Medical Practice Human Resource Budgets

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Seeking Optimal FTE-to-Doctor Ratios

 [DR. DAVID E. MARCINKO MBA]

The full-time-equivalent (FTE) – to doctor (provider) – ratio of a medical practice is often more useful to know than the total amount of staff salary expense, according to industry experts like Dr. Jon Hultman MBA, of Los Angeles, CA.  

Why? Because comparable salaries have a wide geographic variance; and it is just more expensive to practice in New York City, than it is in Phenix City, Alabama.  

Introduction 

Payroll (human resources) typically is the largest singe expense and cost-driver of most medical practices. So, an optimal staffing ratio must be determined for every practice, considering quality, productivity and patient satisfaction at the lowest possible cost.

Reducing the FTE ratio, and hence overhead salary expenses, is desirable only when it does not lower productivity, quality or patient satisfaction. 

Most FTE ratios are significantly high, with no corresponding benefit to the typical medical practice (if there even is such an entity).

Moreover, this FTE excess establishes an environment for which “idle-time” for any given point is about 30%. And, corresponding redundant or unnecessary “task-time” is about 25%. 

In fact, it is often a management truism that smaller FTE ratios may be consistent with higher levels of productivity. On the other hand, lower FTE ratios may actually be consistent with lower levels of productivity, lower medical care quality and higher costs; all other things being equal. 

 The NAHC Review

The National Association of Healthcare Consultants (NAHC), Statistical Report 2000, is summarized below and was considered reliable at the time because the numbers were reported by accountants, not doctors. More current information is now available.

Nevertheless, these benchmarks may serve as a cogent starting-point for HR budget analysis and FTE evaluation:

Specialty                                FTE Ratio 

  • Ophthalmology                     5.19
  • OB/GYN                                 4.35
  • Dermatology                         4.30
  • Otolaryngology                     4.22
  • Hematology                          4.19
  • Oncology                               4.19
  • Family Practice                      4.18
  • Orthopedic Surgery               4.12
  • Pediatrics                              3.79
  • Gastroenterology                  3.75
  • Internal Medicine                  3.51
  • Dentistry                               3.00
  • Urology                                 2.94
  • Podiatry                                2.94
  • Neurology                             2.70
  • General Surgery                   2.50

Assessment

Now, consider the specialty FTE-to-physician ratios listed above – index them over time for your medical specialty – and consider that famed investor Warren Buffett once said,

“There is a right size of staff for any business operation. For every dollar of sales (professional service income), there is an appropriate level of expense.”  

And so, how does your medical practice, clinic or healthcare organization stack-up to current NAHC benchmarks and their resulting HR budgets?

Conclusion

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Activity-Based-Medical-Cost Accounting and Management

A Non-Traditional Accounting System

[Dr. David Marcinko MBA and Staff Writers]CPA

Sooner or later you will want to ascertain and then demonstrate the cost effectiveness of your medical care. By using the process of Activity Based Cost (ABC) management, you will be able to do so.  But, if you’re using a traditional accounting system, you won’t know a thing about your activity costs. Here’s how. 

Traditional Cost Accounting Methods 

In a traditional medical practice cost accounting system, costs are assigned to different procedures and services based on volume.  In others words, office costs are spread over the entire office’s product line and you may not know the true profitability of any single medical activity. So, if the office is doing more “procedures” than general medicine, for example, more indirect office overhead costs will be allocated to the procedural portion of the practice. 

ABC management, on the other hand, determines the actual costs of the resources that each service consumes. Because general medicine requires more human resources than “technical procedures,” ABC management will assign more costs to the general medical portion of the practice. 

Accordingly, most physicians, office managers, and their accountants are surprised that a prior notion of office profitability is different than previously thought. ABC management is just more accurate in measuring medical service profitability than traditional accounting methods. 

Medical Activity Cost Drivers 

Examples of medical activities that are office cost drivers include such items as monitoring vital signs, taking radiographic images, removing dressings or casts, performing laboratory tests or veni-punctures, surgical set-ups or operative procedures; etc.  

However, in the office setting, the most economically important activities are listed as specific CPT codes for each medical specialty.  The most important end result of ABC management is the shift of general overhead costs to low volume services from high volume services. These effects are not symmetrical as there is a bigger dollar effect on the per-unit costs of the low volume service.  

ABC Managerial Accounting Improvements 

ABC management improves office managerial cost accounting systems in three ways: 

  1. It increases the number of cost pools used to accumulate general overhead office costs. Rather than accumulate overhead costs in a single office-wide pool, costs are accumulated by activity, service or procedure.
  2. It changes the base used to assign general overhead costs to services or patients. Rather than assigning costs on the basis of a measure of volume (employee or doctor hours), costs are assigned on the basis of medical services or activities that generated those costs.
  3. It changes the nature of many overhead costs in that those formerly considered indirect, are now traced to specific activities or services. The office service mix may then be adjusted accordingly, for additional profit.   

Methodology 

In order to perform an ABC analysis for your medical office, calculate the cost of delivering a single unit of medical or surgical activity using only the work component of the resource based relative value scale (RBRVS).

Do this by adding up your office’s average variable expenses for the prior 1-3 years.  Now, count the number of work resource based relative value units (RBRVUs) delivered for each CPT code for the same time period, using the latest edition of the Federal Register to obtain the latest list of RVUs by CPT code. Then divide total variable expenses by the total number of work RVUs in order to arrive at the marginal cost of a single unit of service for the time period being evaluated.

For example, if your office had variable expenses of $480,000, and produced 80,000 work RVUs last year, it cost $6, on top of the office’s fixed expenses, to deliver one unit of work product. So, if an HMO plan offers to reimburse you at a rate of $11 per member, per month, and you can expect to reasonably deliver on average of one RVU pm/pm, you’ll earn enough on the contract to cover your marginal costs and some of your fixed and direct expenses. 

CASE MODELs: CVPA 4 and CVPA 3

dhimc-bookAssessment

Remember, this method assumes that you have the excess operating capacity and time slots, available and unused, to see the additional patients of the new plan without adding extra overhead expenses to service the contract.

If not, or if you plan for capitation to become a major portion of your practice, you might want the capitated contract(s) to cover all your office expenses, so be sure to include both the fixed and other direct costs to your variable cost calculations. ABC determines the actual costs of resources rendered for each activity and represents a real measure of practice profitability. Office service mix can then be changed to either maximize revenues or better suit your practice personality.

A Caveat

Suppose however, that a medical service is competitively priced but still shows that the CPT code is unprofitable. For example, the costs of special requests can adversely affect office profits. Yet, special patient requests are one of the biggest reasons that a CPT code or procedure isn’t profitable.

In this case, look closely at activity costs and determine which ones are being performed inefficiently. Improving the efficiency of those kinds of medical services, or referring them out or abandoning them all together, will increase office profitability.

MORE: ABCM

Conclusion

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Medical “BottleNeck” Accounting

Variance Analysis Re-Invented

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DR. DAVID E. MARCINKO MBA

Any healthcare organization usually has several processes involved in the utilization of its patient services. Unfortunately, bottlenecks may arise which constrain the amount of services any given healthcare entity can deliver. 

Accounting Definition 

An accounting “bottleneck” is a process that has a low output and limits total healthcare entity revenues. If a medical business entity wants to increase sales or revenues, it has to solve its bottleneck [ie., access management] problems. 

Traditional Variance Analysis Dilemma 

With traditional variance analysis [VA], managers and administrators analyze the difference between budgeted patient revenues and actual revenues. Typically, differences between budgeted revenues and actual revenues are analyzed as seen in the example below.

Initially postulated by Horngren and Foster for manufacturing processes, VA can now be modified for medical business entity use. 

Example: 

  Patient Service Units   Contract/UCR Fee    
Budgeted sales revenues 10,000,000 * 1,23 = $ 12,300,000
Actual sales revenues 9,000,000 * 1,21 = $ 10,890,000
          -/- —————-
Total variance         $ 1,410,000
Traditional Assessment
Actual patient revenues were lower than budgeted; and the unfavorable patient sales volume variance was (9,000,000 – 10,000,000) * $ 1,23 = – $ 1,230,000. 

  

The actual patient revenue price was lower than budgeted as the unfavorable price variance was: ($ 1,21 – $ 1,23) * 9,000,000 = – 180,000.

Traditional variance analysis however does not point out which of the processes were bottlenecks, which caused the negative volume variance.Thus, a normal variance analysis can’t be used to solve bottlenecks in a clinic, hospital or medical practice.

Enter B-N Accounting

In bottleneck accounting however, managers and healthcare administrators determine the bottlenecks in a medical organization.And, a bottleneck accounting report shows which process were bottlenecks occur and how much money is lost in each bottleneck.

Example:

Bottleneck Patient Sales Revenues $ 800,000
Bottleneck Dep. II $ 350,000
Other Bottlenecks $ 80,000
  + —————-
Total Volume Variance $ 1,230,000

Conclusion: 

The managerial accounting modification for “bottlenecks” not only points out the bottlenecks to solve, it also shows which bottleneck is to be handled first.

And so, what are your thoughts on this accounting machination? Please comment.

References: Horngren, C. T. and G. Foster, ‘Cost Accounting, A Managerial Emphasis’, Prentice-Hall, Inc. 1987. 

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

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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

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My Academic “Chair” and “Teaching Philosophy”

Colleges and Universities

TO H.R. RECRUITERS, UNIVERSITY HIRING MANAGERS & SEARCH COMMITTEES

Sooth My Academic Teaching and Classroom Withdrawal Pangs!


cropped-dem

I’m screening for my next university Dean, Chair or teaching Professorship opportunity.

Currently, an endowed Resident-Scholar completing a text book production assignment complete with aligned case models, tests, quizzes, rubrics, curriculum teaching portfolio, and accreditation review.

Two-decades of domestic and international teaching experience and credentials in health economics, finance, investing, business, policy, risk management, IT and administration. Hundreds of peer-reviewed and trade publications [TNTC] with 30 major textbooks redacted in more than a thousand university libraries [NIH, Library of Congress and National Institute Health, etc]. Public and population health global speaker and thought leader. Wall Street experience as start-up founder, entrepreneur and CXO.

Ideal mentor for under graduate thru post-doctoral and fellowship students [PhD, DBA, MD/DO, MHA and MBA, etc].

Compensation important, but fit is paramount as servant-leader.
[+] RANKED: Google Scholar and “H” Index
CV available upon request.

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Dr. Marcinko Teaching Philosophy

CHAIR: Chair 3.0 Philosophy Dr. Marcinko

THANK YOU
770-448-0769
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On David Ricardo and “Derived-Demand” Health Economics in Medicine?

On Ricardian Derived Demand – Does it Even Exist?

Courtesy: www.CertifiedMedicalPlanner.org

What it is – How it works

In economics, derived demand is demand for a factor of production or intermediate good that occurs as a result of the demand for another intermediate or final good. In essence, the demand for one is dependent on that whose demand its’ demand is derived from another: www.HealthDictionarySeries.org

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For example, if the demand for a good such as cars increases, then this leads to an increase in the demand for iron ore.

OR

For example, if the demand for a good such as wheat increases, then this leads to an increase in the demand for labor.

Medicine

So, what about medicine? Saurabh Jha gives us some insight right here!

ESSAY: http://thehealthcareblog.com/blog/2018/08/30/is-medical-imaging-a-ricardian-derived-demand/

RELATED: big data

Your thoughts are appreciated.

MORE INVESTING FOR DOCTORS:

“Insurance & Risk Management Strategies for Doctors” https://tinyurl.com/ydx9kd93

“Fiduciary Financial Planning for Physicians” https://tinyurl.com/y7f5pnox

“Business of Medical Practice 2.0” https://tinyurl.com/yb3x6wr8

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PODCAST: Statistics in Health Care Finance

By Eric Bricker MD

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Specificity versus Sensitivity: https://medicalexecutivepost.com/2020/03/20/medical-laboratory-sensitivity-versus-specificity/

Correlation versus Causation: https://medicalexecutivepost.com/2021/02/05/correlation-is-not-causation/?preview_id=239347&preview_nonce=a2cdc51424&preview=true

False Positives and Negatives: https://medicalexecutivepost.com/2019/09/14/what-are-false-positive-and-false-negative-tests/

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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™

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PODCAST: Hospital Finance 101 [Full Service Healthcare]

By Steve Febus

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Hospital Finance 101: Understanding the Cost of Full-Service Healthcare in Pullman, WA Program by: Steve Febus, Pullman Regional Hospital Chief Financial Officer.

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PODCAST: https://www.youtube.com/watch?v=N-SumPdb2PI

RELATED: https://www.youtube.com/watch?v=3vNThT8RJiQ

BUSINESS MEDICINE: https://www.amazon.com/Business-Medical-Practice-Transformational-Doctors/dp/0826105750/ref=sr_1_9?ie=UTF8&qid=1448163039&sr=8-9&keywords=david+marcinko

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CITE: https://www.r2library.com/Resource/Title/0826102549

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PODCAST: AMA to Teach Medical Students Health Economics?

AMA TO TEACH MEDICAL STUDENTS ABOUT HEALTH ECONOMICS?

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Courtesy: www.CertifiedMedicalPlanner.org

DICTIONARY: https://medicalexecutivepost.com/2009/06/08/dictionary-of-health-economics-and-finance/

Did you know that the American Medical Association is calling on medical schools and residency programs to include specific information about healthcare economics and financing in their curricula.

But, is health economics heterodoxic, or not? And; what about demand-derived economics in medicine?

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economic freedom

LINKS

ESSAY: https://medicalexecutivepost.com/2019/08/31/is-health-economics-heterodoxic-or-not/

ESSAY: https://www.modernhealthcare.com/education/ama-adopts-new-policy-training-physicians-healthcare-economics

MORE: https://medicalexecutivepost.com/2019/11/10/ricardian-derived-demand-economics-in-medicine/

MORE: https://medicalexecutivepost.com/2014/08/27/financial-and-health-economics-benchmarking/

MORE: https://healthcarefinancials.files.wordpress.com/2019/01/big-data.pdf

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PODCAST: Private Equity in Healthcare Explained

By Eric Bricker MD

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Learn How Private Equity Firms Drive Higher Costs in Healthcare Through the Story of Envision

Private Equity is a Newer Name for Leveraged-Buyout Firms that were Popular in the 1980s.

These Companies Use Investor Money and Debt to Buy Companies and Often Use Additional Debt to Accelerate Growth.

The Private Equity Firm then ‘Flips’ or Sells the Company for a Profit.

The Private Equity Firm KKR’s Acquisition of the Physician Staffing Firm Envision is a Great Example of This Strategy.

However, Private Equity Firms May Be Contributing to the Rising Cost of Healthcare Through Their Activities.

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BUSINESS OF MEDICINE: https://www.amazon.com/Business-Medical-Practice-Transformational-Doctors/dp/0826105750/ref=sr_1_9?ie=UTF8&qid=1448163039&sr=8-9&keywords=david+marcinko

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