economic benchmarking equivalent of the clinical outcomes chapter; and surveys the typical office for lost sources of profit. Chapter 15 highlights the business philosophy required to create real practice equity value in an era of healthcare mergers and acquisitions, while Chapter 16, on practice valuation techniques, concludes the section and emphasizes the discounted cash flow method of appraisal since bricks and mortar are becoming increasingly worth less. It is an important chapter for the retiring practitioner in the quest for a proper payoff after years of hard work.  

Section III of the book begins with Chapters 17 and 18 and provides utilization review, and clinical benchmarking information respectively. Chapter 19 discloses the contentious issue of medical anti-trust and the ERISA managed care exemption. Chapter 20 offers a sobering musing on change management and the new role of the physician as follower, rather than leader, of the healthcare revolution. Chapter 21 critiques Wall Street’s newest security machination, the PPMC as the initial euphoria, debacle and future of this business model is discussed using real-life examples. Chapter 22 redefines the standard of medical care to incorporate insurer financial restraints, while Chapter 23 similarly opines on the ethical and moral issues of managed medical care. Chapters 24 presents important asset protection strategies useful in an increasing litigious atmosphere, and Chapter 25 rightly concludes the third section, and book, with a discussion on choosing the business management advisor that represents the best fit for both the office milieu and individual practitioner. 

In conclusion, as you read, study and reflect on this challenging textbook, remember the guiding philosophy of Eric Hoffer: “In a time of drastic change; it is the learners who will inherit the future. The learned find themselves equipped to live in a world that no long exits”. 

Good medicine, Good business and Good day!  

Anthony Silva; MD, MBA

Anesthesiology Department

Emory-Northlake Regional Medical Center

Emory University Goizueta School of Business

Atlanta Georgia, USA

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Civil Asset Forfeiture in Medicine

Understanding the Risks

fenton

[By Dr. Charles F. Fenton III; Esq.] 

We have all heard stories of civil asset forfeiture run amok and out-of-control.  

For example, the family that lost their home because a child had marijuana in his bedroom; or the man who lost his boat because a friend who (unknown to the owner) borrowed it and used it to smuggle drugs. 

Healthcare  

Unfortunately, these cases may pale in comparison to what can happen if civil asset forfeiture is applied to health care professions.  

Just like the drug dealer who has his Cessna plane seized because it was used to smuggle drugs, a health care provider may find that his practice was seized, because the office was the conduit for committing the crime.  

Furthermore, the practitioner’s house, furnishings, car, bank account, and retirement assets could likewise be seized. These assets could be seized because they constitute “fruits” of the illegal activities. 

“Seize now – Ask questions later 

Civil asset forfeiture is a “seize now, ask questions later” activity.  And, this appears on the surface to constitute punishment without due process.

However, in civil asset forfeiture there is due process, it just comes AFTER the seizure.  

Civil asset forfeiture is to property like an arrest is to the person. A warrant is issued stating in essence that the property did something wrong.  The property is “arrested” (i.e., seized) and then a hearing or trail will follow at some later date to determine the facts. 

Assessment

And so, what has been you experience with CAF, if any? 

Conclusion

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Securities Short Selling

Money Making in Down Markets

[By Julia O’Neal; MA, CPA]

fp-book2When a physician-investor buys a stock, he or she is said to be “long” the stock. “Shorting” is selling a stock a physician-investor does not own. 

Investing or Betting? 

Like buying a “put”, short selling is a bet that the stock will go down in price. The short seller sells a security he or she does not own, in anticipation of the price falling, and borrows the security to deliver to the buyer.  

Covering-Up 

When the short seller has to “cover” the borrowed stock, he or she will have to buy it. The short seller hopes to buy back the stock at a lower price to repay the loaned stock. If it must be bought back at a higher price, the short seller loses money. 

Unlimited Loss Potential 

Because there is no limit on how high the stock could go if the short seller is wrong, there is no limit on how much could be lost. (The physician-investor who is “long” a stock can lose only the entire cost of the stock.) 

“Shorting Against the Box” 

A physician-investor may sell a stock short simply because he or she believes it is going down, but may also “sell short against the box” to protect a long position.  This is a strategy used particularly when income tax rates for long-term capital gains are lower than ordinary income or short-term capital gains.  

For tax reasons, the physician-investor does not want to sell some stock that is owned.  

However, he or she believes the stock is going down and wants to be protected. The physician-investor will profit from a short-term decline in value, but can still hold the security for a possible long-term gain.  

The Short-Sale rule 

Short sales can be made only after a plus tick (ticks are movements of 1/8 or more for listed stocks and can be increments as small as 1/64 for NASDAQ or OTC stocks) or a zero plus tick.  

That means short sales can be made only after the stock has sold for either a higher price or the same price, but the last price difference was up. Ironically, the short interest theory holds that large short positions are bullish for a stock.   

Assessment 

Even though many physician-investors are obviously anticipating that the price will fall, the buying pressure (“short squeeze”) engendered by all of their need to buy the stock to cover their borrowing is expected to raise the price of the stock. 

Conclusion

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Portfolio Risk Measurement

Understanding Standard Deviation

By Julia O’Neal; MA, CPA  

The risk of a single asset is measured by its standard deviation of return and by its co-movement with the expected return of the assets in the market in which it is traded.  

Defining Standard Deviation 

The standard deviation is a measure of the variation around the average or mean. It is the statistical measure of the degree to which an individual value in a probability distribution tends to vary from the arithmetic mean of the distribution. 

The standard deviation of a portfolio is affected by the correlation of the returns of the various asset classes in the portfolio. 

A Measure of Volatility 

For a series of asset returns, the standard deviation is a measure of the volatility, or risk of the asset. 

As applied to modern portfolio theory, SD is where the past performance of securities is used to determine the range of possible future performances, as a probability is attached to each performance with the following constraints:  

  • The standard deviation of performance can be calculated for a security, or for a portfolio as a whole – and the greater the degree of dispersion – the greater the risk.  
  • For a probability distribution with a small standard deviation, there is little chance that a return will be significantly different from expectations. 
  • If the standard deviation of a probability distribution is large, there is significant probability that the return will be much different from what is expected. 

Assessment

The risk of a portfolio is complicated because the assets in the portfolio are not likely to move together perfectly. If they do not move together perfectly, the risk of the combined set of assets cannot be estimated by the simple average of their individual risks:  

  • The extent to which pairs of assets move together is measured by their covariance. Alternatively, the co-movement of assets is picked up by the correlation of returns to two assets.
  • Perfect positive correlation refers to two assets whose expected rates of return move together exactly.
  • Perfect negative correlation means that if the return of one asset is expected to go down, the other is expected to go up.
  • Zero correlation means that no association of returns exists between the assets. If the return of one increases; there is no way to predict what will happen to the other; it may increase just as much as decline or remain unchanged.
  • Combining assets with perfect positive correlation results in no risk reduction. However, when assets are combined with perfect negative correlation, the potential to totally eliminate risk exists.

Finally – the less correlation between assets – the greater the gain in efficiency. 

Conclusion 

Stocks move together but not perfectly, and rarely are negative correlations between asset classes found.  In reality, perfect correlation, either positive or negative, is not likely to exist.  

Nevertheless, historical correlations of returns are measurable and can be helpful to the physician-investor in portfolio construction if appreciated and used correctly; do you? 

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Unsystematic Investing Risks

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Understanding Company, Sector or Industry Risk

[By Julia O’Neal; MA, CPA]

fp-book1

Unsystematic risks are those associated with factors particular to the underlying company, sector or industry. 

Unsystematic risks are all risks that can be eliminated by diversification and are thus unrewarded.  

The Alpha Factor 

The residual nonmarket influences unique to each stock are measured by its alpha factor.

When one stock has a higher or lower rate of return than another stock with the same beta, this is said to be a result of its alpha factor.  If the physician-investor can pick enough stocks with positive alphas, the portfolio can be expected to perform better than its beta would have indicated for a given market movement. 

Diversification 

Unsystematic risk is reduced through diversification.  

As more stocks are added to a portfolio, the chance of obtaining a positive alpha, as well as the risk of getting a negative alpha, is diversified away. The volatility of the portfolio becomes much like the market itself.  

Assessment 

Therefore, a fully diversified portfolio – if there is such a thing – has a beta of 1.0 and an alpha of 0. Is your portfolio appropriately diversified; or is it di-worsified? 

Conclusion

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Inflation Risk and Investing

fp-book4Understanding Purchasing Power Risk

[By Julia O’Neal; MA, CPA]

Purchasing power risk refers to the effects of inflation and disinflation on the future purchasing power of the income and principal from an investment.

Seeking “Total Returns” 

The typical physician investor seeks an investment that at minimum returns the same number of dollars as originally invested.  In addition, he or she hopes to achieve current income flow and/or capital appreciation on the security due to favorable results at the underlying company.

This is called “total return.”

Although a physician or other investor may realize a positive nominal (actual) return, however, once the effects of inflation are factored into the return, there is a chance that the real return could be negative.

For example, if it takes 20 years for an investment to return 75%, during which time the price level has risen 100%, the investor is receiving a smaller amount of purchasing power than was originally invested.  

Assessment 

  • Over the very long term, common stocks have provided an effective hedge against inflation.
  • Over shorter periods of time, however, physician investors have been disappointed in stocks as a hedge against inflation, as the rate of inflation has often exceeded the gain in common stock prices.

And so, are you a long-term physician-investor; and how long-is long-term, anyway? 

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Systematic Securities Risks

Understanding Stock Market Risk

By Julia O’Neal; MA, CPA  

Systematic risk, also known as market risk, is that part of a security’s risk that is common to all securities of the same general class (e.g., stock or bonds) and is caused by economic, sociological, and political factors.

Systematic risk cannot be eliminated by the physician-investor through diversification in an investment class. 

Beta Co-efficient Measurement 

The measure of systematic risk in stocks is the beta coefficient. The beta coefficient is the covariance of a stock in relation to the rest of the stock market. It reflects the magnitude of the co-movement of the stock’s returns with those of the market.

Stock Market Proxy 

The Standard & Poor’s 500 Stock Index is generally used as a proxy for the market and has a beta coefficient of 1. Any stock with a higher beta is more volatile than the market. 

For example, a stock with a beta of 1.3 is 30% more volatile than the market (up and down), and any stock with a lower beta can be expected to rise and fall more slowly than the market. 

Investing Strategies 

Conservative physician-investors whose main concern is the preservation of capital should focus on low-beta stock.  Other doctors, more willing to take greater risks in an attempt to earn higher potential rewards, should include high-beta stock in their portfolios. 

Three Types of Systematic Risk 

Common to all assets are the following three systematic risk factors: 

  • Inflation or purchasing power risk,
  • Interest rate risk, and
  • Movements in the market in which a security is traded. 

Conclusion 

Are you willing to accept systematic, or stock market risk, in your investment portfolio; why or why not? 

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