Dealing With Uncertainty in Practice Measurement

Understanding Variations in Medical Care Quality

By Brent A. Metfessel MD, CMP™

www.BusinessofMedicalPractice.com

Due to high-profile concerns in terms of the variation in quality of care as well as its affordability, practice pattern measurement is here to stay.  And, until further advances in this area are created, physicians with unexpectedly poor performance ratios, especially in the area of cost-efficiency, should review their data to determine if there are opportunities to improve as well as potential outlier cases contributing to an aberrant value, as well as looking at the health plan methodology for statistical analysis and outlier exclusions. 

Communication is Key

It is important for the physician or other provider being measured to communicate any issues to health plan personnel where possible. Physicians need to remember that practice pattern analysis is a continually evolving field. 

Assessment

Given the state of the art, physicians, specialty societies, and other advocacy groups have a responsibility to work with health plans or other practice measurement agencies to make sure quality improvement is at the forefront, that they are active in giving feedback on health plan practice measurement methods, and that as much as possible a collaborative approach is used in working with health plans and other measurement organizations.

Conclusion

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Vote on What the US Healthcare System Needs?

An Opinion Poll

[Staff Reporters]

HIEs launch tomorrow. So, please vote.

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Dental Compensation Different than Docs

On Medical Professional Salaries

Staff Reporters

www.BusinessofMedicalPractice.com

A 2003 Survey of Dental Practices reported net income from dentistry-related sources.

Dentists Differ from Doctors

Dentists differ from physicians in that 90% are in private practice. In 2002, the average practitioner’s net income was $174,350. The average dental specialist’s net was $291,250. These figures represent a 0.7% and a 5.8% increase over 2001, respectively.

Assessment

Net income rose steadily since 1986, when general dentists made an average of $69,920 and specialists an average of $97,920. But, by 2010, according to PayScale.com, the average general dentist earned $98,276 – $157,437; a decreasing trend allocated as follows.

Compensation Chart 

Salary  $92,689 – $147,682
Bonus  $1,996 – $19,727
Profit Sharing  $1,038 – $27,514
Commissions  $480.74 – $32,500

Conclusion

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On Ethical Patient Advocacy

Medical Ethics in the Modern Era

By Render S. Davis MHA, CHE

www.BusinessofMedicalPractice.com

Few areas of life are as personal as an individual’s health and people have long relied on a caring and competent physician to be their champion in securing the medical resources needed to retain or restore health and function.

Nevertheless, this philosophy is currently in flux.

Foundation of Medicine

For many physicians, the care of patients was the foundation of their professional calling. However, in the contemporary delivery organization, there may be little opportunity for generalist physician “gatekeepers” or “specialty hospitalists or intensivists” to form a lasting relationship with patients.  These institution-based physicians may be called upon to deliver treatments determined by programmatic protocols or algorithm-based practice guidelines that leave little discretion for their professional judgment.

Personal Values

In addition, the physician’s personal values may be impeded by seemingly perverse financial incentives that may directly conflict with their advocacy role, especially if a patient may be in need of expensive services that may not be covered in their insurance plan, or are beyond the resources of a patient’s HSA or savings account.

Assessment

Marcia Angell, MD., noted during a PBS interview that the “financial incentives directly affecting doctors…put them at odds with the best interests of their patients … and it puts ethical doctors in a terrific quandary.”

Conclusion

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Understanding Disease Management

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How Technology Affects Patient Care

By Brent A. Metfessel MD, CMP™ [Hon]

www.BusinessofMedicalPractice.com

One area where technology assessments, clinical guidelines, and EMR data can make a true difference in patient care is in disease management.

DMAA Definition

The Disease Management Association of America (DMAA) defines disease management as “a system of coordinated health care interventions and communications for populations with conditions in which patient self-care efforts are significant”.  Disease management supports the physician-patient relationship and places particular significance on the prevention of exacerbations and complications of chronic diseases using evidence-based clinical guidelines and integrating those recommendations into initiatives to empower patients to be active partners with their physicians in managing their conditions.

Usual Conditions

Typically, targets for disease management efforts include chronic conditions such as asthma, diabetes, chronic obstructive pulmonary disease, coronary artery disease, and heart failure, where patients can be active in self-care and where appropriate lifestyle changes can have a significant favorable impact on illness progression.

Outcomes Measurement

The DMAA also emphasizes the importance of process and outcomes measurement and evaluation, along with using the data to influence management of the medical condition.

Assessment

Although claims and administrative data can be used to measure and evaluate selected processes and outcomes, EMRs will be needed to capture the full spectrum of data for analyzing illness response to disease management programs and to support necessary changes in care plans to improve both intermediate outcomes (such as lab values), and long-range goals (such as the prevention of illness exacerbations, managing co-morbidities, and halting the progression of complications).

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About the Placebo [Medical] Journal

Humor in Medicine

By ME-P Staff Reporters

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According to their website, the Placebo Journal [PJ] is a magazine for physicians whose goal, as its Latin definition states, is “to give pleasure to”. The purpose in starting this “Placebo” brand is to empower physicians with a skill that is sorely lacking today in medicine – humor. 

Placebo Brand Expanding

Recently however, they expanded the placebo brand to physician assistants, nurses, radiology techs and even to patients. By using real life medical stories, all stakeholders can now laugh at the medical system.

Like a Pill?

Like a placebo pill, the PJ produces a positive effect from something of very little substance. They don’t think too much of them-selves because they know it’s a rag tabloid. And, they don’t mean to denigrate the practice of medicine, patients or other physicians. But, they do mean to humanize the medical profession more. It is not only therapeutic, but necessary. Laughter is the key to life!  With the Placebo Journal, the editors want everyone to see the lighter side of the job.

Assessment

The burnout, depression and suicide rate is high among healthcare givers. Humor may heal and help.

Link: http://www.placebojournal.com/default.asp

Conclusion

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Financial Planning for Physicians and Advisors

Our Handbook

By Ann Miller RN, MHA

Managed care and government-led initiatives to control health care costs have decreased physician compensation. Physicians must now carefully plan their practices and seek financial security in a manner that is markedly different from other professionals. To do so, physicians and their advisors must be well informed about the growing range of financial planning options to choose the course that balances risk, cost, time horizon, outcome and their own personal economic style. This innovative guide confronts the reality that personal financial planning for physicians is decidedly more complex than it is in other professions.

Financial Planning for Physicians and Advisors

This handbook describes a personal financial planning program to help doctors avoid the perils of harsh economic sacrifice. It outlines how to select a knowledgeable financial advisor and develop a comprehensive personal financial plan, and includes important sections on: insurance and risk management, asset diversification and modern portfolio construction, income tax and retirement planning, and succession and estate planning. When fully implemented with a professional’s assistance, this book will help physicians and their financial advisors develop an effective long-term financial plan.

Assessment

http://www.jblearning.com/catalog/0763745790/

Conclusion

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A Poll on RECs

Five Reasons We Think Regional Extension Centers are Reckless

By Houston Neal

Software Advice

http://www.softwareadvice.com/medical

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Hi Dr. Marcinko and all ME-P Readers

I hope you are doing well. I am hosting a poll about RECs on my blog at: http://www.softwareadvice.com/articles/medical/five-reasons-we-think-recs-are-reckless-1092310/#survey 

I’m hoping to get as many participants as possible to make this a meaningful survey. I’d really appreciate your help spreading the word to your ME-P membership.

Digital White e-Paper

The poll coincides with an article I wrote on “5 Reasons We Think Regional Extension Centers are RECkless.” I’m excited to see progress of HITECH Act initiatives, but I’m skeptical that throwing money at the problem will lead to efficient and successful adoption of EHRs.

Assessment

It would also be interesting to read any anecdotes you might have about Regional Extension Centers. Please let me know what you and your readers think:

(512) 364-0117 (office)
(800) 918-2764 (toll free)
houston@softwareadvice.com

Conclusion

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More About Regional Extension Centers

RECs Explained

By Shahid N. Shah; MS 

www.BusinessofMedicalPractice.com

The Meaningful Use and Certification requirements along with the myriad of government regulations around Medicare and Medicaid reimbursements will be too complicated for most physicians to understand and manage on their own. To help out small practices, one of the interesting things funded by the HITECH Act was the creation of the Health Information Technology Extension Program. Via that program, the Department of Health and Human Services is required to invest in Regional Extension Centers (called “RECs” and pronounced like “wrecks”). RECs are designed to offer consulting and technical support to physicians in order to help accelerate adoption of Electronic Health Records (EHRs).

Purpose

The purpose of the RECs is to provide guidance on which products to buy, help reduce prices of software through group purchase agreements, and give technical assistance on implementation and deployment. These services will be free of charge to physicians. However, keep in mind that all RECs are non-profit organizations and most have little or no inherent knowledge about EMRs, EHRs, implementations, deployments, computer skills, etc.; initially they are groups that responded to the grant request in a manner that fulfilled documentation required by the government and will be provided government money to help Physicians become meaningful users [MUs].

No Cost Advice

In the short run no RECs will be very good because they will all be inexperienced. Over the long run, some RECs will become very good at their jobs while other RECs will be mediocre or not good at all; only time will tell which ones will be superb and helpful vs. not. Since RECs will be paid by the government for each physician they sign up, RECs will be very eager to approach and conduct outreach to sign you up. And, it will not cost you anything to sign up and the advice and assistance will be free to MDs.

Assessment

Keep in mind, though, that whenever something is free to you, always think about why it’s free. What does the organization get out of providing you free advice, assistance, knowledge, etc. – in the case of RECs, it’s is money from the government. The good news is that RECs are being told by the government that will only be paid if you become a “meaningful user.” However, the bad news is that some RECs will not be able to do a good job and may give you bad advice.

Conclusion

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Health Plan Management Navigator

Mid-September 2010 Edition

By Douglas B. Sherlock, CFA

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In this edition of Plan Management Navigator, we summarize on the results of selected TPAs. Administrative expenses for core services of selected TPAs were 84% of fees in 2009. This was $11.56 per employee per month (PEPM) or $6.06 per member per month (PMPM). Core Medical product costs were $25.28 PEPM and $11.56 PMPM.

Elite Performers

While the universe of participants was small, at 5 TPAs, the surveyed TPAs may be elite performers. Function-by-function, these TPAs had lower costs than are typically found in competitive products of Blue Cross Blue Shield and Independent/ Provider-Sponsored plans.  They are also typically among the largest 20% of TPAs. Finally, they have accounting systems sufficiently robust to report with the granularity of the Sherlock survey. This may be an indicator of strong management if “you manage what you measure.”

Sherlock Expense Evaluation Report

The summary in Navigator is excerpted from the 2010 TPA edition of the Sherlock Expense Evaluation Report, which is now available to licensees and participants.

Web Conference 

We will host a web conference on Wednesday, September 22 from 2:00 PM to 3:00 PM East Coast Time to discuss the summary results. Doug Sherlock will offer a brief presentation, followed by questions and answers. To participate in the web conference, please register at https://www2.gotomeeting.com/register/ 933935259. Once registered, dial-in information and a link to connect to the web will be provided in a confirmation email. Please note that if more than one person from your firm would like to participant in the conference call and everyone will be in one room, only ONE person needs to register for the conference. 

Assessment

Thank you for your continued interest in our research.

Link: Mid-September 2010 Navigator 09-20

Sherlock Company
sherlock@sherlockco.com
Ph:  215-628-2289
Fax: 215-542-0690

Conclusion

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About LegallyMine.Org

The National Foundation for Asset Protection

[By Staff Reporters]

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Legally Mine is a new name for a company formally known as The National Foundation for Asset Protection. The name change reflects the fact that they are a for-profit company and always have been.

Company Focus

The focus of the company is the education of professionals on the best tools available in the US for the purpose of asset protection.

Healthcare

Medical practitioners have taken a particularly hard hit from trial attorneys, and for years the firm has been the nation’s largest champion in defending them. However; they are not alone and many other professionals find themselves staring down the barrel of a legal shotgun. According to their website, Legally Mine knows the right tools to use in order to stop the loss of assets to legal pariahs, as well as the tools needed to lower tax bills. They not only know the right tools and how to use them, but reportedly know how to teach these concepts to others.

Assessment

The purpose and goals of Legally Mine is to teach professional associations how and why these tools will work and how to implement them.

Visit: http://www.legallymine.org/index.html 

Conclusion

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Update on the Estate Tax for MDs and Us All

Senate Refuses Repeal

By Children’s Home Society of Florida Foundation

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On July 21, 2010, Sen. Jim DeMint (R-SC) offered an amendment to the unemployment bill that would repeal the estate tax. Sen. DeMint noted that the White House is creating a difficult environment for “small businesses that are already facing higher income taxes and higher investment taxes.”

The Proposal

The proposed amendment was defeated on a vote of 39-59. Democratic Senators Blanche Lincoln (D-AR) and Ben Nelson (D-NE) supported the abolition of the estate tax. Republican Senators Olympia Snowe (R-ME), Susan Collins (R-ME) and George Voinovich (R-OH) opposed the abolition of estate tax.

Assessment

Sen. Lincoln and Sen. Jon Kyl (R-AZ) continue to advocate an estate tax compromise. Under the compromise, the $3.5 million exemption from 2009 would be increased over 10 years to $5 million and the top 45% estate tax rate would be reduced to 35% over that same time frame.

[picapp align=”none” wrap=”false” link=”term=tax&iid=5237623″ src=”http://view4.picapp.com/pictures.photo/image/5237623/tax-dollars/tax-dollars.jpg?size=500&imageId=5237623″ width=”346″ height=”491″ /]

Editor’s Note: The political pressure on the Senate continues to rise. Following the March death of Houston oilman Dan Duncan with a $9 billion estate, the news media noted that the government had lost $2 to $3 billion on that estate alone. When New York Yankees owner George Steinbrenner passed away with an estimated $1.1 billion estate, news media suggested that he hit a “home run” by dying in 2010 with no estate tax. While action is not likely before the election, there now seem to be two general patterns to a potential Senate compromise. First, the estate tax exemption will start at $3.5 million and increase to a higher number over ten years. Second, the estate tax rate will begin at 45% and decrease again over that same decade. The House majority has held strongly to a $3.5 million exemption and 45% top tax rate, so the final compromise would also need to reflect their preferences.

Conclusion

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2010 m-HEALTH SUMMIT ANNOUNCES NEW SPEAKERS

Panelists Represent Industry, Academia, Non-Profit, and Government Perspectives

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Dear Ann and ME-P Readers

The 2010 mHealth Summit, the must-attend event for all interested in the implementation of mobile technology to advance improved health outcomes, is today announcing newly confirmed speakers who will contribute to the cross-sectoral dialogue during the Summit’s three-day conference program.

Who: The 2010 mHealth Summit is organized by the Foundation for the National Institutes of Health in partnership with the mHealth Alliance and the National Institutes of Health (NIH). The event will advance discussion, collaboration and decision-making at the intersection of mobile technologies and health to advance the delivery of high-impact, sustainable health solutions.

When: November 8-10, 2010, and online at www.mhealthsummit.org
Where: The Walter E. Washington Convention Center, Washington, D.C.
What: The following speakers will join other experts driving transformation in the health ecosystem domestically and internationally.

Academia

  • Dr. Jessica Haberer, MS, Assistant in Health Decision Sciences, Massachusetts General Hospital; Research Scientist, Harvard Institute of Global Health
  • Dr. Patricia Mechael, Center for Global Health and Economic Development at the Earth Institute, Columbia University
  • Donna Spruijt-Metz, Associate Professor, University of California
  • Dr. Robyn Whittaker, Public Health Physician, University of Auckland, New Zealand

Non-Profit

  • Dr. Kelly L’Engle, Behavioral Scientist, Family Health International
  • Josh Nesbit, Executive Director, Frontline SMS: Medic
  • Carrie Varoquiers, President, McKesson Foundation

Private Sector

  • Donald Casey, CEO, West Wireless Health Institute
  • Donald Jones, VP, Business Development, Qualcomm
  • Anthony A. Lewis, Vice President, Open Development, Verizon Wireless
  • Dr. Richard Migliori, EVP and Chief Medical Officer, United Health Group
  • Peter Neupert, Corporate Vice President, Microsoft Health Solutions Group

Government

  • Dr. Charles P. Friedman, Chief Scientific Officer, U.S. Department of Health and Human Services
  • Dr. Jeffrey Shuren, Director, U.S. Food and Drug Administration

Keynotes

  • Aneesh Chopra, U.S. Chief Technology Officer. The White House
  • Francis S. Collins, Ph.D., Director, National Institutes of Health
  • Dr. Julio Frenk, Dean of Faculty, Harvard School of Public Health and former Minister of Health, Mexico
  • Bill Gates, Co-Chair and Trustee, Bill & Melinda Gates Foundation
  • Ted Turner, Chairman, United Nations Foundation

EVENT HIGHLIGHTS:

Network with over 2,000 professionals from the U.S and 30+ countries, and gain unparalleled access to the biggest names in the health, policy and the mobile ecosystem

Learn from keynotes, super sessions, exhibits, and poster presentations

For further information contact:
Kate Barrett at kbarrett@fnih.org, 301 435 2613.
For General Registration and Conference Details, visit: www.mhealthsummit.org
For Media Credentials and Registration, go to: http://mhealthsummit.org/press/registration
Twitter hashtag: #mHS10
Tweet me: #mHealth Summit announces conference new confirmed speakers – www.mhealthsummit.org #mHS10
Note to Editors
: Visit www.mhealthsummit.org/conference/speakers-moderators for a regularly-updated list of confirmed speakers.

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Essay on Medicare Pricing Distortions

In Physician Fee Schedules

By Nancy Chockley PhD
President & CEO
NIHCM Foundation

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Leaving Medicare F-F-S Reimbursement

While there is near universal agreement that we need to move away from Medicare’s fee-for-service [F-F-S] physician payment system, Dr. Robert Berenson argues that in the short term we still need to focus on improving the current physician fee schedule.

Reasons Why?

Not only are the value-based payment systems that most reformers envision still many years from widespread reality, the existing fee schedule prices will serve as the building blocks for some of the newer aggregate payment approaches.

Assessment

In his Expert Voices essay, Dr. Berenson offers thoughts on how to improve the system in ways that both address current payment system woes and serve as a step toward future value-based payment systems.

Link: http://nihcm.org/pdf/NIHCM-EV-Berenson_FINAL.pdf

Contact

phone: 202-296-4426
email: nihcm@nihcm.org
website: www.nihcm.org

Conclusion

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Hospital RFID versus Wi-Fi Technologies

Understanding Wireless Communications and Inventory Tracking Systems

By Staff Reporters

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According to inventory tracking system expert David J. Piasecki, the two wireless technologies currently competing to provide hospitals with better systems for managing equipment inventories are: wireless-fidelity (WiFi) and active RFID. WiFi is the name of the popular wireless networking technology that uses radio waves to provide wireless high-speed Internet connections. The WiFi Alliance is the non-profit organization that owns WiFi (registered trademark) and the term specifically defines WiFi as any “wireless local area network products that are based on the Institute of Electrical and Electronics Engineers’s 802.11 standards.”  Yet, less than 5 percent of North American healthcare facilities are equipped with these real-time locating systems, so the market is currently up for grabs.

Wi-Fi Advantages/ Disadvantages

The advantage of WiFi-based real time locating systems (RTLSs) is that most hospitals already have WiFi networks in place, and many medical devices are equipped with WiFi functionality. Moreover, WiFi vendors such as Aeroscout, Ekahau, and PanGo market their products based on a standards-based non-proprietary functionality. And, development of the so-called “super Wi-Fi” is now on the horizon. The downside of WiFi systems is that hospitals will need to install additional access points to bring the needed functionality to existing networks.

RFID Advantages/ Disadvantages

On the other hand, RFID vendors such as RF Code and Radianse point to the wide application of RFID for asset tracking, and to the technology’s longevity in the industry. Still, RFID tags remain suspect because their ability to efficiently track DME may not be private or secure. Increasingly, WiFi seems more ubiquitous than RFID.

Assessment

Finally, of the three WiFi major vendors, only Ekahau makes a point of stressing that its inventory system is based only on WiFi and not RFID, so the issue isn’t clear cut.  Perhaps it will take both technologies to deploy for hospitals.

Conclusion

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The Rise of Niche Medical Providers

Understanding New Roles and a Changing Delivery Ecosystem

By Staff Reporters

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It is well know that orthopedic and cardiac hospitals have experienced a development boom over the past decade.  And, according to Robert James Cimasi MHA, AVA, CMP™ of Health Capital Consultants, LLC, reimbursement levels for these specialties, and especially surgeries, have been considered to be relatively high in comparison to others, creating the perception that these services are especially profitable.

Reasons for Development

The reasons for specialty hospital development are complex and vary across markets but analysis suggests that three factors are important drivers of this trend nationally:

  • relatively high reimbursements for certain procedures;
  • physicians’ desire for greater control over management decisions affecting productivity; and ,
  • quality and specialists’ desire to increase their income in the face of reduced reimbursement for professional services.

Perspectives

From the perspectives of some observers, the possible “overpayment” for certain specialties’ services is unintentional on the part of payors and is possibly the result of recent productivity gains in those specialties.  The promoters of this reimbursement methodology have asserted,

The challenge for policy makers is to give specialty hospitals the chance to fulfill their promise as focused factories while limiting their opportunities to prosper from cream skimming and preventing problems for patients and communities such activity might cause.

From this singularly preconceived viewpoint, productivity gains through efficient provision of quality services should be discouraged and saddled with the disincentives of lower reimbursement to allow less efficient providers to compete.  That surgical and specialty hospitals focus on a narrower range of procedures and produce quality and efficiency gains over their general acute care hospital competitors is rarely disputed.  Existing hospitals often admit this but then claim that new market entrant hospitals dilute the experience level of their facilities, which then results in a lowering of quality.  This is part of the larger argument that any quality or financial gains made by the surgical or specialty hospitals are the direct result of losses at the general acute care hospitals.  If these hospitals can’t cost shift to subsidize less profitable areas such as emergency departments and intensive care units, the argument goes, then they will be in jeopardy of closing them.

Medical Professionals and ME-P Advisors

Proponents

These proponents assert: “Policy makers seek to encourage competition and give new care delivery models that have the potential to improve quality and lower costs a chance.  However, they also want to maintain quality and patient safety, avoid total as well as per-case cost increases and preserve access to basic services.”

Assessment

In response to the development of niche providers and specialty hospitals, general acute care hospitals often are competing by adding to their offerings in these specialties to create integrated specialty centers or even constructing new specialty hospitals themselves.  In many cases, hospitals seek physician involvement in these developments, through joint ventures or other means.

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Conclusion

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[Health] Plan Management Navigator

September 2010

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By Douglas B. Sherlock, CFA

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In this edition of Plan Management Navigator, we write on issues that are especially timely for health plans in their current budgeting process. Topics are as follows:

Trends in Health Plan Business Process Outsourcing

This analysis is based on data excerpted from recent editions of the Sherlock Expense Evaluation Report. Outsourcing and the use of external contractors has been increasing, especially in the information systems functional area.

TPAs: A New Universe for SEER

For the first time, we will be publishing on the administrative expenses of Third Party Administrators. We believe that this analysis is unprecedented in its depth and granularity. This publication is helpful for TPAs, those that compete with them and all their business partners.

Dashboard Summary

This reports on results and trends from the three months ended July 2010 for non-public health plans. Because of the timing of the publication of this data, we would expect this to be a leading indicator to national results.

SEER Publication Schedule

In the challenging economic environment and with the advent of health care reform, health plans are trying to identify whether they operate at best practice and, to the degree that they vary from this, what functional areas are the most fruitful for the focus of management attention! This outlines the publication schedule for the peer group that best matches your organization.

Assessment 

By the way, in the next month or so, Navigator will be summarizing the results of the Sherlock universes of TPAs, Medicare plans and Medicaid plans. We also will have an interesting discussion on best practices for Blue Cross Blue Shield Plans and Independent / Provider – Sponsored plans. (Incidentally, the definition of “best practice” that we will employ may be found in the Early July 2010 edition of Plan Management Navigator).

Conclusion

Thank you for your continued interest in our research.

September 2010 Navigator[1]

Sherlock Company
Senior Health Care Analyst
sherlock@sherlockco.com
Ph:  215-628-2289
Fax: 215-542-0690

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Using Charitable Gifts in Business Planning

The “S” Corporation

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By The Children’s Home Society of Florida Foundation

The most common type of corporation is a traditional “C” corporation. All companies whose stock is publicly traded are C corporations. C corporations pay tax on net income at the corporate level. When that income is distributed to shareholders in the form of dividends, the shareholders also pay tax. The result is that C corporation income is taxed twice – once at the corporate level and once at the shareholder level.

“S” Election

“S” corporations resemble C corporations except that they elect to be taxed differently. Not all corporations are eligible to make this election. To make the election, a corporation must have only one class of stock and less than 75 shareholders who are all individuals, estates and certain types of trusts and charities. IRC Sec. 1361. Charitable remainder trusts are not permissible holders of Subchapter S stock.

“Pass-Through” Taxation

An S corporation does not pay tax at the corporate level. Instead, the shareholders of an S corporation must include their share of the S corporation’s income, deductions and credits on the shareholder’s personal tax return – even if that income isn’t actually distributed. This is called “pass-through” taxation because the S corporation “passes” its income, deductions and credits “through” to its shareholders.

Inside and Outside Basis

The concept of tax basis appears regularly in the context of charitable giving. A person’s tax basis in an asset is generally equal to his or her investment in that asset. Often, tax basis is the amount a person paid for an asset (i.e. the asset’s “cost” to the owner). When the fair market value of an asset is more than its tax basis, the asset is appreciated and, if sold, will result in taxable gain to the owner. Charitable giving often allows the owner of an appreciated asset to bypass gain or defer part of the gain.

When working with S corporations, the concept of basis can be confusing. This is because there are two types of basis at issue. The first is the S corporation’s basis in its assets — this is often referred to as inside basis. The second is the shareholder’s basis in his or her S corporation stock – this is often referred to as outside basis.

When a shareholder sells his S corporation stock, the gain or loss on the sale is determined by the difference between the sale price and the outside basis. In the same way, when an S corporation disposes of an asset, the gain or loss to the S corporation is determined by the difference between the sale price and the S corporation’s inside basis in the asset.

 

Gifts of S Corporation Stock – Issues Relating to the Donor

Certain tax-exempt organizations are permissible shareholders of Subchapter S stock. Sec. 1361(c)(6). Therefore, an owner of S corporation stock can make a gift of the stock to a charitable organization and receive an income tax deduction. There are a few issues the donor needs to be aware of, however, before making a gift of Sub S stock to charity.

First, the donor’s ability to use the charitable deduction from the gift of the Sub S stock will be limited to the donor’s cost basis in his or her S corporation stock. Sec. 1366(d)(1) limits the amount of deductions and losses to the donor’s basis in stock and debt of the Sub S corporation. Often the donor of Sub S stock is also the person who established the business. Generally, the business was started with very little capital. Because of this, it is likely that the donor’s cost basis will be very low. If the donor’s basis in his or her stock is very low, the donor will only have a small charitable deduction.

The second issue for the donor to be aware of is minority discount. Generally, when a donor makes a gift of stock, the amount transferred to the charity represents a minority interest in the corporation. When a minority interest is given, it is very likely that the qualified appraiser will apply a discount to the value of the stock.

Finally, the donor of S corporation stock must be aware that there cannot be a binding agreement with the charity to repurchase the stock. If there is a binding agreement, the donor will have to recognize the income from the redemption of the stock and will not receive the benefit of a bypass of capital gain. Because S corporations are closely-held entities, there generally is not a large market for the sale of the stock. Therefore, it is very likely that the corporation will repurchase the stock. The repurchase is permissible, but a binding agreement before the gift is prohibited. Rev. Rul. 78-197.

Gifts of S Corporation Stock – Issues Relating to the Charity

While it is allowable for a charity to own Subchapter S stock, the tax benefits are not as advantageous as the ownership of C corporation stock. With C corporation stock, the charity is not taxable on any stock dividends, nor is it taxable on the gain when it sells the stock. This is not true with S corporation stock. Any income received by the charity for its ownership of Sub S stock is taxable to the charity as unrelated business taxable income. Sec. 512(e). In addition, when the charity sells the stock the gain from the sale is also taxable to the charity as unrelated business taxable income. Sec. 512(e)(1)(B)(ii). Because a charity is often established as a corporation itself, the tax on the gain will be taxed at corporate income tax rates. (corporations do not have a lower, favorable capital gains rate like individual taxpayers).

It is also important for a charity not to enter into a binding agreement with the donor for the sale of the stock. While there are no adverse tax consequences to the charity if such an agreement is made, there are adverse tax consequences to the donor as discussed above. If the charity is aware of the unfavorable tax consequences to the donor from having a binding agreement, it can prevent having an unhappy donor.

The S Corporation Unitrust

A charitable remainder unitrust or CRUT is not a permissible owner of Subchapter S stock. Therefore, if an S corporation shareholder were to transfer even one share of his or her S stock into a CRT, the S corporation election would be terminated and the corporation would become a C corporation the day after the transfer. This would mean that the corporation would be subject to two layers of tax: one at the corporate level and one at the shareholder level.

It is permissible, however, for the S corporation itself to establish a CRUT. Because the S corporation does not have a life expectancy, the CRUT must be established for a term of years not to exceed 20. The S corporation would fund the CRUT with some of its assets. However, it must be careful not to fund the CRUT with substantially all of its assets as discussed below. Because the S corporation is funding the CRUT, it would receive the charitable deduction and also would be the income beneficiary of the CRUT.

Even though the S corporation is entitled to the income tax deduction, because of its pass-through taxation the charitable deduction will flow through to the S corporation shareholders. As mentioned above, however, the deduction to the shareholders will be limited to the shareholders’ cost basis in their Sub S stock.

Potential Reg. 1.337(d)-4 Gain Recognition

When a corporation is liquidated, there is potential tax payable at the corporate level. If it were permissible for a corporation to distribute all of its assets to charity or to a charitable trust, then this tax could be avoided. In order to limit this type of transaction, Reg. 1.337(d)-4 requires recognition of gain at the corporate level if “substantially all” the assets are given to charity or to a charitable remainder trust.

Even though an S corporation is not subject to tax like a C corporation, if an S corporation liquidates the corporation must recognize gain as if the assets were sold. The S corporation does not pay taxes on the gain, but the gain passes through to the shareholders who must report the taxable gain.

The phrase “substantially all” is not defined in Sec. 337(b)(2) or in Reg. 1.337(d)-4. However, there are several other places in the Code in which the phrase “substantially all” is interpreted to mean 85%. Reg. 1.514(b)-1(b)(1)(ii). Reg. 53.4942(b)-1(c). Reg. 53.4946-1(b)(2). Reg. 1.401(k)-1(d)(1)(ii). While these regulations cover a variety of tax issues, it is significant that they uniformly interpret the phrase “substantially all” to mean 85%.

Since the exception under Sec. 337 refers to “an 80%” subsidiary, some counsel have also expressed the belief that “substantially all” could be interpreted to be 80%. Regardless, it is apparent that a transfer of perhaps 65% of assets to charity or to a charitable trust would be permissible under Sec. 337(b)(2). Cautious counsel would be prudent in remaining at or below that level with transfers to charity.

Financial Planning Strategies

While the use of a CRT is more limited with an S corporation then with a C corporation, there is still the possibility of utilizing a CRT when selling a business. For example, Tom and Suzie started a business years ago creating designer clothing for dogs. Tom and Suzie liked the idea of have a corporation to protect them from potential liabilities, but they did not like the idea of the double tax system. Therefore, they established their business as an S corporation. Tom and Suzie are the sole shareholders and are now planning to retire. Over the years they have supported a number of charities that assist in the prevention of cruelty to animals. Tom and Suzie are hoping to use some of the money they receive from the sale of the business to continue to support such charities.

Recently Tom and Suzie have had a number of inquires for the sale of their business. It seems that designer clothing and accessories for dogs has become a booming business. Tom and Suzie met with the gift planner from their favorite charity and like the idea of a CRUT that would pay them an income stream over their two lives. However, they discovered that because they have an S corporation they cannot transfer the stock to a CRT without losing their S election status. Tom and Suzie do not want to convert their business to a C corporation. Tom and Suzie can, however, have the S corporation use some of its assets to fund a CRUT that would pay for 20 years. However, they must take steps to ensure that the CRT is not disqualified.

First, Tom and Suzie have to carefully choose which assets the S corporation will use to fund the CRUT. The value of those assets cannot be substantially all of the value of the corporation. Further, they have to ensure that there is not any unrelated business taxable income while the assets are in the CRUT. Even $1 of unrelated business taxable income will disqualify the tax-exempt status of the CRUT. If Tom and Suzie decide to use any of the corporation’s equipment or inventory, the deduction of the CRUT will be limited to the corporation’s cost basis in those assets, which is very low. The S corporation does own the building and land on which it operates and the value of the land and building represents about 50% of the S corporation assets.

To make sure that the CRUT will work, Tom and Suzie enter into lease agreements with two of their key employees. Under the first lease, the employees will lease the operating assets of the S corporation. Under the second lease, the two employees will lease the building and land. Both leases are fixed payment leases. By establishing the leases, the S corporation can transfer some of its assets into the CRUT and avoid the unrelated business income tax problem.
Once the leases are established, the S corporation will transfer title of the real estate to the CRUT. To avoid potential self-dealing issues, Tom and Suzie decide to select their local bank to serve as trustee of the CRUT. Once the land is transferred to the CRUT, the trustee, along with Tom and Suzie, will negotiate for the sale of the assets and the land and building. After the sale is completed, the CRUT will receive the proceeds from the sale of the real estate and the S corporation will receive the proceeds from the sale of the operating assets.

The sale of the operating assets will trigger gain for the S corporation that will flow through to Tom and Suzie as the shareholders. It is important for Tom and Suzie to leave this cash in the S corporation. This is because the gain from the sale will increase Tom and Suzie’s cost basis in their S corporation stock. The increase in the cost basis will allow them to use more of the charitable deduction that will flow through to them from the S corporation. Over the years, the S corporation unitrust will make payments to the S corporation. So long as the S corporation was not a prior C corporation, the passive income from the CRUT will not pose any problems for the S corporation.

Tom and Suzie are very happy with the sale of their business and that they are able to provide a very nice gift to their favorite charity. They are also very happy that they now get to take a long needed vacation.

Assessment

There are a number of charitable strategies that can be used when selling a business. Tom and Suzie could have established a charitable gift annuity with their Sub S stock. They also could have used a gift and sale strategy. There are other options available to Tom and Suzie if they chose not to keep the S corporation alive for the 20 year term of the trust. This article is the first in a series that will explore the options of using businesses and business assets to fund charitable gifts. Throughout this series, planning options with C corporations, S corporations, partnerships, LLCs and sole proprietorships will be discussed.

Conclusion

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“Massively Confused Investors Making Conspicuously Ignorant Choices”

By Somnath Basu PhD, MBA

How well we make investment decisions depends in part on how reasoned or emotional the decision was. The greater the emotional content the more likely will be the mistake. It is useful for all of us to understand the emotional pitfalls of financial decision-making.

Financial Psychologists

An appropriately titled study by a financial psychologist Michael S. Rashes, “Massively Confused Investors Making Conspicuously Ignorant Choices” cites that the widespread phenomenon witnessed in the market, whereby several stocks with similar ticker symbols all went up in value when positive news was announced about any one of them.

Example: http://ideas.repec.org/a/bla/jfinan/v56y2001i5p1911-1927.html

A case in point is the parallel movement between two entirely unrelated stocks, MCIC (ticker symbol for the telecommunications firm, MCI, bought by Worldcom in 1997), and MCI (ticker symbol for the Massmutual Corporate Investors fund). The acquisition of MCI, the telecommunications firm, in 1997-8 caused an upward movement in its stock (MCIC). That movement was also closely correlated with the upward movement in the stock of Massmutual Corporate Investors (MCI), whose ticker symbol was the same as the telecommunications company’s name. Rampant confusion of this sort strongly supports the notion that irrationality, not rationality, rules the financial markets. Another noted scientist, B. Malkiel suggests that when it comes to investing, people generally follow their emotions, not their reason, their hearts, not their minds.

Behavioral Finance and Economic Gurus

This line of argument has been gaining credibility over the last decade or so, not only among behavioral finance experts, but also economists themselves, as well as stock market pundits and the population at large. There is a strong sense among all these groups that greed, exuberance, fear and herding behavior affect markets as much as or more than calculations of P/E ratios, profit projections, or market benchmarks. The bursting of the stock market bubbles of 2000 and 2008 only confirmed these long-held suspicions. As a result, widely used economic models based on rational investor behavior require some reevaluation and could be found to be unreliable at best and irrelevant at worst.

The Decision Biases

The following is only a partial list of the biases that may be induced in you if the financial decisions you make are based on emotion and not on reason. The list includes the bias name, a descriptive definition and an example of application error. Before closing that next trade you make, a good question to ask yourself is whether any of the biases from the list were included in your financial decision. If so, these decisions too need further evaluation.

1. Over-Confidence:

Over-estimating the chances of correctly predicting the direction of price changes!

Example: Attribute good outcomes (i.e., gains) to your skill while attributing bad outcomes (i.e., losses) to your bad luck.

2. Pride and Regret:

Investors often over-estimate their powers of discerning stock winners from losers. Some physicians and other investors (essentially, active traders) may rapidly sell and buy back stocks, in order to capture expected gains.

Example: Selling your winning picks early and holding onto losers hoping they rebound. Studies show that doing the opposite can increase your annual returns by 3-4%.

3. Cognitive Dissonance:

Suggests that investors experience an internal conflict when a belief or assumption of theirs is proven wrong

Example: It’s easier to remember your winning picks than your losing ones since the latter outcomes disagreed with your earlier beliefs.

4. Confirmation Bias:

Suggests that they try to seek out information that will help confirm their existing views whether those views be right or wrong.

Example: When you hear someone agreeing with your investment decision you feel that person is much more knowledgeable than one who disagrees with you.

5. Anchoring:

A phenomenon whereby people stay within range of what they already know in making guesses or estimates about what they do not know.

Example: The Dow Jones Industrial Average (DJIA), which grew from a value of 41 in 1896 to 9,181 in 1998, does not include dividends. They then value the index in 1998, including dividends, at a whopping 652,230. When asked, investors estimate the value of the DJIA would be if dividends were included, all were way off the mark, keeping their answers close to its familiar value of 9,181. The highest guesses came in at under 30,000, less than 5% of the actual value.

6. Representative Heuristics:

An over-reliance on familiar clues, such as past performance of a stock!

Example: most investors assume that the stock of a company with strong earnings will perform well and that the stock of a company with weak earnings will perform poorly. The law of large numbers suggests however that the exact opposite is much likelier to be true.

Conclusion

And so, 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.

NOTE: Somnath Basu is a Professor of Finance at California Lutheran University and the creator of the innovative AgeBander (www.agebander.com) retirement planning software.

 

 

Seeking Chief Medical Director

Employment Opportunity for CMD

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By Judy Kliethermes

Centene Corporation is seeking a Chief Medical Director for Managed Health Services, a wholly owned subsidiary and HMO for the state of Wisconsin.  The regional headquarters for Managed Health Services is in Milwaukee.  A Fortune 500 company, Centene Corporation is a national leader in low-cost solutions for high quality health care services for the un-insured and under-insured.

Responsibilities

The Chief Medical Director (CMD) will be responsible for directing and coordinating the medical management, quality improvement and credentialing functions for Managed Health Services. S/he will serve as a clinical advisor and educator of the medical management staff, ensuring the clinical quality and efficacy of patient care. The CMD will identify trends in patient treatment data and proactively develop programs to address improve patient health and wellness needs. 

Assessment

As an integral part of Managed Health Services senior leadership team, the CMD will have an active role in supporting the strategic plans and vision of the organization. 

Conclusion

I would welcome your interest in the Chief Medical Director role.

Sincerely,

Cejka Executive Search
314-236-4429
judyk@cejkasearch.com

Why Physicians Need to Deal with Debt

Understanding the Impending Retirement-Planning Crisis

[By Somnath Basu PhD, MBA]

A serious retirement-planning crisis is looming in the US with many Baby Boomer physicians, and others, having already spent a portion of their nest egg and undermining any hope for a comfortable lifestyle unless they continue to work. Notwithstanding medical professionals, look no further than an annual “retirement confidence” survey conducted by the Employee Benefit Research Institute and Mathew Greenwald & Associates in each of the past 17 years. Nearly two in five of working Americans responding to the latest survey indicated that they have taken no action in the face of reductions in their employer-provided retirement benefits.

Consumption Equals Happiness?

The population is constantly told that consumption equals happiness. At the same time they are not being asked to understand about the implications of borrowing to fund for such consumption. Before we can expect to effect a change in the ensuing pattern of a vicious cycle, the population mass must have a clear understanding of the difference between needs (e.g., retiring with peace of mind) and desires (e.g., cruises or living the high life).

Negative Savings Rate

When savings first dipped into negative territory during the Great Depression in 1932 and 1933, people didn’t have enough to eat, whereas there has been no such urgency to raid nest eggs since the repeat of this performance in 2005 when the rate fell to minus 0.5 percent. Our grandparents were shining stars in the way they worked hard to build this country’s infrastructure and manufacturing sector, saved every red cent they could get their hands on and created affluence on a mass scale. Today we’re able to enjoy the fruit of their labor. But, somehow their values were lost on future generations.

Changing American Culture

Many of the nation’s top engineers and scientists now hail from China, India and other Asian countries as American culture has undergone a dramatic change to the point where jocks and cheerleaders are more valued than computer geeks and science nerds in our schools. We inherited so much affluence that it made us lazy as a society. The seeds of our destruction have been sown, but it’s up to our politicians, educators and other leaders, including financial advisors, to help reverse this disturbing pattern before it’s too late.

Many people fall into the trap of rushing through dinner and unwinding in front of the TV where a big part of the problem lies in slick and subtle, and hard to resist, primetime advertising and marketing messages (prime time for subtle messages) that seduce viewers into purchasing luxury cars or flying to far-flung resorts where they can sip umbrella-clad cocktails alongside affluent vacationers.

Americans in Debt

A recent wave of foreclosures has put Americans deeper in debt, with the sub-prime crisis exposing despicable predatory lending practices. But, research has shown the wreckage also could be found strewn across in the mid-prime and prime markets as middle-class borrowers struggled to pay adjustable rate mortgages. High hopes have been pinned on the stock market helping people crawl out from this crisis just like when the real estate market had softened the blow when the tech-bubble burst at the turn of this century. So far, this has happened, to an extent. But, if the stock market starts reeling again, then it will spell even bigger trouble. Add to this the international trade imbalance, which implies foreign governmental funding of our conspicuous consumption, and which comes with high interest rates that need to be paid to the lenders, again to such countries as China, India and other emerging economies, and a bigger, worse picture emerges.

Personal Bankruptcies

Personal bankruptcies have an even more devastating effect on an individual’s ability to plan for the future, particularly since the laws pertaining to this area were toughened to a point where reckless spenders will need to muster fiscal and financial discipline as never before. The doomsday scenario is that children now run the risk of inheriting debt instead of wealth, and it’s unconscionable to think future generations would have a standard of living that’s worse than their parents or grandparents.

Assessment

The true grit associated with being an American is to rise up in the face of adversity – a frontier spirit that drew me this remarkable country. We’ve weathered numerous storms and can do it again. But, it requires a serious commitment to stopping mindless consumption of goods and services, as well as understanding there’s a difference between basic needs and pie-in-the-sky desires.

NOTE: Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. He is also the creator of the innovative AgeBander technology www.agebander.com for planning retirement needs.

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.

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The Business of Medical Practice [3rd edition]

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Transformational Health 2.0 Skills for Doctors

By Ann Miller; RN MHA

[Executive Director]

Revised and updated to include the most current information on healthcare administration, the Third Edition of The Business of Medical Practice is an essential business tool for doctors, nurses, and healthcare administrators; management and business consultants; accountants; and medical, dental, podiatry, business, and healthcare administration graduates, managers, and doctoral students.

Journalistic Style

Written in plain language using non-technical jargon, the text presents a comprehensive and progressive discussion of management and operation strategies. It integrates various medical practice business disciplines-from finance to marketing to the strategic management sciences-to improve patient outcomes and achieve best practices in the healthcare administration field.

Returning Contributors

  • Dr. Gary L. Bode; MSA, CPA, CMP™ [Hon]
  • Render S. Davis; MHA, CHE
  • Dr. Charles F. Fenton III; FACFAS, Esquire
  • Eric Galtress
  • Hope R. Hetico; RN, MHA, CMP™
  • Carolyn Merriman; FRSA
  • Dr. Brent A. Metfessel; MS
  • Rachel Pentin-Maki, RN, MHA, CMP[Hon]
  • Eugene Schmuckler; PhD, MBA, CTS
  • Patricia A. Trites; MPA, CHBC, CMP[Hon]

Exciting New Thought-Leaders

And, we seek to breathe additional diversity into this work with these new contributing authors:

  • Suzanne R. Dewey; MBA
  • Dr. Brian J. Knabe; CMP™
  • Parin Kothari; MBA
  • Mario Moussa; PhD, MBA
  • Shahid N. Shah; MS
  • Susan Theuns; PA-C
  • Jennifer Tomasik; MS

Topic Content and Chapters

With 37 chapters, 512 pages, and contributions by a world-class team of expert authors, this new edition – under the direction of Chief Editor Dr. David Edward Marcinko MBA – covers brand new information such as this partial list demonstrates:

  • Web 2.0 Technologies Impact on the Healthcare Industry
  • Office Location, Logistics, Layout and Execution
  • Internal Office Controls for Preventing Waste, Fraud and Abuse
  • Direct-Concierge Medicine and Niche Providers
  • Medical Workplace Violence and Sexual Harassment
  • Office Financial Statements and Analysis
  • Human Resources, Hiring, Firing and Office Staffing
  • Healthcare Marketing, Advertising, and Public Relations
  • Health Economics, Cost and Practice Managerial Accounting
  • Mico-Medical Practice Business Models
  • Incurred but Not Reported [IBNR] Healthcare Claims
  • Revenue Management, Coding and the Cash Conversion Cycle
  • Medical Professional Social Media and Collaborative patient care
  • Healthcare Compliance and Health Law Policies
  • The USA PATRIOT and SAR-BOX Acts
  • Physician Leadership, Communication, and Career Development
  • Patient Service Management and CRM + [plus]
  • Physician Compensation, Micro-Capitation with P-4-P Trend Analysis
  • Office Financial Statements and Analysis
  • Human Resources, Hiring, Firing and Office Staffing
  • Healthcare Marketing, Advertising, and Public Relations
  • EHRs, Mobile IT systems, Medical Devices, SaaS and Cloud Computing
  • Medical Ethics, Participatory Care and Moral Philosophy
  • Health Macro and Micro Economics and Finance
  • Medical Practice Sales and Succession Planning
  • Next-generation Physician Leadership
  • Obama Care American Recovery and Reinvestment Act [ARRA and HITECH]
  • And so much more!

“Live” Website Companion

The “live” online companion for this print textbook is: www.BusinessofMedicalPractice.com

Assessment

So, give em’ a click and tell us what you think.  Be the first to review this book.

Pre-Release Orders Here: www.springerpub.com/shoppingcart

Conclusion

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To Save or To Spend?

Understanding the Decision

By Somnath Basu PhD, MBA

Should we save or spend? What’s good for me and my family? Is the time right for us to be buoyant and optimistic about the future? How do we decide what fraction of our income to spend and how much to save? Isn’t spending a good thing for the economy as we are constantly being reminded about? If we do not spend now, how are we going to feel about all these unfulfilled wants and needs that we have especially when we see others around us fulfilling? How much should I spend for gifts during this holiday season – is that not a good idea to bring cheer to my family? It is a very perplexing set of questions that constantly sway our mind as we try to grapple with what we feel should otherwise be moderately simple decisions. In arriving at these seemingly easy decisions, consumers are facing some of the toughest issues in their everyday lives. It may be useful to dig a bit deeper into the issues related to spending and saving decisions so that we may understand a bit of their complexities and make prudent choices whose outcomes will clearly validate our reasons for doing so.

The Save or Spend Decision

If the decision to save or spend is problematic, it is because it is neither simple nor anything new. We have coped with these same decisions through many generations, and more. The understanding we have collectively arrived at is, however, worth visiting. When we spend, we receive immediate gratification. This “feel good” feeling is so good that we are willing to sacrifice a lot in order to attain this feeling. Saving, on the other hand, is bereft of any such immediate good feeling. The only good feeling that can accrue to us is that we have this “felt’ promise to ourselves that a moment in the future will feel better than both the loss of satisfaction from immediate gratification of wants and the hurt of having unsatisfied wants. Alternately, we may want to save because we feel threatened that a future situation may arise that may lead to more misery tomorrow than the joy gained today. Thus, the main question in trying to answer whether to save or not is whether it is a promise or a foreboding about the future.

Attitudinal Sea Change

Over the last 25 years, our attitude towards spending has undergone a sea change. Even until the early 1980s we were saving in double digits as a nation. Since then, we have slowly moved away from this psyche and have adapted our lifestyles towards spending and consumption on a scale we have never experienced before, historically. By 2006, we were actually spending about one percent more than what we were earning. This change was stimulated by many factors including the plentiful inflow of cheap products from China, a steady rise in income, a considerable increase in the promotion of mass consumption through enticing advertisements in practically all media, the access to cheap credit sources, increasing house prices and the accompanying ability to borrow from the increase in its equity value, etc. Above all else, this shift from saving to spending was overwhelmingly reinforced by the feeling of empowerment in being able to command goods and services for consumption and the enjoyment from the increase in our standards of living that came from our new found affluence. Whereas every generation before us (baby boomers) had sought to leave more for their kids than what they themselves inherited, we reasoned with ourselves that educating our children was sufficient for them to look after themselves. This attitude allowed us also to spend and consume more not only without guilt, but also with pleasure. More so than ever, we got addicted to spending. Nothing felt better than spending.

The Flash Crash of 2008-09

Then came the great recession of 2008-09! The economy plunged, companies laid off workers by the thousands, people who had bought homes even if they could not afford it, on the promise that house prices would never go down, lost their homes. Moreover, the cheap Chinese goods we got used to were being produced by our own national companies so that the economic rebound was now being hailed as a jobless recovery. We had outsourced away all we had for some corporate bottom line and had impoverished ourselves in the process. Only now, we had no savings for the rainy day that had befallen us.

Americans Saving Again

Perhaps one of the more pleasant surprises from this recession is that we turned the clock around on saving and in the short span of two or three years we have our savings level back at five percent. Why did it happen this way in spite of our government encouraging us to spend our way out of this recession? Primarily, this change has come about from the possibility of losing our jobs or enduring deep cuts in our incomes. This fear today is more real than ever before and it seems to have taught us a “savings” lesson that we have all learned. When deciding on whether and how much to spend, we should take absolutely no chances in first putting away a small nest egg for a rainy day or “emergency” fund, in more technical terms. It is imperative that we defend our families in the event of losses in job and income so that we can bear out whatever future storms come by our way. It is only after we have done so should we consider spending. A six-month contingency fund [even more for medical professionals, according to ME-P Editor Dr. David E. Marcinko] should be perhaps the most staple item in our household budget. It is heartening to see the resiliency that runs through our nation’s citizens as we collectively undo our habit of reckless spending.

Assessment

Once we have our emergency nest egg in place, we should consider our spending pleasure. Going “cold turkey” on spending is not advisable either; maybe a gradual weaning away from this compelling habit. Ask yourselves before you spend whether it is a “need” or a “want”. Healthy food and holiday cheer for the family, basic transportation expenses and healthcare are needs. Starbucks coffee is a want. As we prudently spend on needs and wean away from wants we also save. And saving is not only for our future “feel good” consumption. It is also for the immensely gratifying feeling that we will leave something for our children, through whom we will live in the future.

NOTE: Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. He is also the creator of the innovative AgeBander technology www.agebander.com for planning retirement needs.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Is this portrayal accurate or even applicable to medical professionals?  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

Other Print Books and Related Information Sources:

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

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

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

Healthcare Organizations: www.HealthcareFinancials.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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On Hospital Bond Insurers and Credit Enhancement

Understanding the Capital Formation Process

By Calvin W. Wiese CPA MBA

www.HealthcareFinancials.com

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Credit enhancement is commonly used when issuing tax-exempt bonds. Credit providers guarantee the payments promised by the bonds, essentially co-signing. As a party with recognized credibility in the market, the bond provider agrees to make payments on behalf of the obligor in the event the obligor fails to make payments. The effect of this is that the credit rating on the credit enhanced instruments is higher than the underlying credit rating of the hospital obligor.

Credit Enhancement

Credit enhancement is primarily provided by bond insurers and commercial banks. Bond insurers issue insurance policies that cover the payments of principal and interest over the life of the bonds, usually up to 30 years. For this policy, the bond insurer is paid an upfront premium; typically in the range of 40 to 300 basis points (hundredths of one percent) applied to the total principal and interest payments. Effectively, the credit rating of the insured bonds becomes the credit rating of the bond insurer, typically ‘AAA’ or ‘AA,’ instead of the underlying rating of the hospital obligor. The credit enhanced bonds then are priced on the basis of the bond insurer’s credit rating resulting in lower interest rates. The difference between the interest rate based on the hospital obligor’s underlying credit rating and the bond insurer’s credit rating is the savings in interest payments derived by the insurance. The premium paid to the bond insurer is usually about two-thirds of the present value of this interest savings.

[picapp align=”none” wrap=”false” link=”term=financial+bonds&iid=167808″ src=”http://view.picapp.com/pictures.photo/image/167808/stocks-and-bonds/stocks-and-bonds.jpg?size=500&imageId=167808″ width=”337″ height=”506″ /]

Commercial Banks

Commercial banks issue letters of credit to enhance hospital obligations. Letters of credit basically provide that the issuing bank will make any principal or interest payments that the hospital obligor fails to make. Usually, letters of credit are issued for three to five years with “evergreen” provisions. Evergreen provisions provide the mechanism whereby the letter of credit can be extended for an additional year at each anniversary upon the agreement of the parties (not automatically). An important difference between bond insurance and letters of credit is the term: bond insurance covers the entire term of the bonds, while letters of credit cover less than the entire term (casting uncertainty on the credit enhancement provided by a letter of credit). Another important difference is the fee structure: letters of credit fees are paid on a quarterly basis, while bond insurance premiums are paid upfront.

Letters of Credit

Due to its short term, the letter of credit has to provide a “take out” mechanism that is exercised in the event the letter of credit is not renewed. This “take out” mechanism converts the underlying instrument into a bank loan with a short amortization — usually five to seven years — and a “prime plus” rate of interest.

Assessment

Letters of credit are most commonly used to support variable-rate tax-exempt instruments. These instruments are usually auctioned once a week and a new interest set for the next week. The interest rates are extremely low and make very favorable forms of financing. They do introduce interest rate uncertainty. Although the rates are low, there is no certainty that they will remain low, although they have never traded above about 6% in the 20 or so years they have been in the market. Because of this uncertainty, they are typically limited to something less than half the debt of a hospital.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Has the flash-crash of 2008-09 affected your opinion of the rating agencies? 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.

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Events Planner: September 2010

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Events-Planner: SEPTEMBER 2010

“Keeping track of important health economics and financial industry meetings, conferences and summits”

Welcome to this issue of the Medical Executive-Post and our Events-Planner. It contains the latest information on conferences, news, and relevant resources in healthcare finance, economics, research and development, business management, pharmaceutical pricing, and physician/entity reimbursement!  Watch for a new Events-Planner each month.

First, a little about us! The Medical Executive-Post is still a relative newcomer. But today, we have almost 175,000 visitors and readers each month from all over the country, in addition to our growing subscriber base. We have been a successful collaborative effort, thanks to your contributions.  As a result, we are adding new resources daily. And, we hope the website continues to provide the best place to go for journals, books, conferences, educational resources, tools, and other things you need to establish the value your healthcare consulting and financial advisory intervention.

So, enjoy the Medical Executive-Post and this monthly Events-Planner with our compliments. 

A Look Ahead this Month with the important dates:

September 19-20: Healthcare Payment Summit, Boston, MA

September 21-22: Mobile Healthcare Industry Summit, Boston, MA

September 27-28: World Cost Containment revenue Cycle Congress, Chicago, IL

September 29-30: Consumer Healthcare Congress, Washington, DC

Please send in your meetings and dates for listing in the next issue of our Events-Planner.

MarcinkoAdvisors@msn.com

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More on the Meaningful Use of eMRs

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Final Meaningful Use Rules Released by HHS on July 13, 2010.

[By Shahid N. Shah MS]

Link: http://shahid.shah.org

For ambulatory care practices and physicians there are about 25 objectives and measures that must be met to become a “meaningful user”. Keep in mind that meaningful use is not tied to a certified EHR alone; in fact, unless you use the EHR properly and in all the ways the government wants you to, you will not be a “meaningful user”. Don’t be fooled by EHR vendors guaranteeing that they will make you a “meaningful user” – no vendor’s software, no matter how nice, can get your staff to use the software in the way the government wants. You, as the CIO of your practice, are the only one that can guarantee that. In fact, you don’t even need an EHR from a vendor to meet the requirements – you can even roll your own, use open source, or find any other means. But, in general, as long as you can attest and send data to the government that they require you can do it in any way that you want. Be aware that some unscrupulous vendors are scaring practices and making promises that they cannot keep.

Final MU Rules

The final Meaningful Use (MU) Rule was published by HHS on July 13, 2010. It defines 24 objectives for and measures eligible hospitals that could be met to become a meaningful user and qualify for incentive funding. There is a “core set” that must be met by all institutions and a “menu set” of from which organizations must implement at least 5 objectives.

Core Set Objectives

These are the “core set” of 14 objectives that must be met by all institutions and a “menu set” of 10 from which organizations must implement at least 5 objectives (at least 1 public health objective must be chosen from that set).

  1. Use Computer Provider Order Entry (CPOE).
  2. Implement drug-drug, drug-allergy, and drug-formulary checks.
  3. Record demographics.
  4. Implement one clinical decision support rule.
  5. Maintain a problem list of current and active Dxs based on ICD-9-CM or SNOMED CT.
  6. Maintain active medication list.
  7. Maintain active medication allergy list.
  8. Record and chart changes in vital signs.
  9. Record smoking status for patients 13 years or older.
  10. Report hospital clinical quality measures to CMS or States.
  11. Provide patients with an electronic copy of their health information, upon request.
  12. Provide patients an e-copy of discharge instructions at time of discharge, upon request.
  13. Exchange key clinical e-information among providers and patient-authorized entities.
  14. Protect electronic health information.

Menu Set Objectives

These are the “menu set” of 10 objectives from which organizations must implement at least 5. At least one public health objective must be chosen from this set as well (numbers 8, 9, or 10).

  1. Drug-formulary checks.
  2. Record advanced directives for patients 65 years or older.
  3. Incorporate clinical lab test results as structured data.
  4. Generate lists of patients by specific conditions.
  5. Use certified eHR technology to identify patient-specific education resources and provide to patient, if appropriate.
  6. Medication reconciliation.
  7. Summary of care record for each transition of care/referrals.
  8. Capability to submit electronic data to immunization registries/systems.
  9. Capability to provide electronic submission of reportable lab results to public health agencies.
  10. Capability to provide electronic syndromic surveillance data to public health agencies.

Assessment

As can be seen in the link below, the Office of the National Coordinator for Healthcare IT (ONCHIT) is a component of the Department of Health and Human Services (HHS). ONCHIT, usually abbreviated just ONC, is the principal policy group of the Federal Government that defines and manages NHIN.

  • ONC is responsible for coordinating with the Department of Commerce’s National Institute of Standards and Technology (NIST) on the specifications for the NHIN standards.
  • The HIT Policy and HIT Standards Committees are the working groups that advise ONC on what to put in the standards.
  • NIST is responsible for coming up with the test materials (assertions, procedures, methods, tools, data, and so on) that will be used to certify working systems.

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.

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About Medically Induced Trauma Support Services

Dealing with Unexpected Medical Outcomes

By Staff Reporters

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Medically Induced Trauma Support Services (MITSS), Inc. is a non-profit organization founded in June of 2002 whose mission is “To Support Healing and Restore Hope” to patients, families, and clinicians who have been affected by an adverse medical event.

Definition

Medically induced trauma is defined as an unexpected outcome that occurs during medical and/or surgical care that affects the emotional well being of the patient, family member, or clinician. According to its’ website, MITSS achieves its mission thru the following:

  • Creating Awareness and Education: Since 2002, MITSS has been educating the healthcare community on the uniqueness of medical trauma, the broad scope of its impact, and the crucial need for support services through participation in forums, local and national conferences, and through the media.
  • Direct Support Services to Patients, Families, and Clinicians: MITSS provides educational support groups for patients and their families who have been affected by medical error or unanticipated outcomes led by a clinical psychologist.  MITSS also provides support groups for nursing professionals finding themselves at the “sharp end” of an adverse medical event.
  • Advocacy for Action: MITSS encourages and consults with healthcare institutions in developing infrastructures for clinician peer support systems. They also assist in developing a referral process to the MITSS program for patients and families

Purpose

MITSS aims to create awareness, promote open and honest communication, and to provide services to patients, families, and clinicians affected by medically induced trauma.

Vision

The vision of MITSS is for all those involved in a medically induced trauma to have access to support services.  Their goal is a more compassionate, people-centered healthcare system.

Assessment

Lean more: http://www.mitss.org

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Give em’ a click and tell us what you think? Are the credit relationships at your healthcare institution proactive or retro-active? 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.

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Regarding Hospital Security and Financial Covenants

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Understanding the Capital Formation Process

[By Calvin W. Wiese CPA MBA]

Almost every bond issue has security provisions. Usually the security for bond holders is described in the bond indenture. Security for credit enhancers typically is greater than that provided bond holders and is spelled out in the agreements between the credit enhancers and the hospital obligor. Covenants are promises made between the parties and are used to describe the security provisions.

Mortgages

Mortgages on properties are not common security provisions. Mortgages, reserved for poorer credits, are considered somewhat arcane. More in favor are covenants not to encumber. The idea is to ensure that no property has a superior security interest to the interests of the bond holders. This form is less restrictive and provides more flexibility to the hospital obligor. Almost all bond issues will provide either a covenant not to encumber or a mortgage on almost all property as security for the promise to make payments.

Hospital

Debt Service Covenant

Covenants based on debt service coverage are fairly common. Debt service coverage is a metric that expresses how much cash is being generated relative to the debt service of the hospital. It is, as a rule, calculated as net income available for debt services divided by annual debt service. Net income available for debt service is net income plus depreciation expense plus interest expense. Debt service is the principal and interest payments for all long-term debt. Sometimes, maximum annual debt service is used; debt service is scheduled out for each year into the future and the year with the highest amount is used. Debt service coverage is used as a trigger for various covenants. If debt service coverage falls below specified level, then provisions of covenants kick in.

The Rate Covenant

The most common covenant is the rate covenant: hospital covenants to set rates sufficiently high to ensure that debt service coverage is at least X (typically 1.10). If the specified coverage is not maintained, then the hospital promises to hire a consultant to do a study and determine what changes need to be made to achieve the specified debt service coverage.

Long Term Borrowing Covenant

Perhaps the most confusing covenants deal with additional long-term borrowing. Usually, additional long-term debt can only be borrowed when the pro-forma debt service coverage (debt service coverage including the additional long-term debt) is higher than a specified level. This limits the amount of long-term debt hospitals can borrow.

Assessment

Covenants made to bond holders are very rigid. Since there can be many bond holders, and many of them may be fairly unsophisticated, there is almost no way to get relief from them. If they are too tight, about the only means to gain relief from them is to refund the bonds. Thus, great care must be used in making covenants to bond holders. Covenants with credit enhancers can be more flexible since credit enhancers can waive covenants — if relief is needed, hospitals have the option of requesting waivers from the credit enhancers who are usually quite sophisticated and may very well find it in their interest to waive.

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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ME-P Corporate Seminar Information

By Ann Miller RN, MHA

[ME-P Executive-Director]

Our Editor-in-Chief, Dr. David Edward Marcinko MBA, CMP™, enjoys public speaking and gives as many talks each year as possible, at a variety of medical society, pharmaceutical and financial services conferences around the country and world [Cannada, Belgium, Germany and Finland].

These have included lectures and visiting professorships at major academic centers, keynote lectures for hospitals, economic seminars and health systems, keynote lectures at city and statewide financial coalitions, and annual keynote lectures for a variety of internal quarterly and annual meetings for small bio-tech firms as well as big pharma.

Topics of Interest

The presentations of Dr. Marcinko are engaging, iconoclastic, and humorous. His most popular presentations include a diverse variety of topics and typically include those in all iMBA Inc’s textbooks, handbooks, white-papers and our 2-volume quarterly print journal; as well as most topics covered on this Medical Executive-Post blog.

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